Saturday, April 19, 2008

State Breaks up Alleged Sub-Prime Fraud Ring

By Marc Lifsher and Andrea Chang, Los Angeles Times Staff Writers

California authorities said today they cracked a mortgage fraud ring that allegedly victimized thousands of Californians, some of them elderly and some who lost their homes.

The San Bernardino County district attorney's office this morning arrested five people and were waiting for two more to surrender to face charges of conspiracy, grand theft and elder abuse as part of a crackdown on alleged sub-prime mortgage lending scams with the California Department of Justice.

A related lawsuit filed in Los Angeles County Superior Court accuses six companies of using predatory lending practices to trap homeowners in illegal and expensive loans."As the mortgage crisis worsens, a growing number of fly-by-night companies are employing utterly brazen tactics to push homeowners into illegal and unconscionable loans," Atty. Gen. Jerry Brown said. "The illegal sales practices of these companies . . . included psychological pressure, forgery and outright lies.

"The companies, which did business throughout Southern California, used bait-and-switch tactics to take advantage of thousands of consumers, costing many of them their homes, Brown said.The six -- Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions -- were operated by Eric Michael Pony, 25, of Tarzana and family members, the lawsuit said. The number of victims wasn't known, but Pony claimed to have arranged thousands of loans.

In a coordinated action, San Bernardino Dist. Atty. Michael A. Ramos announced that Pony, a former real estate salesman, was expected to turn himself in to authorities today.Pony gave up his state license in September 2007 after an investigation by regulators. Also expected to surrender was his sister, Paulette Pony, 23, of Tarzana, a notary public for Lifetime Financial.

The California secretary of state's office lifted her license in December for failing to disclose a prior forgery conviction. Five other Pony company employees were arrested and targeted with criminal charges.Ramos said his office, which had been investigating the operation for nine months, accelerated its action because several of the alleged victims were elderly.

One of the seven San Bernardino County residents harmed, Ramos said, was 75-year-old Luis Garcia, who agreed to a 50-year-loan with $1,000-a-month payments but instead was socked with payments of $2,254. Garcia later found that Lifetime Financial had falsified his monthly income and work history. He couldn't afford the payments and lost his house.

A statement issued by Brown accused Lifetime Financial, Nations Mortgage and Greenleaf Lending of promising borrowers unrealistically low payments of less than 6% a year and then having them sign contracts that carried higher interest rates. Lifetime Financial charged hidden loan fees of up to $20,000 per transaction, the statement said.

Brown said he was seeking penalties and restitution of more than $20 million and has already identified a number of bank accounts and properties for possible seizure.The combined criminal and civil action against the Pony family members and associates and their companies is believed to be the most ambitious by law enforcement since California's once-booming housing industry was hit last year by a crippling downturn that made it difficult for tens of thousands of borrowers to pay soaring sub-prime mortgages with adjustable interest rates.

The move, though limited, was welcome and would help "to rid the marketplace of the most egregious, illegal practices," said Paul Leonard, director of the Center for Responsible Lending, an Oakland consumer advocacy organization. "But, the illegal practices are only the tip of the iceberg. The vast proportion of the problems in the sub-prime market were caused by perfectly legal but systematic failures."The investigation of the Pony companies also involved the Los Angeles Department of Consumer Affairs, the California Department of Real Estate and the California Department of Motor

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