Home loan auditor is hot on the trail of mortgage fraud

The gig: President of Investors Mortgage Asset Recovery Co. The Santa Ana firm audits home loans that have gone bad, looking for falsifications of the borrower's employment, income, debt load and other details. Clients typically are mortgage insurers that are on the hook for some or all of the losses on the loans — unless fraud is found.

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Quote: "Insurers have obligations to pay legitimate claims. They also have a duty to their shareholders to deny false claims."

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Knowledge base: A UCLA economics major and a Duke University law-school graduate, Simpson was a mortgage broker for nearly a decade before spending three years at a law firm working on large loan-fraud cases. "I bring a lawyer's judgment about standards of proof combined with a loan officer's eye for, 'Hey! I know what happened here.'"

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Personal: Simpson, 53, a sailor and surfer, lives in Dana Point with wife Janene Lovullo, a professional singer. They have six children.

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The entrepreneur: Simpson and a partner formed IMARC in 1999 to work for insurers, lenders and investors. Clients hired IMARC to dig up evidence and pursue damages from mortgage brokers or real estate agents liable for misrepresentations, then split any funds recovered. In the firm's first seven years, the typical settlement was $50,000; the largest recovery was $1 million.

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Frauds uncovered: In addition to the usual bogus jobs and overstated incomes, deceptions included borrowers who supposedly occupied homes but really were speculative investors. "Remember when grocery checkers used to talk about owning three or four condos in Palm Springs? How do you think they got them? Who helped them?"

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Boom and bust: American International Group bought out Simpson's partner in 2005, making IMARC part of AIG United Guaranty, a big loan insurer. By 2007, a year before its meltdown, AIG wanted out because the real estate bust had left little to recover. "It's a lousy business if the people you're going after don't have money," Simpson says. "The tone in their voice went from, 'So sue me,' which was just defiant, to: 'Go ahead. Pick my carcass like everybody else.' You could tell these guys were broke."

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Reinvention: Simpson bought out AIG, retained a few key employees and shut down for three months to reinvent his firm. He reopened in late 2007 to audit claims before insurers pay up. Using software designed in-house to streamline audits and hiring recent college graduates, he lowered the typical audit cost to less than $1,000. With sales heading north of $12 million this year, he moved the firm from Irvine to larger quarters in Santa Ana. The staff numbers 125 people, up from 85 in January.

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Tricks of the trade: Hire people who can write. "Our reports have to be boardroom-ready. If I'm about to tell a lender not to pay $100,000, the report better not be misspelled." Also, reward employees frequently: When the staff meets its goals, Simpson makes Fridays beach casual with free food.

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What's ahead: "The need for audits is going to go nowhere but up." Simpson says mortgage-bond investors burned by reliance on credit-rating firms will hire him to examine pools of loans once the market for privately issued mortgage securities revives. The federal government is also a potential client. IMARC has opened a Washington office to seek business from government-backed entities that buy, guarantee or insure home loans. The company is in the running for a four-year, $32-million auditing contract with the Federal Housing Administration.

scott.reckard@latimes.com

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