Brian Vanderhoff's North Fulton Real Estate Blog

Virginia R. Novrit, 67, of Hilton Head, S.C., Clarence L. Davis, 68, of Hilton Head, South Carolina, Gregory J. Wings Jr., 25, of Atlanta, Olympia D. Ammons, 31, of St. Louis, Mo., and Ronald D. Martin Jr., 37, of Lithonia were sentenced this week by United States District Judge Beverly B. Martin on charges of conspiracy, bank fraud, wire fraud, and money laundering related to a multi-million dollar mortgage fraud scheme.

According to United States Attorney David E. Nahmias and the information presented in court: From late 2004 through early 2006, Novrit, Davis, Wings, Ammons, and Martin participated in a mortgage fraud scheme that involved millions of dollars in fraudulently inflated mortgage loans being provided to unqualified straw borrowers. The straw borrowers were paid as much as $600,000 per property from fraudulently obtained loan proceeds through shell companies. Novrit and Davis together obtained mortgage loans totaling more than $4 million within a six month period to purchase eight properties. Wings obtained mortgage loans totaling over $1.2 million to purchase a single property by providing the lender with false qualifying information. He also recruited a number of other unqualified buyers into the scheme and obtained a share of the fraudulently obtained loan proceeds from those transactions for doing so.

Ammons was a loan originator for "Ace Mortgage Funding," a national mortgage brokerage firm. he brokered fraudulent mortgages totalling over $7 million. Martin was paid $75,000 to act as a straw buyer and submit a fraudulent loan application for one property.

Four other defendants have already been sentenced to prison terms in related cases, and five more defendants await sentencing.

"These defendants and their co-defendants are responsible for causing millions of dollars in losses to mortgage lenders by artificially inflating the sales prices on million dollar homes and submitting fraudulent loan applications to fund the purchases of these homes," said Nahmias. "In cooperation with federal, state, and local law enforcement agents, we will continue to vigorously investigate and prosecute mortgage fraud schemes in the metro Atlanta area."

Novrit was sentenced to 3 years, 5 months in prison to be followed by 4 years of supervised release, and ordered to pay $839,585 in restitution. She was convicted by a jury Nov. 26, 2007, after a three week trial.

Davis was sentenced to 4 years, 3 months in prison to be followed by 4 years of supervised release, and ordered to pay $839,585 in restitution. He was convicted by the same jury.

Wings was sentenced to 10 years, 2 months in prison to be followed by 4 years of supervised release, and ordered to pay $8,577,845 in restitution. He pleaded guilty Sept. 7, 2007.

Ammons was sentenced to 5 years, 3 months in prison to be followed by 4 years of supervised release, and ordered to pay $7,549,044 in restitution. She pleaded guilty Oct. 2, 2006.

Martin was sentenced to 1 year, 1 day in prison to be followed by 3 years of supervised release, and ordered to pay $423,595 in restitution. he pleaded guilty May 16, 2007.

Labels: Mortgage, Mortgage Fraud, Prison

Bank of America said Friday it will buy Countrywide Financial for $4.1 billion in stock, a deal that rescues the country's biggest mortgage lender and expands the financial services empire of the nation's largest consumer bank.

The acquisition will make Charlotte-based Bank of America Corp. the nation's biggest mortgage lender and loan servicer.

Bank of America said it initially plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009.

The transaction represents a 7.5 percent discount to where Countrywide shares ended Thursday after they soared on news that a rescue plan was in the works. It also effectively leaves Bank of America with a big loss on its $2 billion August investment in Countrywide Financial Corp. during the height of the summer's global credit crisis.

An aggressive dealmaker who has already snapped up behemoths FleetBoston Financial and MBNA, Bank of America chief executive Ken Lewis this time isn't buying a financial winner. Delinquencies and loans in pending foreclosure are rising in Countrywide's loan portfolio, and Bank of America chief executive Ken Lewis said Friday "there are near-term challenges" in the nation's housing market.

But Countrywide's troubles have allowed Lewis to sweep in and add a major business line to his supermarket of financial products on the cheap.

"Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers," Lewis said in a statement.

