Justice Dept. Sues Santa Ana Mortgage Broker : Courts: The $2-million civil lawsuit alleges that Mortgage Depot and its president embezzled $190,000 from a Hawaiian savings bank.

The federal government has filed a $2-million lawsuit in federal court against a Santa Ana mortgage broker alleging that the company defrauded a Hawaiian savings bank.

The lawsuit is one of a relatively small number of such suits brought in the past few years by the Justice Department under a 1989 federal law that bailed out the savings and loan industry.

The U.S. attorney’s office in Los Angeles alleges that The Mortgage Depot Inc. and its president, Craig Ratcliffe, embezzled $190,000 from Honfed Bank of Honolulu. But because the Justice Department filed a civil lawsuit under the 1989 law, it doesn’t have to prove fraud “beyond a reasonable doubt,” as it would in a criminal case. Government lawyers need to prove only that they have “a preponderance of evidence”--the lesser standard used in civil cases--to get the $1 million each that they are demanding from the company and from Ratcliffe.

Ratcliffe’s lawyer said Monday that that’s a good sign for his client because it indicates that the government may lack evidence to prove fraud conclusively.

“The fact they filed a civil case as opposed to a criminal one speaks for itself,” said lawyer Gary Wykidal of Costa Mesa.

The lawyer said that Ratcliffe had already settled a civil case brought against him by Honfed and had paid back some of the money.

“Why the government sees the need to make life more miserable for Mr. Ratcliffe is beyond me,” Wykidal said.

Mortgage Depot--now defunct--was a medium-sized mortgage broker that made home loans to consumers using money from a subsidiary of Honfed Bank. Honfed was a profitable savings bank later acquired by Bank of America.

Honfed then sold the mortgages to investors in the secondary mortgage market. For their services, Mortgage Depot and Honfed took a cut of each mortgage.

But the U.S. attorney’s lawsuit alleges that Mortgage Depot swindled Honfed because it never bought mortgage insurance for 56 of the home loans it made in 1989 and 1990, even though it was given money to do so by Honfed. (Mortgage insurance, which usually costs between $3,000 and $5,000 for a house, ensures that mortgage payments will be made if the borrower loses his or her job or dies.)

Without insurance, the loans could not be sold on the secondary mortgage market, where mortgages are sold by their original lenders at a profit so that those lenders, in turn, can make more home loans to consumers.

After Honfed found out, it wound up spending another $200,000 to buy mortgage insurance--$190,000 for the coverage and another $10,000 in interest and penalties.

The government alleges that Mortgage Depot and Ratcliffe committed fraud because they told Honfed that they had bought mortgage insurance for the 56 loans and were reimbursed for having done so.

Ratcliffe’s lawyer, on the other hand, says a lot of the money was legitimately “eaten up in working capital” by Mortgage Depot.

Ratcliffe, the lawyer said, cooperated completely with the FBI as early as two years ago while agents investigated Mortgage Depot. Ratcliffe, a Santa Ana resident who his lawyer says is now unemployed, declined to be interviewed.

In one of the many provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA, that beefed up supervision of the thrift industry, Congress gave the Justice Department power to file civil suits demanding money penalties in savings and loan cases where U.S. attorneys suspected fraud. Because the savings and loan legislation is relatively new, not many such cases have been brought nationwide, said Pamela L. Johnston, an assistant U.S. attorney in charge of the Mortgage Depot case.

Although the government can also file criminal charges against people named in those civil suits, the policy of the Los Angeles U.S. attorney’s office is usually not to do so, Johnston said. There are several reasons why: Among them, Johnson conceded, is that the government’s evidence might be too weak for a criminal case. But the government might also not prosecute because the criminal courts are overcrowded with cases, she said, or because the defendant is elderly.

The Ratcliffe suit, filed in U.S. District Court in Los Angeles on Dec. 7, was announced Monday in a press release by the U.S. attorney’s office.