'Next wave' of mortgage fraud strikes

This time, Freeman says, the alleged frauds involve a sophisticated equity-stripping scheme that relied on forged documents -- including property records, college transcripts, pay stubs and even court records -- to qualify "straw buyers" for mortgage loans that required extensive documentation because they were guaranteed by the Federal Housing Administration (FHA).

The fraudsters even concocted a way to provide verbal employment verifications by at least seven non-existent companies, Freeman said at a news conference in the Hennepin County Government Center. They created a "phone tree" with a code that alerted them how to identify themselves whenever a lender called to verify a loan applicant's employment, he said, pointing to a large blow-up of the code.

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Brandon Johnson, a detective with the Minnesota Department of Commerce insurance fraud division, outlined the investigation in a 23-page complaint. It summarizes nine transactions that the defendants allegedly brokered through Franklin American Mortgage Corp. (FAMC). The defendants collected loan origination fees of $7,000 to $8,000 per transaction, and "kickbacks" on those transactions ranging from $63,000 to $157,000, for a total exceeding $840,000, the complaint says.

FAMC's internal review found that in 2009 and 2010, the defendants brokered about $10 million in FHA-insured mortgage loans from the firm on 65 properties. But FAMC wasn't the only lender, the complaint says. HUD estimates that the defendants brokered a total of about $23 million in loans, which were used to buy 136 properties in the Twin Cities area and outstate Minnesota.