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Observe(d) & Report(ed)

By Tory Barringer

Each and every month, Mortgage Compliance Magazine brings our readers the Mortgage Compliance Dragnet, an example of justice brought to those who fall short in—or sometimes flagrantly disregard—adherence to regulatory standards.

While those crimes are serious, there is another list of names that everyone in the mortgage industry should know. This list is a rundown of some of those who have committed the most egregious offenses—all of whom have paid the price. Take heed of their example, and remember: If you commit the crime, be prepared to do the time.

Angelo Mozilo

The mortgage crisis that spun out a decade ago and nearly toppled the economy was so large in both scope and depth that it seems unfair to put one person’s face on the problem. Fair or not, though, it was Angelo Mozilo who took a large share of the heat for the subprime meltdown—and while he’s now legally in the clear (at least as far as the government is concerned), there are still quite a few people living on Main Street USA who might equate his name with the collapse.

Mozilo, perhaps best known for his tan and his strong personality, was the co-founder and CEO of Countrywide Financial, one of the biggest mortgage lenders the country has ever seen—responsible for financing an estimated 20 percent of mortgages in the United States in 2006 alone. Once the dominos of the subprime crisis started to fall, however, it became apparent that many of those mortgages were doomed from the start as their adjustable interest rates started to outpace borrowers’ ability to pay.

The hits kept coming after that: Across the country, lawsuits sprang up accusing Countrywide of keeping faulty records and even fabricating documents, resulting in erroneous foreclosures. Then there was a fine from the Federal Trade Commission in 2010 over allegations that Countrywide had been gouging distressed borrowers on prices for default-related services. Mozilo only made matters worse with his behavior, one time famously replying to an email from a homeowner seeking a loan modification (he had meant to forward it). In his reply, he called the plea “unbelievable” and “disgusting.”

Bank of America acquired Countrywide in 2008 for $4.1 billion, but the company’s legacy of alleged wrongdoing ended up costing much more over the years.

For his part, Mozilo maintains to this day that he and Countrywide did nothing wrong, telling The New York Times (through his attorney) that he “built Countrywide to help people purchase and stay in homes they could afford” and that he has always “been deeply troubled for the many borrowers who played by the rules and who still suffered during the financial crisis.”

Lee Farkas

It’s a toss-up over which is more baffling: the scale of fraud committed by Taylor, Bean & Whitaker (called “one of the longest, largest fraud schemes” but one assistant U.S. attorney) from 2002 to 2009, or the fact that the company and its owner, Lee Farkas, were able to pull it off for so long.

The story starts in 2002, when Fannie Mae cut ties with Taylor Bean over the sale of eight fraudulent mortgages, all of which were taken out by Farkas himself, who explained at the time that he was trying to cover the company’s overdraft after loans it had previously sold came back as repurchases. In his own defense, Farkas said that the mortgages were never supposed to be sold, but rather that they were to help him keep track of the overdraft.

While that was it for Fannie, Freddie Mac and Ginnie Mae continued to work with Taylor Bean—up until 2009, when it came out that the firm had continued to finance itself over the years through loans on hundreds of millions of dollars’ worth of property that didn’t actually exist. Ginnie and Freddie both suffered in the fallout, as did Deloitte & Touche and PricewaterhouseCoopers, who stood accused of failing to spot any wrongdoing in their auditing of the company.

Currently, Farkas is serving a 30-year prison sentence, with six other alleged participants also receiving punishment for their parts in the scheme. Whether he and his accomplices really learned their lesson is unknown, but the GSEs apparently aren’t there yet—in 2014, the Office of the Inspector General for the Federal Housing Finance Agency warned that Fannie, Freddie, and Ginnie all remained vulnerable to similar schemes.

James Tyson Jr.

This story has the makings of a Hollywood drama: celebrities, criminal networks, and an FBI investigation, complete with a code name.

In 2015, James Tyson Jr. went to prison for his alleged role as ringleader in a vast fraud conspiracy that saw 90 other defendants also facing charges. The sentencing was a victory for Operation Wax House, the name given to an FBI- and IRS-led investigation of a network of housing professionals—including mortgage brokers, home builders, attorneys, and more—who allegedly tried to trick potential investors (including professional athletes and celebrities) into purchasing luxury homes at an inflated price, with the schemers pocketing the difference between the home’s actual value and the loan taken out.

The network would also employ straw buyers, misrepresenting their life situations and ability to pay.

All in all, charges involved in the case include racketeering, running a criminal enterprise engaged in investment fraud, mortgage fraud, money laundering, and the distribution of illegal drugs.

Uri Gofman and Tony Viola

While the other names on this list stand alone, this particular fraud scheme had two masterminds.

In 2012, Cleveland-based Uri Gofman pleaded guilty to a mortgage fraud scam run through his company, Real Asset fund, which purchased hundreds of homes and artificially inflated their value by falsely documenting improvements made to them. Partnering with Tony Viola and other local real estate agents, he then allegedly used false documentation and fraudulent down payments to sell the homes to unqualified buyers, bilking lenders out of $44 million in loans, according to Cleveland’s Plain Dealer. He agreed to an 8 ½ year sentence, $1 million in restitution, and forfeiture of millions in property and money.

Viola, meanwhile, got 12 ½ years in jail. He operates a blog, FreeTonyViola.com, from which he continues to protest the charges and his sentence.

Ronnie Duke

Hard to imagine that a single man in Michigan could lead a nearly $100 million mortgage fraud conspiracy, but that’s exactly what happened in the mid-2000s.

Ronnie Duke, of Fenton, stood trial in 2013 for masterminding a scheme involving more than 450 fraudulent loans, more than 100 buyers, and nearly 180 residential properties in Detroit used as collateral for the loans, according to an announcement from the FBI’s Detroit Division at the time. The loans were estimated to range from roughly $350,000 to $600,000, with most going into default and foreclosure.

Duke allegedly ran the scheme with at least 15 co-conspirators, duping lenders from 2003-2007 with counterfeit purchase agreements, fake closing documents, and fictitious title companies. According to local media, the scheme ended when Duke himself went to the authorities. In addition to his 13-year sentence, Duke was ordered to pay $1 million in fines and a whopping $94 million in restitution.

Sadly, the story doesn’t end there. Duke, whose rap sheet also includes embezzlement, credit card fraud, and aggravated stalking, among other charges, went on the run instead of reporting to jail, going on to assault an assistant U.S. attorney in court following his recapture. Local news outlets report that he has since tried to escape at least once more.


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