The Real Deal Miami

Federal agencies undertake largest mortgage fraud investigation since the financial crisis

Officials say an upstate New York investor cooked the books on revenue to get larger loans
August 16, 2018 02:30PM

The Rochester Village Apartments, north of Pittsburgh, Pennsylvania

Federal officials are in the middle of one of the largest investigations into mortgage fraud since the financial crisis.

Investigators are looking into alleged fraud committed by a New York commercial investment company Morgan Management LLC, now named Grand Atlas Property Management. They are looking into whether or not income statements on its properties were falsified in order to secure larger loans, according to the Wall Street Journal.

Some of those loans were wrapped up into mortgage-backed securities, and about $1.5 billion in securities issued by Fannie Mae and Freddie Mac are backed exclusively by Morgan mortgages.

The investigation already led to the May indictment of four executives on fraud-conspiracy charges. Prosecutors allege those executives, which include a son and nephew of company founder Robert C. Morgan, were involved in $170 million in loans.

The Federal Bureau of Investigation, the U.S. attorney in the Western District of New York and the Federal Housing Finance Agency’s Inspector General are involved in the investigation, according to the Journal.

On the ground, the alleged fraud involved dressing up apartments to look occupied. At an apartment complex in Pennsylvania, apartments were made to look lived-in by turning on radios and placing shoes on mats outside their doors when inspectors from lenders came around. The company secured a $45.8 million mortgage for that particular property. They also allegedly falsified rent rolls and inflated income from storage units the company owned.

Less than a decade after a massive financial crash fueled by risky mortgage-backed securities, investment in those financial instruments is picking up steam over the promise of strong returns. The Trump Administration is also looking to release Fannie Mae and Freddie Mac from government control. If the government-sponsored entities were taken private, they would lose their federal charter, allowing other companies to repackage mortgages as securities. 

[WSJ] – Dennis Lynch