Manhattan bank and 19 former employees charged in mortgage fraud conspiracy

TRD New York /
May.May 31, 2012 01:30 PM

[Updated at 2:32 p.m. with comment from Abacus] Abacus Federal Savings Bank and a group of its former employees were indicted in a mortgage fraud scheme that resulted in the sale of hundreds of millions of dollars’ worth of fraudulent loans to Fannie Mae, Manhattan District Attorney Cyrus Vance Jr. announced today.

The Manhattan-based bank and 19 former employees were charged with residential mortgage fraud, securities fraud, grand larceny, conspiracy and falsifying business records.

Eleven of the employees were indicted, while eight waived indictment and admitted guilt, the DA said.

The indictment came after a two-and-a-half year investigation. Between 2005 and 2010, Abacus engaged in “regular and systemic falsification of residential mortgage application documents,” according to the DA’s office. Abacus’ headquarters is located at 6 Bowery Street in Chinatown.

According to the statement, defendants falsified mortgage applications in order to earn commissions and servicing fees by securing loans for borrowers they knew to be unfit. Abacus then sold the allegedly fraudulently obtained loans to government-sponsored enterprise Fannie Mae, which repackaged them into mortgage-backed securities that it in turn sold to investors. The precipitous drop in value of mortgage-backed securities was a major factor in the 2008 financial crisis, according to published reports.

Abacus said in a statement to The Real Deal that it was “greatly disappointed,” to learn of the indictment. “We never imagined our bank would be the target of this investigation, since it is indisputable that the bank itself discovered, investigated and reported the results of its investigation to law enforcement authorities, [and] its regulator, and Fannie Mae. Senior executives at the bank took the immediate, decisive action that initiated this investigation, and there is no evidence that any senior executive at the bank engaged in illegal behavior.” Abacus also said that neither Fannie Mae nor the borrowers in question were harmed by Abacus’ actions.

“The lessons of the financial crisis are still being learned,” Vance said in the statement. “The public must have confidence that when a bank issues a loan that it later re-sells to Fannie Mae, and by extension the nation’s investors, it will engage in honest and ethical practices and follow the rules set by regulators.”

The DA alleges that Abacus earned millions from loans it forged documents for, in origination, purchasing and servicing fees. Abacus had an “ongoing agreement” for the sale of loans to Fannie Mae, the statement said.

Abacus has six branches in the tri-state area.

Fannie Mae Inspector General Steve Linick said his agency in the future will be committed to “ferreting out fraud throughout the housing system .” — Guelda Voien


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