CLEVELAND, Ohio — A Cuyahoga County grand jury on Wednesday indicted nine employees of California-based Argent Mortgage Inc. for their suspected roles in approving fraudulent home loans.
It’s the first time in Ohio and one of few instances nationwide that a mortgage fraud investigation has led to criminal charges against employees of a subprime lender, Cuyahoga County Prosecutor Bill Mason said.
Argent, which was one of the biggest originators of home loans in Cuyahoga County from 2003 to 2005, was sold to Citibank in 2008.
This case, investigated by the Cuyahoga County Mortgage Fraud Task Force, presents a primer about how the lending practices of Argent and other subprime mortgage companies were largely responsible for the foreclosure crisis that devastated Cleveland and its inner-ring suburbs. Worldwide, the meltdown of the subprime mortgage market starting in 2007 resulted in the deepest economic downturn since the Great Depression.
The indictment alleges that Argent employees helped coach mortgage brokers about how to falsify loan documents so that they misstated the source or existence of down payments as well as borrower’s income and assets. Employees at an Argent loan processing center in Illinois ultimately approved the loans knowing that the company’s own lending rules had not been satisfied.
Ryan Miday, a spokesman for Mason, said Argent employees bent the rules to get loans approved in order to inflate their wages and bonuses.
Subprime mortgage loans became hugely popular during the U.S. housing boom that stretched from around 2000 through 2007 because these lenders required little or no documentation from borrowers to get loans approved. These cavalier lending practices resulted in speculative property purchases and rampant fraud.
This fraud was facilitated by the practice of subprime lenders that, with the help of Wall Street, pooled mortgages into asset-backed securities and sold them to eager investors. Subprime lenders used their considerable profits to make even more loans while blatantly ignoring long accepted standards used to discern which borrowers could actually afford to pay back the loans they received.
“The securitization and selling of these fraudulent, subprime loans to Wall Street typified the rampant greed of the industry that ultimately led to the financial crisis,” Mason said in a statement.
Among those indicted Wednesday were three Argent account executives assigned to work with independent mortgage brokers in Northeast Ohio, and two supervisors and four underwriters who were responsible for ensuring that the company’s lending standards were met. The supervisors and underwriters worked at Argent’s loan processing center in the Chicago suburb of Rolling Meadows.
Also indicted were two local real estate appraisers, Gerald Spuzzillo, 41, of Chardon, and Linda Warner, 47, of Cleveland; James Sims, 61, of Akron, a loan officer for a mortgage broker; and Karen Harris, 45, of Euclid, who bought properties with Argent loans.
The investigation grew out of a Cuyahoga County case being prosecuted against Uri Gofman, the owner of Cleveland-based Real Asset Fund. Gofman was indicted in August 2008 in Cuyahoga County Common Pleas Court for his role in what prosecutors say was one of the biggest mortgage fraud schemes in U.S. history.
Gofman was convicted earlier this year in U.S. District Court of mortgage fraud-related charges. He and his co-defendants, including Tony Viola, the owner of Cleveland-based Realty Corporation of America Inc., are scheduled to be sentenced next week.
The new case involves 100 properties in Cuyahoga and Summit counties sold by Gofman and his companies that were financed with nearly $13 million in Argent loans.