It also places Lewis in the position of a market savior. By buying Countrywide, he's keeping the industry and regulators from the messy task of figuring out who would take on the responsibility of collecting payments for the 9 million U.S. home loans serviced by the Calabasas, Calif.-based lender. Lewis said Friday there was no government support for Countrywide's loan portfolio.

"There's still plenty of risk involved," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. "He's brave to do it. But I think that it's very likely down the road to be profitable, maybe not immediately, but long-term."

There was no immediate work on job cuts, but analysts said they expect some among the ranks of Countrywide's 15,000 employees. Lewis said he would like Countrywide chairman and chief executive Angelo R. Mozilo to stay with the combined companies until the deal is done.

"Angelo has told me that he will do anything that we want him to do," Lewis said. "I would guess that he'll want to go have some fun. I will talk with him next week about his personal desires. Many of the senior people will have big operating roles in this company."

Shareholders of Countrywide will receive 0.1822 of a share of Bank of America stock in exchange for each share of Countrywide. The deal is expected to close in the third quarter and to be neutral to Bank of America earnings per share in 2008 and lift earnings per share in 2009, excluding buyout and restructuring costs.

Bank of America expects $670 million in after-tax cost savings in the transaction, or 11 percent of the expense base of the two companies' mortgage operations.

The agreement has been approved by both companies' boards and is subject to regulatory and Countrywide's shareholders approval.

Shares in Countrywide hit record lows in recent days on persistent rumors that a bankruptcy was imminent, a condition brought on by the widespread spike in mortgage defaults and foreclosures, especially in subprime loans -- those made to borrowers with weak credit.

Countrywide shares plummeted 11 percent, or 85 cents, to $6.90 in premarket trading after soaring $2.63, or 51.4 percent, to close at $7.75 Thursday on reports of a possible deal. Bank of America shares rose 42 cents to $39.72.

Countrywide shares have fallen 57 percent since Bank of America made its $2 billion deal in August at $18 per share. That purchase of preferred stock was convertible into a common shares of Countrywide at $18 per share, for roughly a 16 percent stake in the company.

Along with the $2 billion investment from Bank of America, Countrywide was forced to draw on an $11.5 billion line of credit to steady itself in August. It also tightened its credit guidelines and stopped selling some types of adjustable rate loans. But analysts said it wasn't enough, with one noting this week that Countrywide needed an infusion of $4 billion in capital within the next two weeks to save itself.

Lewis' bank holds $1.5 trillion in assets and is the nation's largest bank by market capitalization

"Their balance sheet can take a shock much better than Countrywide," said CreditSights senior analyst David Hendler. "When you take the shocks at Countrywide, they have a big, busting consequence that's negative."

While Lewis downplayed the prospect of a major deal last month, it fits with an established pattern of building Bank of America through acquisition. In the past few years, Lewis has expanded the bank's retail operation with multibillion purchases of FleetBoston Financial Corp., bolted on a credit card business by adding MBNA Corp., and grabbed a wealth-management business in U.S. Trust Co.

The result of all the dealmaking is a widely diversified financial services company that does business with nearly one out of every two American households.

In the past year, Bank of America has boosted its market share of prime mortgages, or those offered to borrowers with a solid credit history, and was the top retail mortgage originator in the U.S. during the first nine months of 2007.

"We are aware of the issues within the housing and mortgage industries," Lewis said. "The transaction reflects those challenges. Mortgages will continue to be an important relationship product, and we now will have an opportunity to better serve our customers and to enhance future profitability."

In Countrywide, Lewis gets the "best, total mortgage-banking company in the U.S. by far," Hendler said. Countrywide's sophisticated back office is a valuable asset that makes Bank of America a much bigger competitor with Wells Fargo & Co., Washington Mutual Inc. and others, he said. In 2007, Countrywide had $408 billion in mortgage originations and has a servicing portfolio of about $1.5 trillion with 9 million loans.

"The technology platform, the people who run it, the hedging, the facilities, the mortgage servicing rights, the origination platform, you know, they are all state of the art," Hendler said.

While there are some regulator hurdles to close the deal, they are hardly insurmountable. The buyout would require approval from the Federal Reserve, and possibly other agencies, but analysts believe regulators are more concerned about a Countrywide collapse than industry consolidation.

