27 Indicted in Mortgage Broker Sting Operations

Two FBI sting operations have netted indictments against 27 Southern California mortgage brokers accused of filing fraudulent loan applications for unqualified borrowers.

The investigations, code-named “Phony Funds” and “Broker Bust,” were initiated after complaints by banks that certain loan applications contained falsified information.

Authorities say that loan fraud is particularly prevalent in Southern California. About $500 million worth of phony mortgage applications are reported in the Los Angeles and Orange County region annually, several times more than any other area of the country, said David Nesbitt, the Los Angeles-based FBI supervisor in charge of financial institution fraud.

In July, loan fraud charges were filed against 21 people in Southern California for allegedly submitting false mortgage loan applications.

The recent stings targeted brokers who exhibited a pattern of submitting allegedly fraudulent documents, said Jean Kawahara, an assistant U.S. attorney in Santa Ana.

In most of the sting operations, a federal agent or witness posed as a customer who wanted a home loan but would not qualify, generally for financial reasons. The brokers allegedly helped put together loan applications containing inaccurate information to ensure that the loan would be approved and they would receive their commission--usually a percentage of the loan amount.

In many cases, Kawahara said, the brokers fabricated a source of income for the applicants. Some also supplied false tax returns, wage statements and verifications of employment.

The fake loan applications were then submitted to federally insured banks or agencies--a crime punishable by up to 30 years in prison and $1 million in fines.

Investigators said they didn’t know how many allegedly phony loan documents have been submitted by the brokers. But Richard E. Robinson, an assistant U.S. attorney in Los Angeles, said, “You could speak with the security officers at any major bank and they’d tell you that fraudulent loans are a problem.”

The investigations did not target borrowers who submitted falsified loan applications, Kawahara said.

“We don’t have the resources to prosecute every one of these cases,” she said. “One of the reasons for this sting operation was to target the professionals.”