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Subprime Brokers Involved In Loan Modification Scam

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July 21^st, 2009

 

On the 9^th floor of an office building located on Wilshire Boulevard, Los Angeles, Jack Sousanna once triumphed as a successful mortgage broker during the real estate bubble and accumulated a vast fortune.

 

His specialty was exotic mortgages or otherwise known today as the notorious sub-prime mortgages that have led the United States into a foreclosure crisis coupled with the fall of banks in Wall Street, global financial markets and the eventual credit crunch.

 

In the later part of 2008, Mr. Sousanna’s clients who signed up for these exotic loans were in trouble.

 

They were generating a new kind of business for him. His new found business was renamed and called ‘Federal Loan Modification Law Center’ and allowed his team to operate out of the same office where they had brokered these sub-prime mortgages during the housing boom. Mr. Sousanna and his team charge fees of $3,495 with much of it payable upfront. They promised clients that they will negotiate with lenders in order to lower payments on the delinquent loans that he and his team had brokered all over southern California. He said, he changed the script and the product they were selling.

 

FedMod which the company is known by, is a joint-venture with Mr. Sousanna’s partners who were also formerly in the explosive business of high-risk lending. Mr. Sousanna’s managing partner, Nabile Anz or better known as Bill was the co-owner of Mortgage Link, a demised California sub-prime lender that once moved $30 million worth of loans a month.

 

One of their initial partners at FedMod was Jeffrey Broughton who was an executive director of business development at Pacific First Mortgage, a lender that extended Alt-A mortgages for borrowers with damaged credit for Countrywide Financial. Countrywide eventually experienced billion dollar losses in mortgages before being saved and acquired by Bank of America Corp.

 

According to a New York Times investigation and interviews with numerous former employees and customers, FedMod including other profit driven loan modification companies pocketed clients’ money upfront. They also failed to deliver what they promised. There have been more than 650 complaints filed against FedMod with the Better Business Bureau including documents and lawsuit filed by the Federal Trade Commission against the company.

 

According to a lawsuit filed in California, FedMod made false claims of their success rate, advised clients to stop making mortgage payments, made little effort or nothing to modify loans and failed to refund fees on-time. The lawsuit is seeking a termination to FedMod’s practices and award compensation for burnt customers.

 

According to a former sales rep at the two-story headquarters building in Irvine, California, Paul Pejman disclosed that their job was just to get the money in and that’s it. He recalled his experience and admittedly said that he really felt bad.

 

Pejman revealed that he had people calling in crying on the phone. He responded to them by saying, ‘You can pay me or you can lose your house’. He said that people were giving him everything they had including charging their credit cards. He later revealed that he never saw anyone come out of a successful loan modification.

 

Mt. Anz, the managing partner of FedMod admitted that things went horribly wrong. He maintains that the company made sincere attempts to modify loans for delinquent borrowers. He later concluded that FedMod had returned fees to 3,000 unhappy customers and modified 1,500 mortgages.

 

An Awakening

 

FedMod is one of many dozen companies accused of fraudulent business practices by the state and federal authorities. In April, the Federal Trade Commission had gone after four similar companies and issued warning letters to 71 other firms. In July, the commission opened lawsuits against 4 additional loan modification companies and enforcing a campaign covering 23 states.

 

The New York Times found that many of these firms offering loan modification services were once formerly operating as mortgage brokers. Since October 2008, The California Department of Real Estate has instructed 210 businesses and individuals to stop offering loan modification or foreclosure prevention services because they did not possess a real estate license as required by state. According to public records, almost 50% of people involved had previous dealings in the mortgage industry.

 

Debt Barter Inc., another loan modification company based in Irvine California was accused by the state of collecting upfront fees without a license. The firm’s owner Sean R. Roberts, formerly led Instafi, a mortgage brokering company that closed $2 billion worth of loans a year during the peak of the housing boom. Many angry customers have filed complaints against the company since February 2009 with the Better Business Bureau. Similarly, the company is accused of taking upfront money and failing to modify or lower customer payments.

 

Mr. Roberts defended his company by saying that they could not please every single person but claim to have modified 300 out of their 500 clients.

 

In another example, Citywide Mortgage Corporation based in Aliso Viejo, California previously brokered Alt-A and sub-prime loans. Last year in 2008, they had become a loan modification company called USMAC. The company has not received an order to stop functioning but has numerous complaints on various consumer web-sites stating that it failed to deliver. Scott Gimbel who is the company president, boasts that he has a success rate of 70 percent.

 

Mr. Broughton who is currently 49 has been in the mortgage industry since the mid-1980s. When the mortgage industry came to a halt in 2008, he launched FedMod together with two other Los Angeles partners, Steven Oscherowitz and Boaz Minitzer.

 

Mr. Broughton strived to make his company offerings different from other unethical companies that monopolized the market. He complained that there were a lot of these modification companies who consisted of sub-prime guys and all they cared about was making quick money.

 

His partners at FedMod came from very questionable backgrounds. In the mid-1990s, Mr. Oscherowitz settled an F.T.C. lawsuit that charged his company, Universal Merchants of fraudulently selling a dietary supplement to aid weight-loss.

 

The partners pledged great faith in Mr. Sousanna entrusting him with FedMod’s Los Angeles sales office as he had a proven track record for selling these loans that are now in need of modifications. Mr. Sousanna was hailed 6^th most successful mortgage broker by Mortgage Originator Magazine in 2006. He was 30 at the time and had brokered $318 million worth of loans. That same year he had bought a house near Beverly Hills for $1.8 million.

 

Mr. Minitzer said that he was one of the biggest guys in sub-prime mortgages and just wanted to get thrown back into his old days with 50-70 people in the office. At the time, business was hot and Mr. Minitzer was in the position to place him in.  

