The mastermind behind a massive mortgage fraud more than eight years ago has popped up again at the center of an alleged scam that targeted minority churches and their parishioners, as well as other consumers.
In the latest case, a Michigan watchdog agency has stripped First Fidelity Mortgage Inc. of its lending license. Barton Greenberg, who was sent to prison in 1988 following his conviction in the Diamond Mortgage Corp. case, is said in documents filed by the agency to be behind the practices that led to the company's license suspension this month.
First Fidelity is currently involved in an administrative hearing to attempt to get its license restored.
The case, while restricted to Michigan, underscores the lack of a mechanism to prevent those convicted of mortgage fraud from reentering the industry, lenders said.
"In the securities industry, when you do something wrong, you're barred from it for life," said Randall Sage, chief executive of First Finance, a Bloomfield Hills, Mich., lender. "It's not like that in the mortgage industry."
First Fidelity, based in Southfield, Mich., is said by the state agency to have taken substantial fees for mortgage loans it never intended to fund, as well as failing to pay hundreds of loan officers for months of work.
"The abuses we saw at First Fidelity were egregious and pervasive," said Murray Brown, deputy commissioner at the Michigan Financial Institutions Bureau. "This is one of the most blatant cases I've seen where fees were taken and no loans were produced."
His agency, which investigated the case and is conducting the hearing, has also forwarded the details to the state attorney general.
Ironically, the watchdog agency was set up in response to the Diamond Mortgage case. The bureau has revoked a handful of licenses since its inception, Mr. Brown said.
Diamond bilked investors and consumers out of more than $44 million over several years by selling fake mortgage loans to investors and charging high origination fees for loans that were never made.
The board's present allegations concern events dating from within weeks of Mr. Greenberg's release from prison, at which time he became associated with First Fidelity. At the same time, 75% of the company's stock was sold by Ernest Csolkovits, the company's chief executive, to Joann Rovin- Greenberg, Mr. Greenberg's wife.
The company promised commercial loans to Detroit area churches, and solicited their parishioners for residential mortgage loans, according to official documents.
One church, the New Jerusalem Church in Lansing, paid $23,000 to "start the paperwork rolling" and has yet to secure a loan or receive any reimbursement, said the Rev. Charles Bicy.
"(Barton Greenberg) came across as a nice guy, but he was lying through his teeth," Mr. Bicy added. "Evidently prison time didn't do any good for him. He needs to be stopped."
Although Mr. Greenberg is not listed as a company executive on any First Fidelity documents, employees testified that he was obviously the decision maker at the company.
Michigan Bureau allegations that First Fidelity never intended to make the mortgage loans for which it collected up-front fees "couldn't be further from the truth," said Ronald Barron, Mr. Greenberg's lawyer. The practice of taking large up-front fees was an "experiment" that Mr. Greenberg conducted for a limited period of time, Mr. Barron said. The fees, he added, were to cover due-diligence costs, and have been refunded for the most part.
In addition to allegedly collecting fees from some Detroit-area churches for loans that were never delivered, First Fidelity set up an elaborate loan officer recruitment scheme, according to testimony from former employees.
The company promised employees "big money" if they would put up a down payment required to become a "city loan officer," testified Mary Ann Dortch, who was a First Fidelity loan officer. She was told that if she paid the company $55,000, she would become a city loan officer, eligible for commissions from any loans brought in from a certain ZIP code and closed within 30 days.
None of the loans Ms. Dortch brought in were ever closed within 30 days, she said, and loan officers were prevented from finding out the status of an application after it was submitted.
Loan officers were also provided with form letters encouraging local churchgoers to use First Fidelity for mortgage transactions. In fact, one loan officer testified that during the time of his employment 15 or 20 of the 500 loan officers working for the company were ministers.
Although the Mortgage Bankers Association of America does not currently have a registry of mortgage personnel previously implicated in fraud, the trade group's quality assurance committee is reportedly investigating the issue.