A Countrywide failure would be a huge blow to government-sponsored mortgage finance companies Fannie Mae and Freddie Mac, which are major buyers of Countrywide's loans.

Federal law also bars banks from acquisitions that would increase market share above 10 percent of U.S. deposits, a limit that Bank of America is nearing. Bank of America chief financial officer Joe Price said because Countrywide Bank us a federally regulated thrift, it "doesn't play into the deposit cap."

In addition, banking industry experts say Bank of America could easily lower the total amount of money held in deposits by decreasing interest rates and shedding deposits.

Labels: Bank Of America, BOA, Countrywide, Mortgage, Mortgage Rates

The collapse of the subprime mortgage market and ensuing credit crisis have claimed their latest casualty: the longest serving chief executive at any of the big Wall Street investment banks.

Bear Stearns Cos. Chief Executive James "Jimmy" Cayne said Tuesday that he's stepping down, not long after Merrill Lynch & Co. CEO Stan O'Neal and Citigroup Inc.'s Chuck Prince were ousted.

Cayne, 73, led Bear Stearns to its only quarterly loss since being founded in 1923 as the collapse of the subprime mortgage market has forced global banks to write down $105 billion worth of investments.

He will serve as non-executive chairman of the New York-based company and will be succeeded as CEO by President Alan Schwartz, effective immediately.

"We have been through some challenging times in the past few months, but I am confident the difficulties are temporary," Cayne said in a memo to staff. "I am equally confident that Alan will lead Bear Stearns to new levels of success and prestige."

Cayne added that his new role as non-executive chairman will be as an "advisory capacity" to Schwartz, and he is no longer an employee of Bear Stearns. The memo did not state when Cayne might give up the chairman position.

Bear Stearns' lead independent director, Vincent Tese, said it was Cayne's decision to step down. "We are very pleased that he has agreed to stay actively involved in the business as chairman of the board," Tese said in a written statement.

A Bear Stearns spokesman declined to comment.

Cayne, who became CEO in 1993, had been under pressure since the summer when two hedge funds managed by Bear Stearns collapsed. Since then, he has been the target of criticism for playing golf and bridge while the company's key fixed-income business suffered heavy losses.

Bear Stearns shares have lost more than half their value in the past year, more than any other Wall Street investment bank. The stock fell $5.08, or 6.7 percent, to $71.17 Tuesday.

Analysts believe the change in leadership is a first step in Bear Stearns becoming a more diversified company.

"He was the architect of what now appears to have been a failed business strategy," said Punk Ziegel & Co. analyst Richard X. Bove. "Under his tutelage, the firm, focused its efforts too heavily on the mortgage and credit derivatives markets."

Schwartz said Bear Stearns has been attempting to expand the investment house into more lucrative areas, though admitted there are still challenges ahead as he takes over the reigns this year.

"Although the operating environment has been difficult, we are off to a good start in 2008," he said in a written statement. "We remain excited about our core equity, banking and fixed income businesses, our international expansion initiatives, and the further development of our energy and wealth management platforms."

With growing calls for his ouster, Cayne did take steps to maintain control of the company he joined in 1969. He ousted his co-president, Warren Spector, after the two hedge funds collapsed and later forced out the manager of the two hedge funds amid probes by the Securities and Exchange Commission and U.S. attorney's office.

In October, Cayne organized a $1 billion investment by China's government-controlled Citic Securities Co. for a 6 percent stake. He alone owns about 4.9 percent of Bear Stearns shares, making him the second-largest individual investor after billionaire Joseph Lewis, according to regulatory filings.

Cayne also said last month that he and other top leaders gave up their bonuses for 2007 after Bear Stearns took a $1.9 billion writedown and posted an $859 million loss in the fourth quarter. Rivals Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc. all were able to offset fixed-income losses to post a profit during the quarter.

Both Cayne and Schwartz rose through the ranks of Bear Stearns during the past three decades, both considered up-and-coming leaders by longtime chairman and CEO Alan "Ace" Greenberg.

Cayne was hired by Greenberg as a stock broker when the two met during a bridge tournament in 1969. He went on to become president in 1985 and then took over for Greenberg as CEO eight years later. He became chairman in 2001.

