Lend America Mortgage Fraud, 20 Years in the Making?

By: AUSTIN KILGORE
October 26, 2009 6:00 PM CST

The civil lawsuit filed against Lend America parent company Ideal Mortgage Bankers takes aim at 40 Federal Housing Administration (FHA)-backed mortgages the Department of Housing and Urban Development (HUD) and the Justice Department claim were fraudulently approved by the New York-based lender.

But HousingWire’s review of the 155-page suit reveals allegations of a pattern of mortgage fraud that’s spanned more than 20 years across a number of mortgage firms.

The mastermind behind the fraud, HUD and the Justice Dept. claim, is Mike Ashley. Ashley is perhaps best known as a team owner and championship-winning racecar driver in the National Hot Rod Association (NHRA). According to the race team’s Web site, Lend America provides financial support to the racing business through a sponsorship agreement.

The DOJ claims Ashley fostered an environment that encouraged Lend America sales staff to originate FHA loans, even when borrowers were not eligible. In his meetings with sales staff, the suit claims, Ashley told them there were “no minimum credit score requirements” for FHA loans and that it was okay if a borrower made late payments on previous mortgages.

Sales staff could make 10 times the commission on FHA loans than on standard mortgages and almost four times the commission than a subprime mortgage. The suit claims Ashley set a sales goal of one loan origination per week and told loan officers “loans should not be closed in two weeks or a month, but in eight hours.”

In addition, Ashley told sales staff those who did not originate large numbers of FHA-insured mortgages would be terminated from employment at Lend America and that he would fire the lower producing members of his sales staff.

The suit further claims Ashley’s employment agreement required he be paid equivalent to one-half of a percentage point of the principal of every mortgage Lend America originated. Lend America originated nearly $1.1bn in loans in the financial year ending September 30, 2008. Accordingly, Ashley was entitled to nearly $5.4m in compensation during the year. In the suit, Justice claims this arrangement is a violation of HUD regulations.

The sales environment at Lend America resulted in the origination of at least 40 FHA loans that included various fraudulent documentation, the suit claims. The fraudulent documents range from verification of income and employment documents with incorrect information, to in one case, a hand written note, represented to FHA to be from a borrower’s parents indicating the parents would be moving in with the borrower and contributing to the mortgage payment, when in fact, the borrower told Lend America that arrangement would not happen.

The suit claims Lend America also created a slush fund of cash to fund delinquent mortgages for borrowers to conceal their inability to keep up with payments during the first two years of the loan, the period of time that HUD monitors its Direct Endorsers’ delinquency and default rates.

According to the Justice Department lawsuit, Ashley’s worked in a number of positions at mortgage firms, and by his own admission, committed his first act of mortgage fraud in 1989.

According to legal documents filed in the US District Court for the Eastern District of New York against Ideal Mortgage and Ashley, in 1984, Ashley began working for Liberty Mortgage Banking, which was owned by his father, Kenneth Ashley. After working six to eight months at Liberty Mortgage, the younger Ashley left Liberty Mortgage to work for Chase Capital, doing business as Shares Capital Company, a mortgage brokerage set up by his father and others. While Ashley owned a portion of Shares Capital, his father controlled it, Justice said.

As president of Shares Capital, Ashley primarily brokered government-backed mortgages to Liberty Mortgage. Ashley “basically falsif[ied] documentation on mortgages” so that they would meet guidelines for the secondary market, Fannie Mae (FNM: 1.02 -0.97%), Freddie Mac (FRE: 1.14 -1.72%) and other secondary market investors, he would later admit, primarily by fraudulently increasing non-qualifying borrower’s income with false verification of income statements.

In 1991, Liberty and Ashley surrendered their New York mortgage licenses and Liberty gave up its status as a HUD-approved lender. In 1993, Ashley plead guilty to three counts of conspiracy to commit wire fraud in connection with multiple instances of mortgage fraud. In 1996, he was sentenced to five years probation, including two months home confinement and was ordered to pay restitution to Freddie Mac. In 1994, Liberty was found guilty of two counts of wire fraud in a jury trial and in the same year, was sentenced to a $1m fine.

Around 1991, Ashley began work at another firm, Consumer Home Mortgage. After his conviction, Consumer Home Mortgage terminated Ashley’s employment. He then filed a lawsuit against the New York State Banking Department and in a settlement of that suit, paid $30,000 to the Freddie Mac Fraud Unit and $6,300 to two complainants, as well as agreed to not work in the mortgage industry until August 1997. After that time he could return, but until January 1999, he could not hold a managerial or processing position, nor be a principal of a mortgage firm until January 2000. He also appealed his suspension and disbarment as a participant, principal or contractor with HUD, which was later reduced to a ban expiring in May 1998.

In light of the ban, the Justice Department says Ashley formed a marketing firm, Diversified Marketing, and continued to perform marketing for Consumer Home Mortgage’s in a “consultant” capacity, including “training for loan officers and real estate offices including the development of seminars and marketing plans.”

The DOJ claims Ashley rejoined Consumer Home Mortgage in 1997, serving in a variety of roles including sales manager, vice president of marketing, president and chief financial officer.

Despite his background and history of fraudulent behavior, and his temporary industry ban, Ashley continued to find work in the mortgage world. According to the lawsuit, from 1996 to 2001, Ashley increased loan volume 525% from $80m in loans to $500m loans during his second stint at Consumer Home Mortgage.

Ashley’s next career move was to US Mortgage, the company that began the Lend America business unit. The suit claims Ashley brought approximately 40 to 50 of Consumer’s employees with him to US Mortgage to start up the Lend America lending unit.

Consumer Home Mortgage’s president, Robert Standfast, said in an DOJ interview that after Ashley left Consumer, business plummeted. US Mortgage eventually acquired Consumer Home Mortgage.

Ashley worked as an executive vice president at US Mortgage, but left the company on November 9, 2002, as part of a “mutual termination.”

Less than a year later, HUD issued US Mortgage a notice of violation, the result of a quality assurance review that revealed found numerous instances of fraud, including falsified documents, improperly documented funds, improperly documented income, insufficient credit analysis, excessive ratios and insufficient compensating factors.

US Mortgage claimed the violations resulted from Ashley’s work with the Lend America unit, which had since been terminated.

After leaving US Mortgage, Ashley re-opened the Lend America brand, this time under current owner Ideal Mortgage. The Justice Department claims Lend America and Ashley fraudulently concealed Ashley’s employment and criminal history from state regulators. It is during this time that Justice and HUD make their latest claims against Ashley.

After the suit was filed last week, a judge denied the Justice Department’s request for a temporary restraining order to prevent Ideal Mortgage from originating FHA insured loans.

A Lend America spokesperson declined comment for this story.

Write to Austin Kilgore.