Owner of Mortgage Company Pleads Guilty to $64 Million Mortgage Fraud Scheme
Co-Developer and Underwriter Also Plead Guilty
A Miami-area real estate developer and owner of a mortgage company, his business partner and a senior mortgage underwriter each pleaded guilty to a mortgage fraud scheme involving federally insured mortgages that caused losses of $64 million to the Federal Housing Administration (FHA). Including these defendants, 25 individuals have pleaded guilty to offenses related to this scheme to date.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer for the Southern District of Florida and Special Agent in Charge Nadine Gurley of the U.S. Department of Housing and Urban Development Office of Inspector General (HUD-OIG) made the announcement.
Hector Hernandez, 57, of Miami; Aleida Fontao, 62, of Miami; and Olga Hernandez, 58, of Lake Mary, Florida, each pleaded guilty to conspiracy to commit wire fraud affecting a financial institution. Hector and Olga Hernandez both pleaded guilty late yesterday, while Fontao pleaded guilty on July 7, 2015. As part of his plea, Hector Hernandez also agreed to forfeit $8 million, which amounts to his profits from the scheme.
Hector Hernandez’s mortgage company, Great Country Mortgage Bankers, specialized in mortgage loans that were insured by the FHA, a division of HUD, as part of a program designed to make homeownership more accessible to first-time buyers and borrowers with lower income and imperfect credit history. To qualify for these federally-insured mortgages, potential borrowers must meet certain income and other financial requirements. Under the program, HUD relies on lenders like Great Country to review and approve only those borrowers who meet the employment, income and other financial requirements needed to qualify for an FHA mortgage.
According to admissions made in connection with the guilty pleas, although most of Great Country’s potential borrowers did not qualify for the FHA-insured loans, Hector Hernandez and his business partner, Aleida Fontao, directed Great Country employees, including underwriter Olga Hernandez, to falsify important documents in the potential borrowers’ loan applications to make them appear qualified. In particular, Hector Hernandez and Fontao admitted to pressuring their employees to approve and close loans using earnings statements and verification of employment forms that made it appear as if the borrowers had higher incomes and more favorable work histories than they actually did, and documents falsely improving or explaining borrowers’ credit histories. As an underwriter responsible for reviewing and approving loan applications, Olga Hernandez admitted that she provided her coworkers with false information and that she endorsed the applications knowing that the borrowers did not actually qualify for the loans.
After Great Country closed the fraudulent loans, the company sold the loans to financial institutions for profit. In connection with their guilty pleas, the defendants admitted that they offered kickbacks to the borrowers in the form of cash back after closing, which payments were not disclosed during the loan application process in order to hide the payments both from HUD and from the financial institutions that purchased the loans from Great Country.
The vast majority of the borrowers on these fraudulent loans failed to meet their monthly mortgage obligations and defaulted on their loans. When these loans went into foreclosure, HUD, which had insured the loans, was required to pay the outstanding loan balances to the financial institution investors, resulting in substantial losses to the FHA of at least $64 million.
This case was investigated by HUD-OIG’s Miami Field Office. This is being prosecuted by Senior Litigation Counsel David A. Bybee and Trial Attorneys Michael T. O’Neill and William E. Johnston of the Criminal Division’s Fraud Section.