Housing Boom Tied To Sham Mortgages

Phillip Hill bought this North Atlanta mansion for $1.4 million in 2001 and, with the help of a phony appraisal, sold it for $3 million a few days later.
Phillip Hill bought this North Atlanta mansion for $1.4 million in 2001 and, with the help of a phony appraisal, sold it for $3 million a few days later. (By David Cho -- The Washington Post)
By David Cho
Washington Post Staff Writer
Tuesday, April 10, 2007

ATLANTA -- The man was one slick fraud artist.

Phillip Hill lured people to fancy cocktail parties in a $1.9 million mansion. He asked to use their names and credit histories in real estate deals, promising to make them rich. Most got $10,000 checks on the spot for signing up.

By the time the scam unraveled, the credit of those participants had been ruined, hundreds of upscale properties had fallen into foreclosure and real estate prices had plummeted in some of this city's most exclusive neighborhoods. Hill is about to go to federal prison.

Many experts have concluded that the nation's real estate boom of recent years was fueled in part by weakened lending standards that sparked excessive demand and drove up prices. Now, some are worried that the looser standards may have permitted a boom of another kind -- a big expansion of mortgage fraud.

No one knows exactly how extensive the crime has become, but new data from the federal government suggest that it has jumped tenfold since 2000. Prosecutors are finding cases all over the country in which sham transactions, based on fraudulent appraisals, led to homes changing hands at far above their real value. Mortgage lenders failed to carry out the most elementary safeguards.

In some neighborhoods, mortgage fraud became so extensive that it drove up overall home prices. That is what happened in Atlanta. Hill, 50, was convicted last month in what authorities call one of the biggest mortgage-fraud cases in U.S. history. It involved 400 fraudulent loan applications; nearly $100 million in mortgages; and 120 closing attorneys, appraisers, mortgage brokers and others who prosecutors say were in on the scam.

Federal prosecutors say this kind of fraud is hardly unique to Atlanta -- the lax lending standards that Hill exploited have existed throughout the country in recent years.

In Broomfield, Colo., Gerald Small pocketed $21.5 million and bought two jets after he got bogus home loans using personal information from people who responded to a help-wanted ad; he was convicted. In Kansas City last year, Brent Michael Barber was sentenced to 12 years in prison for paying residents of a low-income neighborhood $2,000 each to use their names in 300 fraudulent loan applications. In Jacksonville, mortgage broker J.R. Parker and closing attorney Dale Beardsley were convicted in 2005 for a fraud scheme in which they netted $14 million in cash, six luxury cars and two $1 million homes.

Federal law enforcement officers say that with heavy demands on them from homeland security, they have had the resources to shut down only the worst offenders.

"By the time we prosecute, the damage has been done, the neighborhoods are already destroyed and the money is gone," said David E. Nahmias, the U.S. attorney who oversaw the Hill case.

In Atlanta, entire neighborhoods and condominium developments, especially those in affluent areas, were hit by organized fraud rings. Initially, these schemes pumped up housing values for everyone as artificially high appraisals helped the swindlers get inflated loans. Legitimate home buyers rushed in to get a piece of what they thought was a soaring real estate market. Now as the fraud is being exposed, their home values are taking a hit.

As more of these cases come to light around the nation, the question is: How much did an epidemic of fraud contribute to the frenzied housing market of recent years?

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