39 Charged in Crackdown on Fraud in FHA-Backed Loans

In the start of a nationwide crackdown, federal authorities Wednesday announced criminal charges against 39 Southern California mortgage loan brokers, real estate professionals, escrow agents and others accused of obtaining more than $110 million worth of fraudulent FHA-insured loans.

The charges stem from a concentrated probe by teams of HUD auditors and FBI and IRS agents in Southern California, where the default rate on FHA-backed mortgages is 50% higher than the national average, suggesting a widespread pattern of fraud.

At a news conference, Susan Gaffney, inspector general of the Housing and Urban Development Department, said the scams described in the complaints reflect “just the tip of the iceberg,” and she acknowledged that the agency needs to do more to curb abuses.

HUD’s Federal Housing Administration insures the home mortgages of one of eight American families with modest or average incomes.

U.S. Atty. Alejandro N. Mayorkas said “this type of fraud takes money from parents in need, those who dream of providing a house for their children, and puts it in the pockets of people who have been licensed as professionals but who really are just criminals--and greedy ones at that.”

He said that on the $110 million in fraudulent loans, HUD lost at least $25 million.

The charges disclosed Wednesday involve four kinds of scams:

* Fraudulent loan originations, in which unqualified borrowers are provided with forged financial documents, including wage earning statements, by real estate agents or mortgage loan brokers so they can obtain a loan. Real estate professionals use this device to generate sales and commissions. Often, however, the buyers wind up in foreclosure, leaving HUD holding the bag.

* Equity skimming, in which sellers conspire with mortgage brokers, real estate agents, escrow officers and notaries to sell properties to “straw” buyers at inflated prices, typically $100,000 to $150,000 more than the real value. The “straw” buyer defaults on the loan, but the seller already has profited by the price inflation.

* Flipping, in which someone typically knowledgeable about the real estate business buys a rundown property, makes cosmetic repairs, gets a crooked appraiser to exaggerate its value and then sells it to an unsophisticated buyer for an inflated price. If the buyer obtains an FHA-insured loan, a likely scenario, HUD winds up the loser if the event of a default.

* Home improvement loan scams, in which mortgage loan brokers or real estate agents use the names of fictitious or unsuspecting borrowers to obtain home improvement loans on FHA-insured properties.

Gaffney, who has been critical of HUD’s past efforts to combat fraud, said this new effort, financed by a $27-million grant from Congress, will create an opportunity “to go after systemic fraud in this program and to go after it methodically and hard.”

She said that teaming HUD auditors with FBI and IRS investigators “is the kind of collaboration we’ve dreamed about.” About 150 agents and auditors have been assigned to the teams in the six regions.

In addition to the 39 defendants named Wednesday, federal prosecutors in Los Angeles filed charges last week against a HUD employee and a Covina real estate company owner to whom she allegedly sold HUD properties below their appraised values.

Karen L. Christiansen, 35, a single-family housing specialist at HUD’s Los Angeles office, was accused of taking bribes from Hadi Kailani, 36, owner of Kailani Real Estate.

In exchange for $80,300 in bribes, including a Ferrari, Christiansen sold Kailani about $2.1 million worth of HUD properties for about $700,000, prosecutors said.

HUD also unwittingly paid Kailani $48,750 in real estate broker commissions on those properties.

Christiansen and Kailani have agreed to plead guilty to bribery and income tax reporting violations, according to prosecutors.

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Charged With Fraud

Following are the names and business affiliations, if known, of the 39 defendants named in federal charges Wednesday involving fraudulent government-backed home loans. Those identified as mortgage brokers, loan officers or real estate agents:

* Lucy Aguile, 46, of Downey, Milestone Mortgage

* Bernard Allen, 41, of Los Angeles, First Suburban Mortgage

* Sergio Alvarez, 32, of Glendale

* German Barrios, 25, no address, a notary

* Cesar Borrego, 34, of Los Angeles, Citi Mortgage

* Elia Cardenas, 35, of Alhambra, SunAmerica

* Brandi Caskey, 27, of Walnut

* Donald Caskey, 35, of Walnut

* Hector Castro, 35, of Harbor City, Milestone Mortgage

* Alfonso Cervantes, 29, of Los Angeles, operator of A.C. Investments

* Maggie Cuevas, 50, of Rancho Cucamonga

* Kip Christopher Cyprus, 31, of Huntington Beach

* Joe Diestel, 52, of Newport Beach, Manhattan Mortgage

* Matthew Dunne, 30, of Covina, Citi Mortgage

* Jesse Gaxiola, 34, of Fontana, Magic Homes Realty

* Eddie Gonzalez, 32, of South Gate, Century 21

* Joey Gonzalez, 28, of Whittier, West Coast Investment Group

* Daniel Hernandez, 52, of Whittier, Sunstate Mortgage

* Lita Shennaii Hernandez, 24, of Downey, a notary

* Olivia Hurtado, 30, of Upland, Ideal Finance

* Joseph Iniguez, 46, no address, Trinity Mortgage

* Frederico Loakes, 47, no address, Re Mortgage

* Ana Lopez, 30, of Baldwin Park, Great American Realty

* Andy Martinez, 28, of Whittier, West Coast Investment Group

* John Charles Miller, 41, of Redondo Beach

* Raul Miranda, 30, of Whittier, West Coast Investment Group

* Ramon Moran, 50, of Walnut, Progressive Loan Funding

* Rene Moya, 47, of Huntington Beach, Rengar Mortgage

* Javier Munoz, 33, of Los Angeles, Century 21

* Andy Ocampo, 58, of Montebello

* Calvin Penson, 43, of Los Angeles, First Suburban Mortgage

* Ivar Pugliese, 35, of Baldwin Park, Great American Mortgage

* Justino Ramirez, 35, of Bell

* Xochitl Rivas, 22, of Los Angeles, a notary

* Elizabeth Salcedo, 36, of Rancho Cucamonga, Regency Realtors

* Elsa Saucedo, 25, of Huntington Beach

* Eliot Texeira, 43, of Brea, Pacific Coast Mortgage

* Francisco Vasquez, 48, of Bell

* Cheri Wilson, 32, of Mission Viejo