 

Operating Within The Law

 

In order to operate legally by offering loan modification services and receive upfront fees, you will need a real-estate license or you will need a lawyer in your team. The 3 original partners knew that they had to bring in a partner with an important asset. Someone with a law license would have been ideal. Mr. Anz was the answer for them as this enabled them to market their offerings as a law firm and therefore allowed them to collect upfront fees under California law.

 

The California Department of Real Estate has issued out warnings to consumers to watch out for unscrupulous loan modification companies reorganized as law firms for the purpose of collecting upfront fees. In many cases, the lawyers who were made partners have no involvement in the service offerings provided by these dubious loan modification firms.

 

The Federal Trade Commission is accusing FedMod in a lawsuit for deceiving radio advertisements indicating that the firm had federal government backing.

 

Mr. Pejman aged 22, the sales rep for FedMod said that their strongest sales pitch was ‘An attorney could do a better job in your loan modification’. He said that if these customers knew that they were dealing with washed-up individuals from the mortgage industry, or just people sending in paperwork, they would not have bothered. They could have well done it themselves. He later claimed customers were misled. The attorneys never touched any files.

 

Mr. Anz said that out of the 700-plus full-time employees who worked for FedMod this spring, 9 were lawyers. The company was said to have recruited a lawyer in every state.

 

Mr. Pejman and his team of agents urged homeowners to send FedMod $3,495. The agents were promised a 30 percent commission for fees they took in. Most clients could barely pay $1000 and agreed to a payment plan for the remainder.

 

The bait was to get Mr. Pejman and his colleagues to read out these mythical success stories over the phone. The biggest bait indicated that your loan will be reduced from 2.5 percent to 5 percent on a 30-year fixed rate loan.

 

Mr. Anz in response said that FedMod’s policy prohibits agents from making false claims, advising clients not to pay their mortgages including providing success rates. He further concluded that new clients received a follow-up compliance call to ensure they understood that there were no guarantees.

 

Mr. Pejman countered by saying that these policies were told to them with a wink. They were reminded that they were on a sales floor and that they needed to do whatever necessary to close deals. They were told, ‘You’re here to sell’.

 

Mr. Pejman said that the sales team would just quote things out of thin air as he recalled his colleagues uttering success rates of 60 percent, 80 percent and 90 percent. It sounded great to the average person but and in reality, 50 percent of loans were rejected by the lender.

 

Sales agents knew how to get these potential customers anxious. Mr. Pejman was surprised to see how these people were so ready to fork over their credit cards.

 

According to Mr. Pejman, other shocking sales pitches that he recalled hearing were, ‘Would you pay $1000 to save your home? What about your marriage? And your kids’ education?’ He also heard, ‘We’re the federal government’.

 

On another case, Joshua Garland of Charlotte, North Carolina contacted FedMod after viewing its TV commercial. Mr. Garland was a Chef who had lost his job and took on a bartending job. His wife had also lost her job at the hospital. Their monthly combined income had fallen from $3,200 to less than $1,000. They were already 3-months behind their mortgage.

 

Mr. Garland remembered a confident FedMod agent who told him that they could reduce their monthly mortgage from $1,200 to $532. But in order to get started, he had to pay a retainer fee of $995. Unfortunately, their dental bills have been accumulating and they were already behind on utilities.

 

Mr. Garland said to the agent that he had only $1,200 left to pay for their mortgage and if he gave FedMod the money, they would fall further behind in their mortgage. The FedMod agent advised him to go ahead and make the $995 payment and explained that if Mr. Garland was under their plan, the bank could not foreclose their home.

The FedMod agent continued to follow-up several calls and finally Mr. Garland gave in and made the payment. Mr. Garland said that months had gone by and there was no follow up from FedMod. He had left numerous messages asking for updates and seeking a refund. His lender eventually foreclosed their home and set up a sale for August 26^th.

 

The furious Mr. Garland said that this agent chased me for my $1000 and as soon as I paid them, he disappears.

 

FedMod Swamped

 

According to Mr. Anz, the pipeline for FedMod grew to 8,000 clients from December 2008 to March 2009. Right after sales agents accepted applications, they were then passed on to the processing department where client managers assembled documents and submitted them to lenders.

 

Rachelle Cochems was an ex-employee of FedMod. She was the operations manager from January 19^th 2009 but left in May 2009 because the company ceased paying her. According to Rachelle, the company did not invest in software and everything had to be tracked manually. She said that the system was inefficient and could not handle the large amount of orders they were taking in.

 

Every case manager had to oversee 200 files at a time making it very difficult for managers to keep in contact with existing customers. Some files were just clogged in the pipeline and sales agents didn’t make the effort to move them.

 

Rachelle said that they received money upfront from customers so there was little incentive to get it closed.

 

In February 2009, Mr. Anz closed the Los Angeles office as he felt uneasy with Mr. Sousanna’s handling of the business. By March, sales agents were buried with calls from angry clients who had paid awhile back but have not heard from anyone. Some called crying from motels with their belongings packed in boxes after losing their homes to foreclosure.

 

Mr. Pejman said that the agents directed most calls to voicemail and played the most ferocious messages over speakerphone for their own amusement. He said that the guys just sat around and laughed.

 

The very next month, Mr. Anz seized control of the company, isolating his partners and accusing them of a disaster. They stopped all marketing efforts and focused on moving the existing clogged-up files.

 

By April, the Federal Trade Commission filed its lawsuit and instructed credit card companies to suspend their accounts with FedMod. The court also put a temporary restraining order preventing FedMod to secure any new customers.

 

As you view the advertisements on TV today, you will continue to see many aggressive loan modification companies marketing themselves in a sector that constitutes the last remaining straw of American real estate.

 

 

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