BOSTON (Reuters) - Massachusetts authorities on Friday charged a mortgage broker and four employees of U.S. financial institutions, including Bank of America Corp, with creating a mortgage-fraud ring that relied on phony savings-account statements.
The state charged that the ringleader, Kenneth Garabedian, sold fraudulent “verification of deposit” documents to a broker working at Direct Finance Corp, of Hanover, Massachusetts, in order to secure 40 to 60 loans for borrowers.
Garabedian, an independent mortgage broker, charged about $750 for each set of illicit papers, the authorities said. He then kicked back some of that money to two employees of local banks who supplied the phony documents.
The financial institutions, which also include Citizens Bank, owned by the Royal Bank of Scotland Group PLC and privately held Cambridge Savings Bank, cooperated in the investigation and do not face charges, said Massachusetts Attorney General Martha Coakley.
The borrowers, however, who were not named, should have known this was an illegal practice, she said.
“We have come to believe that all of the individuals involved knew or should have known that this was at least bordering on illegal activity,” Coakley told reporters. “These were all sizable mortgages that they would not have been given or should not have been given absent these verifications of deposit.”
The other people charged are Erik Tancun and his assistant at Direct Finance Corp, Martha Sass; Steven Stapleton, who worked for Citizens and Cambridge; and Thomas Itemere at Bank of America.
The five people were indicted on charges including false claims and bribery and face up to 10 years in prison, Coakley said. The defendants could not be reached for immediate comment.
All the loans were for properties around Worcester, Massachusetts, about 40 miles west of Boston. The state has been investigating the ring since last year.
Since the collapse of the subprime lending industry, which made home loans to less-creditworthy borrowers, many lenders have tightened up their standards. Today lenders are less willing to offer so-called low-documentation or no-documentation loans, in which borrowers needed to provide little proof of their income or savings.
Editing by Richard Chang