Meanwhile, Schwartz caught the attention of Greenberg after starting off at Bear Stearns' Dallas office in 1976 as an institutional stock salesman. He was a star pitcher for Duke University in the 1970s and was drafted by the Cincinnati Reds but never played an inning because of an elbow injury.

Schwartz was head of research and developed the firm's corporate finance business. As an investment banker in the 1990s, he was said to be a close adviser of top executives that included Walt Disney Co.'s Michael Eisner.

Labels: Bear Stearns, CEO, Jimmy Cayne, Mortgage, Mortgage Rates

LOS ANGELES -- Countrywide Financial Corp., the nation's largest mortgage lender, said Tuesday it will begin calling borrowers to offer refinancing or modifications on $16 billion in loans with interest rates set to adjust by the end of 2008.

But as defaults and foreclosures snowball, the mortgage industry is under increasing pressure to do even more to help financially strapped borrowers hang on to their homes.

"People are talking about it, saying it might be necessary, but there's not a lot of it going on," said Guy Cecala, publisher of Inside Mortgage Finance, an independent trade publication.

The Mortgage Bankers Association is currently surveying its members to determine how many mortgages have been modified in recent months.

Moody's Investors Service recently surveyed 16 mortgage servicers that accounted for 80 percent of the market for subprime loans made to borrowers with shaky credit histories.

It found that most of those companies had modified only about 1 percent of loans with interest rates that reset in the first half of this year.

The bankers association said the survey was flawed because it didn't include other ways that borrowers are being helped, including temporary reductions of monthly payments or spreading delinquent amounts over future payments.

"It is important to understand that the (loan) modification is only one means of helping a borrower who is behind on their payments," said Steve O'Connor, the association's senior vice president.

So far this year, Calabasas, Calif.-based Countrywide said it has completed about 20,000 loan modifications -- a figure that represents less than 5 percent of the more than 500,000 loans the lender reports were behind in payments as of last month.

The figure amounts to about 24 percent of the roughly 82,000 loans the company said were in foreclosure.

Countrywide said the statistics can be misleading.

"The number is not small when you sort down to the people who are seriously in trouble." said Steve Bailey, CEO of loan administration at Countrywide, which has 8.9 million loans valued at $1.45 trillion,

On Tuesday, the company said it would discuss possible loan changes with borrowers who are current on loans but face pending interest rate resets. The lender said it intends to refinance about $10 billion in loans and modify another $4 billion.

It also plans to contact holders of loans totaling some $2.2 billion who are late on their loans and struggling because of recent rate resets.

Countrywide said it has already helped more than 40,000 borrowers and would reach out to 82,000 more to provide some kind of relief.

Countrywide shares fell 63 cents, or 4.02 percent, to $15.05. The shares have traded in a 52-week range of $14.40 to $45.26.

Many lenders have only recently began ramping up their loss mitigation departments after years when the booming housing market let many borrowers who fell behind on mortgages sell their homes for more than the value of their mortgage.

Another problem has been investors balking at interest rate cuts that could eat into their profits.

Earlier this year, Seattle-based Washington Mutual Inc., with a mortgage servicing portfolio valued at $713.3 billion, said it would refinance up to $2 billion in subprime loans to discounted fixed-rate loans for borrowers who are current on payments.

Wells Fargo & Co., with a mortgage servicing portfolio of $1.41 trillion at the end of June, declined to say how many home loans it has modified.

The San Francisco-based bank reported that less than 4.5 percent of its loans were delinquent at the end of June, while 0.56 percent had entered foreclosure.

"We work hard to keep customers in their homes, whenever possible, when they experience financial difficulties," bank spokesman Jason Menke said in a prepared statement.

Charlotte, N.C.-based Bank of America Corp., the nation's second-largest bank, said it modified 3,200 home loans representing $240 million during the eight months ended Aug. 30 and had just 192 homes in foreclosure as of Sept. 30.

The bank declined to break out how many mortgages made up its loan servicing portfolio, valued at $377 billion at the end of September.

"We believe we're already doing an excellent job helping our borrowers avoid foreclosure," spokesman Terry H. Francisco said in a statement.

