Prosecutors say despite safeguards, financial scams remain prevalent

Thursday, December 31, 2009 at 1:42am

Prosecutors say a federal grand jury indictment of a man accused of mortgage fraud was a crime of the times and could not be repeated in 2010, but they acknowledge a variation of it may be on the rise.

In early December a grand jury targeted a Clarksville man suspected of committing the quintessential crime of the early 2000s’ housing boom. The alleged charges stem from schemes carried out between early 2005 and mid-2007 when financial institutions were doling out loans with few background checks, prosecutors maintain, and that is no longer the case.

Jerome Henderson Jr., 37, has been served with a seven-count indictment, including charges of bank fraud, misuse of a Social Security number and aggravated identity theft. According to authorities, the charges stem from a scam Henderson allegedly ran bilking area banks out of mortgage loans.

Between March 2005 and May 2007, Henderson is suspected of applying for mortgage loans using false and forged information about his “income, assets, and his financial suitability to qualify for a loan,” according to the indictment. Reportedly armed with everything from fake W-2 forms, forged pay stubs and a false Army Contractor badge, Henderson allegedly shopped area institutions for loans.

His applications apparently were accepted at three area banks, and by the end of 2005 Henderson qualified with New South Federal Savings Bank for a $300,000 loan, Cumberland Bank for a $145,713 loan, and First Tennessee Bank for a $220,000, according to court filings.

The most striking thing about Henderson’s alleged crime is that it never would happen today, according law enforcement officials. When the housing boom was on, lenders did little to check mortgage applications; today they’ve tightened their hold on the money they hand out.

“That type of fraud is almost impossible to commit in times like these because the whole idea of that scheme is geared toward an economy that’s growing,” said U.S. Attorney Ed Yarbrough. “In an atmosphere like we have now, mortgage lenders are much more cautious and because of that they tend not to be victimized as readily.”

However, this form of financial crime has hardly disappeared, according to Yarbrough. It’s just reinvented itself.

Along with jurisdictions around the country, Yarbrough’s office is bracing for an increase in mortgage fraud. According to prosecutors, many of the same people who took advantage of the housing boom have now adapted their crimes to the new times.

“The same people who took the money on the front end with mortgage fraud are now starting up again and they’re engaging in the same kinds of fraud, except on the back end,” said Assistant U.S. Attorney John Webb, deputy chief for white-collar crimes and the identity theft coordinator for the Nashville office.

Although they can’t comment on the specifics of current investigations, the Federal prosecutors for Middle Tennessee say they expect to see an increase of cases involving fraudulent activities related to the TARP and stimulus programs meant to keep homeowners afloat.

“People who are inclined to commit fraud look at that as an opportunity to get government money from the system,” Yarbrough said. “Which obviously ends up hurting the taxpayer and sometimes the individual homeowner who might be defrauded.”

Nashville was the scene of one of the nation’s first cases of TARP fraud when convicted Ponzi schemer Gordon Grigg resorted to telling his victims their investments were backed by government bailout money.

Recent schemes local prosecutors report seeing are simply a variation of a scam practiced during the boom. In the healthy economy, fraudulent mortgage brokers would lock well-intended homebuyers into mortgages they couldn’t afford in order to rack in commissions.

Today, scammers are advertising themselves as third party representatives that can help individuals get into stimulus-backed housing programs, according to prosecutors. Once they land a client, the scammer will misrepresent the potential homeowner’s income and credit score to the government program, lock them into a payment plan the homeowner won’t be able to pay, and run with their fee.

“When all the marbles hit the table, the borrower is there with a mortgage he can’t afford to pay and the lender realizes he’s made a loan he shouldn’t have made in the first place,” said Webb.