Executive Accused of Mortgage-Securities Scheme – EVERYONE HAS BEEN PAID AT LEAST ONCE, 100 CENTS ON THE DOLLAR, PLUS FEES AND PROFITS. NOW THEY WANT YOUR HOUSE TOO. ARE YOU GOING TO LET THAT HAPPEN?
Executive Accused of Mortgage-Securities Scheme
By EVAN PEREZWASHINGTON — A financial executive used little more than a pen to alter credit scores and reclassify mobile homes as single-family houses, inflating the value of thousands of mortgages that were repackaged and sold to investors, prosecutors allege.
Federal prosecutors in Miami on Thursday charged Steven Gordon, 49 years old, a former partner at Bayview Financial LP, with one count of wire fraud, in one of the first cases highlighting investigators’ efforts to move beyond low-level mortgage schemes and delve into suspected fraud in the mortgage-securities business involving bigger financial firms.
Mr. Gordon, a former director of residential acquisitions at Bayview, made more than $2.8 million in additional commissions by altering the value of 2,800 loans from 2001 to 2006, according to documents filed by prosecutors in U.S. District Court in Miami.
Bayview said in a securities filing that after it discovered the fraud, it bought out or substituted potentially fraudulent loans valued at $66 million. It said there were no investor losses.
Mr. Gordon plans to plead guilty to the wire-fraud count, according to his lawyer. Prosecutors said Mr. Gordon is expected to turn himself in to federal authorities Monday. Mr. Gordon no longer works at Bayview, but his lawyer said he continues to work in the mortgage industry.
“I am appalled at how easy it was for him to do this,” U.S. Attorney R. Alexander Acosta said. “You would think there would be more due diligence.”
The case comes as Justice Department and Federal Bureau of Investigation officials push to determine the role fraud may have played in the inflation and subsequent collapse of sophisticated mortgage-backed securities, which have deepened the turmoil facing Wall Street firms.
The case against Mr. Gordon offers a snapshot of the ease with which some mortgage-backed securities became tainted.
Federal investigators say Mr. Gordon reviewed portfolios of Bayview loans and plucked out certain mortgages that he wanted to make more valuable before securitization. On some, he simply used a pen to increase the credit scores of borrowers, making the loans appear less risky and more valuable to investors, according to investigators. On others, he changed internal codes used to classify mobile homes or vacant land and reclassified them as single-family homes, investigators said.
Marty Steinberg, the lawyer for Mr. Gordon, said the conduct was “aberrant behavior” for his client. “When it occurred, Steve admitted he made a mistake in judgment. He has made full restitution,” Mr. Steinberg said.
Bayview, of Coral Gables, Fla., is one of thousands of players in the mortgage-securitization business, buying portfolios of loans from banks and pooling those mortgages into “special-purpose entities” that it uses to issue securities sold to institutional and other investors.
Bayview officials said in a conference call with investors in 2006 that it repurchased or substituted new loans to replace mortgages on which data had been altered. Out of a total of $3.3 billion in securitized residential mortgages outstanding at the time, the data alteration affected 2% of the loans, according to a transcript filed with securities regulators.
It isn’t known which financial firms bought the securities backed by the altered loans. Brian Bomstein, Bayview general counsel, said that “no investor suffered a loss” from Mr. Gordon’s alleged scheme.
Securities and Exchange Commission investigators conducted an informal inquiry into Mr. Gordon’s conduct in 2006 and concluded it without taking any enforcement action, the firm said in a securities filing.
Write to Evan Perez at firstname.lastname@example.org