The United States Files Civil Suit Against Long Island-Based Mortgage Lenders And “Counseling Fund”
Suit Alleges that Purported Charity Concealed Problem Lenders from Federal Housing Administration
Kelly T. Currie, Acting United States Attorney for the Eastern District of New York, David A. Montoya, Inspector General for the Department of Housing and Urban Development, and Frederick W. Gibson, Acting Inspector General for the Federal Deposit Insurance Corporation, announced the filing of a civil suit against the Rainy Day Foundation, Inc., a purported charitable “counseling fund,” together with its associated business entities and principals. The case was filed today in federal court in Central Islip and has been assigned to United States District Judge Joseph F. Bianco.
The complaint alleges that in at least 865 instances, the Rainy Day Foundation, together with five Eastern District of New York-based mortgage lenders and their principals, defrauded the United States and various banks insured by the Federal Deposit Insurance Corporation (“FDIC”), resulting in millions of dollars of mortgage losses, and requiring the United States to pay over $5,605,237 in false claims.
The defendant mortgage lenders participated in a federal program sponsored by the United States Department of Housing and Urban Development (“HUD”) that allowed the lenders to make mortgage loans that are insured by the Federal Housing Administration (“FHA”) in the event of default. The defendant mortgage lenders then sold those loans to federally-insured banks.
The complaint alleges that the mortgage lenders’ loans went into “early payment default” at more than twice the average default rate of other lenders, and that the lenders conspired with the Rainy Day Foundation to conceal their high default rates from HUD to avoid removal from HUD’s program. Specifically, the defendant mortgage lenders funneled their own money through the Rainy Day Foundation to make defaulting borrowers' monthly payments to the banks in order to conceal the defaults from HUD and the banks. When the loans had aged beyond the bank’s contractual right to force repurchase, or past the period that HUD monitored for early payment defaults, the lenders would stop making payments, leaving the borrowers without any further support.
When the Rainy Day Foundation attracted scrutiny from the United States, it quickly reorganized as a new business, Default Mitigation Services (“DMS”), to continue the Rainy Day Foundation’s money funneling activities under a new name. The United States alleges that defendants sought to further conceal their activities by claiming that the illicit payments were charitable “grants” made by a small American Indian tribe, located in Ely Nevada – the Ely Shoshone tribe. In reality, DMS was again funneling money from the defendant mortgage lenders, through Ely Shoshone tribal bank accounts, to the banks holding the loans.
The complaint seeks treble damages and penalties under the False Claims Act, 31 U.S.C. § 3729 et seq.; fines under the Financial Institutions Recovery, Reform and Enforcement Act ("FIRREA"), 12 U.S.C. § 1833a; and damages and indemnification under the common law theories of gross negligence, breach of fiduciary duty and unjust enrichment.
“Fraudulent practices, such as those alleged here, compromise the integrity of the FHA mortgage insurance program, and harm both the housing market and homeowners by contributing to loan defaults and housing foreclosures,” stated Acting United States Attorney Currie. “We will continue to vigorously use all means at our disposal to stop those who engage in such activity.”
HUD Inspector General Montoya stated, “When HUD's Office of the Inspector General uncovers fraud, we devote all of the available necessary investigatory resources to make certain that those individuals and entities are brought to justice and that the FHA Insurance Fund is reimbursed for the losses sustained. The Rainy Day Foundation and its multiple subsidiary companies solicited the business of FHA Direct Endorsement Lenders by promising to manipulate HUD databases to hide the existence of delinquent loans from the FHA. Such behavior will not be tolerated.”
FDIC Acting Inspector General Gibson said “The FDIC-OIG was pleased to support the Department of Justice and the Department of Housing and Urban Development in investigating this matter and in helping to ready this civil suit. Together we can broaden the government's efforts to pursue damages resulting from misconduct that has harmed the nation's financial institutions and its mortgage markets.”
United States Resolves Claims Against New York-Based Lender
In a related action, the United States filed a separate civil suit against, and simultaneous settlement with, the Intercontinental Capital Group, Inc. (“ICG”), a New York mortgage lender with offices in Bohemia, New York, its President, Dustin DiMisa, and its former Chief Executive Officer, Richard Steinberg. The complaint alleges that, on eleven occasions, ICG and its principals also transferred funds to the Rainy Day Foundation in order to make payments for borrowers on the lender’s behalf. The indirect payments artificially suppressed ICG’s comparative delinquency and default rates, as compiled and computed by the FHA. In the settlement, ICG, DiMisa and Steinberg admitted to making the payments and that the payments altered the company’s delinquency and default rates. ICG, DiMisa and Steinberg agreed to pay four hundred twenty-four thousand, eight hundred and fifty-nine dollars ($424,859) in settlement of the United States’ claims.
The United States’ cases are being litigated by Assistant United States Attorneys Edward Newman, John Vagelatos and Robert Schumacher.
RAINY DAY HOLDINGS, LLC, an Idaho-incorporated limited liability corporation, with its principal place of business in Baltimore, Maryland.
THE RAINY DAY FOUNDATION, INC., a Maryland-incorporated 501(c)(3) corporation, domiciled in the District of Columbia.
DEFAULT MITIGATION SERVICES, LLC, an Idaho-incorporated limited liability corporation, with its principal place of business in Boise, Idaho.
RICK DEL SONTRO, the Chief Executive Officer of the Rainy Day Foundation.
TODD LUDLOW, a Senior Vice-President of the Rainy Day Foundation and founder and managing partner of Default Mitigation Services.
ROBERT CLUTE, a Senior Vice-President of the Rainy Day Foundation and Managing Partner of Rainy Day Holdings.
CHRIS HAUVER, Lender Relations Representative and Administrator for the Rainy Day Foundation.
KELLY SCHWEDLAND, marketer for Default Mitigation Services.
MICHAEL SHRUM, Delinquency Reduction Services Manager for the Rainy Day Foundation.
CHRISTOPHER NAILLON, Account Executive at the Rainy Day Foundation and an employee of Default Mitigation Services.
FRANKLIN FIRST FINANCIAL, LTD., a New York-incorporated limited company and mortgage lender, with its principal place of business in Melville, New York.
FREDERICK ASSINI, the Chief Executive Officer of Franklin First Financial.
ANTONIO BAINES, Senior Vice-President of Operations for Franklin First Financial.
ANDREW DAURO, a Manager at Franklin First Financial.
CHRIS BERTMAN, Chief Operating Officer at Franklin First Financial.
MAX KANE, Chief Financial Officer of Mortgage Source, a now defunct mortgage lender, with its principal place of business in Garden City, New York.
JOANN MEDEIROS, Chief Operating Officer of Mortgage Source.
CONTINENTAL MORTGAGE BANKERS, INC. d/b/a FINANCIAL EQUITIES, a New York corporation and mortgage lender, with its principal place of business in Westbury, New York.
WALTER STASHIN, President of Continental Mortgage Bankers.
GREGG MARCUS, Managing Director of Somerset Investors Corp, d/b/a Somerset Mortgage Bankers, a now defunct mortgage lender located in Melville, New York.
INTERCONTINENTAL CAPITAL GROUP, INC., a New York corporation and mortgage lender with offices in Bohemia, New York.
DUSTIN DIMISA, President and Managing Director of Intercontinental Capital Group.
RICHARD STEINBERG, former Chief Executive Officer of Intercontinental Capital Group.