At first blush Anthony Seanez might seem like many of the new rich in the South.
Mr. Seanez bought a home in Stone Mountain a tony suburb 20 miles east of Atlanta in late 1999 with a $180,000 loan from Household Finance, then upgraded just a few months later by moving to a larger home with a $315,000 loan from Residential Mortgage Services. There was just one problem. Mr. Seanez was 10 years old. Whats worse, the first home was scooped up by Dondray Robinson, who was 14 at the time.
As it turns out, the two boys were pawns in a fraud scheme; Ryan Steven Pendergraft, a mortgage broker in Atlanta, has been convicted of stealing their Social Security numbers, fabricating employment and loan documents, and using fake borrowers to sign for the loans at closing.
This month he was sentenced to nine years in federal prison for obtaining 50 fraudulent loans in the Stone Mountain area totaling roughly $7.5 million.
Complex mortgage fraud cases such as Mr. Pendergrafts are becoming more common, from Atlanta to Los Angeles, industry observers and law enforcement officials say.
We have these problems all over the country, said Gale McKenzie, the assistant U.S. attorney who helped prosecute Mr. Pendergraft. Its very widespread. Were looking to alert the industry and get people to change their procedures to catch some of this.
In fact, observers say that many cases of mortgage fraud are never reported. Though a precise industrywide damage figure has not been calculated, some estimate that losses caused by mortgage fraud could reach as high as hundreds of billions a year. In the Atlanta area alone, $500 million of property a year is believed to be involved in fraudulent lending.
In response, the Mortgage Bankers Association is planning a series of seminars this spring to teach members how to thwart fraud. Bob OToole, senior staff vice president at the association, said the seminars are being targeted to South Florida, Southern California, Texas, and Chicago.
In addition, to address the states growing problem, the Georgia Mortgage Bankers Association met on Friday to form a task force on mortgage fraud.
Julia Hiler-Barrette, former president of the Georgia MBA, said mortgage fraud has been rising in the last two years.
One of the most difficult aspects of stopping the crime is in prosecuting the cases, she said. Though she said she applauds Ms. McKenzie and the Federal Bureau of Investigation for apprehending Mr. Pendergraft, Ms. Hiler-Barrette said more prosecutions are needed.
We want to figure out how we as an industry can work hand in hand with the FBI, with the state agencies, with the local authorities, and see a lot more prosecutions take place, she said. Lenders need to make themselves more aware of how to catch this fraud, but we also need regulatory agencies to enforce punishment on these people.
Jim Croft, president of the Mortgage Asset Research Institute, said mortgage fraud rises when originations drop because loan officers and processors are more focused on building volume than finding fraud warning signs.
There is a natural tendency to push through loans that they might not in other times, he said. Its easier because its for a good cause: They are helping Joe and Jane Sixpack get into a home.
The institute maintains a searchable database that lenders can use to check out brokers and borrowers. Mr. Croft said a lenders best defense is a reputation for being tough on mortgage fraud. You dont shoplift at a store where theyve got a security guard at every door, he said.
Yet Mr. Pendergraft masterminded an intricate scheme in which he recruited bank managers, loan processors, and unqualified buyers who in many cases used false or stolen identification that would not be flagged from prior crimes to obtain mortgage loans on residential properties at inflated prices. The 34-year-old broker would then sell the homes at a lower price, pocket the money, and let the fraudulent mortgages default.
Lenders have lost nearly $2 million in his schemes, but there are many other victims. Mortgage insurers, title companies, and even the communities where the fraud takes place suffer through increased property taxes and crime.
Its like a cancer, said a homeowner in Atlanta who requested anonymity. Not only the lenders, but the people at ground zero suffer. There needs to be an industrywide effort to try to figure out what they can do to stop this.