Norlarco Scandal Tags Big Lenders

FORT MYERS, Fla. – More big name home lenders are being targeted in a new suit brought last week by borrowers in a failed land speculation scheme that already has caused the failure of three credit unions. The new suit, filed in U.S. District Court for the Middle District of Florida, alleges a Pennsylvania couple was able to borrow $1.3 million to buy six new homes with a down payment of just $9,000. In their suit, James and Marianna Cliggett, of Warrington, Pa., say the scheme was facilitated by home loans provided by Countrywide Bank, a unit of Countrywide Financial, Aurora Loan Services, the residential Alt-A lender owned by Lehman Brothers, and Homecomings Financial LLC, a unit of GMAC, as well as Norlarco CU. The new suit claims the national lenders participated in a massive fraud to induce middle-income investors to finance construction of pre-leased homes by requiring very small down payments, guaranteeing 14% annual returns and offering to buy back the loans. Earlier suits filed in the case name Norlarco and two other failed credit unions, Huron River Area Community FCU and New Horizons Community FCU, as well as Bank of America, IndyMac, First Florida Bank and Ocwan Financial, among the participants in the financing. The three credit unions are believed to have made as much as $500 million worth of loans to the projects and many of the loans have been defaulted on. Dozens of credit unions also are exposed to the projects through participations sold by the three credit unions in loan pools derived from the loans.