Executive Accused of Mortgage-Securities Scheme – EVERYONE HAS BEEN PAID AT LEAST ONCE, 100 CENTS ON THE DOLLAR, PLUS FEES AND PROFITS. NOW THEY WANT YOUR HOUSE TOO. ARE YOU GOING TO LET THAT HAPPEN?

Executive Accused of Mortgage-Securities Scheme

WASHINGTON — A financial executive used little more than a pen to alter credit scores and reclassify mobile homes as single-family houses, inflating the value of thousands of mortgages that were repackaged and sold to investors, prosecutors allege.

Federal prosecutors in Miami on Thursday charged Steven Gordon, 49 years old, a former partner at Bayview Financial LP, with one count of wire fraud, in one of the first cases highlighting investigators’ efforts to move beyond low-level mortgage schemes and delve into suspected fraud in the mortgage-securities business involving bigger financial firms.

Mr. Gordon, a former director of residential acquisitions at Bayview, made more than $2.8 million in additional commissions by altering the value of 2,800 loans from 2001 to 2006, according to documents filed by prosecutors in U.S. District Court in Miami.

Bayview said in a securities filing that after it discovered the fraud, it bought out or substituted potentially fraudulent loans valued at $66 million. It said there were no investor losses.

Mr. Gordon plans to plead guilty to the wire-fraud count, according to his lawyer. Prosecutors said Mr. Gordon is expected to turn himself in to federal authorities Monday. Mr. Gordon no longer works at Bayview, but his lawyer said he continues to work in the mortgage industry.

“I am appalled at how easy it was for him to do this,” U.S. Attorney R. Alexander Acosta said. “You would think there would be more due diligence.”

The case comes as Justice Department and Federal Bureau of Investigation officials push to determine the role fraud may have played in the inflation and subsequent collapse of sophisticated mortgage-backed securities, which have deepened the turmoil facing Wall Street firms.

The case against Mr. Gordon offers a snapshot of the ease with which some mortgage-backed securities became tainted.

Federal investigators say Mr. Gordon reviewed portfolios of Bayview loans and plucked out certain mortgages that he wanted to make more valuable before securitization. On some, he simply used a pen to increase the credit scores of borrowers, making the loans appear less risky and more valuable to investors, according to investigators. On others, he changed internal codes used to classify mobile homes or vacant land and reclassified them as single-family homes, investigators said.

Marty Steinberg, the lawyer for Mr. Gordon, said the conduct was “aberrant behavior” for his client. “When it occurred, Steve admitted he made a mistake in judgment. He has made full restitution,” Mr. Steinberg said.

Bayview, of Coral Gables, Fla., is one of thousands of players in the mortgage-securitization business, buying portfolios of loans from banks and pooling those mortgages into “special-purpose entities” that it uses to issue securities sold to institutional and other investors.

Bayview officials said in a conference call with investors in 2006 that it repurchased or substituted new loans to replace mortgages on which data had been altered. Out of a total of $3.3 billion in securitized residential mortgages outstanding at the time, the data alteration affected 2% of the loans, according to a transcript filed with securities regulators.

It isn’t known which financial firms bought the securities backed by the altered loans. Brian Bomstein, Bayview general counsel, said that “no investor suffered a loss” from Mr. Gordon’s alleged scheme.

Securities and Exchange Commission investigators conducted an informal inquiry into Mr. Gordon’s conduct in 2006 and concluded it without taking any enforcement action, the firm said in a securities filing.

Write to Evan Perez at evan.perez@wsj.com

8 Responses

  1. http://www.bushnellcomplaint.blogspot.com/

    Please visit this blog. Important new information concerning a TRO granted in the State of California in reference to wrongful foreclosure by Fremont, Litton (Goldman Sachs)

  2. Attorney General Martha Coakley Reaches $10 Million Settlement with Subprime Lender Fremont Investment and Loan

    Thousands of homeowners protected from foreclosure

    http://www.mass.gov/?pageID=cagopressrelease&L=1&L0=Home&sid=Cago&b=pressrelease&f=2009_06_09_fremont_agreement&csid=Cago

  3. Fremont’s Cease & Desist is very relevant to those fighting to keep their homes for several reasons:

    1. Someone on this site could have closed with Fremont just like we did. The Cease and Desist required Fremont to restructure its loans. Had we known, we would have demanded they do so but instead they transferred our loan to a new servicer – Wilshire to avoid doing this. (I WISH we knew about this in negotiating with the Fremont and then Wilshire!) Everyone on this site should check to see if the FDIC stepped in and demanded a Cease & Desist on their bank!

    2. It’s proof these banks engaged in illegal predatory lending techniques that are SO BAD the FDIC imposed a Cease & Desist on its lending capabilities. So many people on this site have commented they have attempted to get an attorney who “gets it.” Well here it is. It’s not just whining homeowners complaining about their fraudulent loans. It’s a federal agency who has stepped in to stop this and it explains why and it’s way beyond closing violations.

    3. In drafting Pro Se pleadings and/or consulting with an attorney, the FDIC provides critical legal terminology that summarizes exactly why a bank like Fremont Investment & Loan should not be able to lend including its specific violations. This Cease & Desist is applicable (IMO) to ALL subprime banks. It’s a rare attempt by the government to regulate these banks and should be utilized by anyone attempting to keep their home.

    4. The $10 settlement for Massachusetts homeowners who fell victim to Fremont is not only inspirational for those attempting to fight the banks to keep their homes, it’s also proof it can be done. Massachusett’s Attorney General Martha Coakley used this same Cease & Desist as a basis for demanding Fremont pay homeowners. People on this site can use these too. In fact, it should be put into a “pleading bank” to use as a template for suing the banks. If it can work in Massachusetts, it can work anywhere in America.

    I predict a lot more of this will be happenning throughout the country.

  4. foreclosuresurvivor, on November 12th, 2009 at 1:35 pm Said:

    http://livinglies.wordpress.com/2008/12/12/executive-accused-of-mortgage-securities-scheme-everyone-has-been-paid-at-least-once-100-cents-on-the-dollar-plus-fees-and-profits-now-they-want-your-house-too-are-you-going-to-let-that-happen/#comment-28684

    ————————————————————–

    Re: Cease and Desist Orders

    FDIC links:

    FDIC Enforcement Decisions and Orders
    http://www.fdic.gov/bank/individual/enforcement/

    Fremont Order:
    http://www.fdic.gov/bank/individual/enforcement/2007-03-00.pdf

    I beg a question?
    foreclosuresurvivor?

    Does this have any DIRECT strategic relevances to our common interest here in litigating to SAVE OUR HOMES?

    If so, what are they? I am trying to learn everything I can from
    all approaches of the “Cohort” here at livinglies.

    Thank you!

  5. livinglies – Thanks for your analysis. In researching, I found out the FDIC issued a “Cease & Desist” on Fremont Investment & Loan based on its predatory lending tactics and other disturbing activities back in March of 2007. Is there is central location of these Cease & Desists?
    You are SO right, we are NOT going to get critical information from the “free press.” It only provides silly entertainment to distract Americans from the fact that our homes have been robbed.

  6. John Bird and John Fortune explain the financial market and the mortgage crisis.

  7. There are many people who do not want to know the truth. What can be said? Many people who were on the Titanic didn’t think there was a problem until the water went over the bow.

  8. Goldman sued for selling bad RMBS to pesnions funds….mentions Countrywide underwriting standards

    http://www.csgrr.com/cases/gsmortgage/complaint.pdf

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