Fraud Investigation Fannie Mae Mortgage Fraud

May 31 (Bloomberg) — Abacus Federal Savings Bank and 19 individuals were charged with mortgage fraud and accused of selling hundreds of millions of dollars in fraudulent loans to Fannie Mae, Manhattan District Attorney Cyrus Vance Jr. said.

“The lessons of the financial crisis are still being learned,” Vance said today at a press conference. He said senior employees at the bank trained others to falsify loan documents so unqualified borrowers could qualify for loans and the bank could earn fees, commissions and other funds by selling the loans to Fannie Mae.

Abacus, which primarily serves the Chinese-American community, pleaded not guilty before Judge Renee A. White in state court in Manhattan today. The bank is “disappointed” to learn of the indictment as it discovered and investigated the issue more than two years ago, fired some employees and reported the results to law enforcement, its regulator and Fannie Mae, the bank said today in a statement.

Vance’s office is “overreaching” in accusing Abacus “when many other banks that contributed to the national economic crisis remain untouched,” it said.

The district attorney called the bank’s help “too little, too late” at the press conference.

Loans covered by the indictment were made to 4,500 borrowers and were among about $1 billion in loans that the bank sold to Fannie Mae, which then unwittingly packaged them as mortgage-backed securities and sold them to investors, Vance said. “Taxpayers are left holding the bag,” for this kind of crime, he added.

Eight Admit Guilt

The charges cover activities from May 2005 to February 2010 and follow a 2 1/2-year investigation, according to prosecutors. Eight Abacus employees have admitted their guilt in the first indictment of a bank in Manhattan since 1991, Vance said.

Fannie Mae, the government-controlled mortgage buyer and the biggest backer of U.S. home loans, buys and holds mortgages and issues mortgage-backed securities. It was bailed out and seized along with Freddie Mac during the credit crunch.

Vance said the majority of the loans involved in the case are still “performing” and borrowers haven’t defaulted.

The district attorney said his office is working with bank regulators to make sure deposited funds are secured. The investigation is continuing, he said.

“The alleged misconduct that occurred is not tolerated by our bank’s policies and ethical standards,” James Haggerty, an Abacus spokesman, said in the statement. “Unlike many other banks, Abacus Federal Savings did not participate in generating subprime loans or other risky lending practices.”

A 184-count indictment includes charges of mortgage fraud, securities fraud, grand larceny, conspiracy and falsifying business records.

Accused Bankers

Yiu Wah Wong, the bank’s former chief credit officer and underwriting supervisor, was among the defendants arraigned today. Wong, who is free on $100,000 in bail, reported directly to the chief executive officer and was the most senior bank employee charged. Wai Hung “Raymond” Tam, the loan origination supervisor, was also charged and is free on $100,000 bail. Prosecutors were denied a request to increase bail for the two today, and were told they could keep the defendants’ passports to guard against flight risk.

According to the indictment, incomes, assets and job titles were inflated; software was manipulated; and false “gift letters” were created to obscure the source of borrowers’ down payments.

Managers, according to the complaint, encouraged loan officers to make sure the falsified applications would be believable in the eyes of the bank’s regulator, the Office of the Comptroller of the Currency, as well as Fannie Mae. Fannie Mae’s own protocols to ensure loans met certain standards were thwarted, prosecutors said.

Abacus, a full-service bank based in New York, was founded in 1984, according to its website. It operates seven branches in New York, New Jersey and Pennsylvania.

The case is The People of the State of New York v. Abacus Federal Savings Bank, 2480-2012, New York State Supreme Court, New York County (Manhattan).

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