Despite industry efforts, relief remains out of reach for many borrowers such as Carlos Ortiz, who says he's on the verge of losing the four-bedroom home he bought for $580,000 in suburban Rancho Cucamonga, east of Los Angeles.

Like other buyers at the height of the housing boom, he got a loan that kept his monthly payments low for two years and counted on being able to refinance before the rate adjusted sharply higher.

When he didn't qualify for a new loan, he tried to get his mortgage servicer to restructure his existing one.

"I told them I cannot afford it, you have to help me to refinance or modify my loan," Ortiz said. "They don't want to work with me."

The mortgage industry will likely face growing pressure to alter loans in the coming months, as some 2 million adjustable-rate loans begin resetting to higher monthly payments.

Treasury Secretary Henry Paulson has called for Congress and mortgage lenders to move more quickly.

Meanwhile, Sheila Bair, chairman of the Federal Deposit Insurance Corp., suggested that mortgage service companies consider doing broad conversions of adjustable-rate loans to fixed-rate loans if the borrowers are current on their payments and living in the homes.

Kevin Stein, associate director of the San Francisco-based California Reinvestment Coalition advocacy group, said the best way for lenders to help distressed borrowers is to lower long-term interest rates before they adjust higher. Rate cuts for a year or two are little help, he said.

"That's akin to getting another bad loan that's going to adjust in a year and be unaffordable," he said.

The coalition noted the most common outcome for borrowers seeking to modify loans is either foreclosure or a short sale, meaning the home is sold for less than the amount owed on the mortgage. That often leaves the borrower facing an income tax hit.

Paul Leonard, director of the California office of the Center for Responsible Lending, acknowledged that some borrowers simply can't be helped.

"There are going to be some that should never have gotten a loan, and no matter what you do are probably not going to be able to afford homeownership," he said.

Still, he estimates that roughly 40 percent of subprime borrowers would qualify for a prime-rate refinance loan, and another 40 percent could make the monthly payments if their lender would adjust their loans to a lower rate.

Some people do manage to hold on to their homes.

Patsy Brinson, 52, was in danger of losing her home in Victorville, Calif., last year.

The registered nurse bought it two years ago for $218,000 but fell behind on payments because of problems with other debts.

Her loan servicer, American Servicing Co., tried various workarounds to get her current, including making bigger payments every month to catch up on what she owed.

That made it worse, pushing her monthly payment from around $2,000 to more than $2,700, she said.

In June, her loan servicer modified her terms from an adjustable rate to a 40-year, fixed at her original rate of 7.99 percent, she said.

Along the way, she had to pay around $4,000 in fees.

"I'm not happy with it, but I figure if I had waited two years and it had adjusted, it would have gone up higher," Brinson said.

Labels: Countrywide, Forclosures, Home, Loans, Mortgage

McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 6.40 percent with an average 0.4 point for the week ending October 11, 2007, up from last week when it averaged 6.37 percent. Last year at this time, the 30-year FRM averaged 6.37 percent.

The 15-year FRM this week averaged 6.06 percent with an average 0.5 point, up from last week when it averaged 6.03 percent. A year ago, the 15-year FRM averaged 6.06 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.12 percent this week, with an average 0.5 point, up slightly from last week when it averaged 6.11 percent. A year ago, the 5-year ARM averaged 6.10 percent.

One-year Treasury-indexed ARMs averaged 5.73 percent this week with an average 0.6 point, down from last week when it averaged 5.58 percent. At this time last year, the 1-year ARM averaged 5.56 percent.

"Mortgage rates edged up this week following the release of the September employment figures," said Frank Nothaft, Freddie Mac vice president and chief economist. "The economy added 110,000 new jobs last month while July and August were revised upwards by a total of 188,000 jobs, reflecting greater strength in the economy during that time than initially indicated."

"Meanwhile, following the release of the September 18th minutes of the Fed’s Open Market Committee (FOMC) meeting, financial markets reassessed the likelihood of another rate cut at the upcoming October 31st meeting. The market currently is looking for about a 30 percent chance of a 25 basis point rate cut rather than the 50 percent chance that they had previously expected."

Labels: First Time Home Buyers, Home Buyers, Loans, Mortgage, Real Estate