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Fraud Defense: Banks Were The Real Crooks

by Thomas MacMillan | Apr 3, 2014 12:11 pm

(1) Comment | Commenting has been closed | E-mail the Author

Posted to: Business/ Economic Development, Housing, Legal Writes

Thomas MacMillan Photo After the housing crash, taxpayers never got to see banking execs put on trial, to hold them accountable for tanking the economy and plunging the economy into recession — until now.

That’s what’s happening this week in Judge Janet Hall’s courtroom in U.S. District Court on Church Street.

Well, that’s what a couple of defense attorneys are trying to do in the courtroom.

As they defend their clients against mortgage fraud conspiracy charges, the two lawyers are looking to put big banking on trial instead — for throwing the country into recession.

That strategy emerged on the second day of testimony in a mortgage fraud conspiracy trial in federal court.

Corrections officer Jacques Kelly (at left) and mortgage officer Andrew Constantinou (at right) are charged with conspiring to bilk banks out of millions. Kelly faces the additional charges of wire fraud and making a false statement.

The government says Kelly and Constantinou were part of a ring of fraudsters — one of the largest ever in New Haven — that tricked lenders into giving mortgages larger than houses were worth, and pocketing the difference.  Both men have pleaded not guilty.

So far in the trial, defense attorneys have tried to divert attention from their clients to the banking industry that issued bad loan after bad loan during the housing boom of the mid-2000s.

The lawyers’ cross-examination revisits an old argument from the Great Recession: It wasn’t borrowers who caused the housing market to collapse, followed by the rest of the economy. It was the banks who feverishly and knowingly issued unwise mortgages at a breakneck pace.

The lawyers are laying groundwork for arguments telegraphed Monday in their opening statements: Amid a “hot, hot, hot” housing market created by reckless banks, an overworked paper-pusher and an undereducated wanna-be investor got sucked into a bad scene by people who should have known better.

Didn’t You Wreck The Country?

LinkedIn Photo On Tuesday, the second day of the trial, prosecutors put on the stand two representatives of some of the swindled lenders. Lanisa Jenkins (pictured), a vice president at Bank of America, and John Murphy, who sells mortgages for Wells Fargo, went through document after document in exhaustive detail, showing how the alleged conspiracy had worked.

The government sought to demonstrate that fraudsters used falsified forms to convince banks to issue inflated mortgages that allowed buyers to purchase houses with no money down, unbeknownst to the lender. The extra cash was split among the buyer and seller, and other conspirators.

When Hubert Santos, Constantinou’s lawyer, got a chance to cross examine the two witnesses, he talk about documents. He talked about the pre-2008 housing bubble, and it’s catastrophic pop.

Between 2006 and 2008, the time of the alleged conspiracy, Jenkins worked at Countrywide, a major mortgage lender.

“You know Countrywide nearly put this country into a depression don’t you?” Santos began. He started firing questions about Angelo Mozilo, the Countrywide CEO who was at the center of a lending scandal.

“Would it be fair to say that Countrywide the company had a philosophy to place as many loans as it possibly could no matter what the borrower put down on paper?” Santos said.

Jenkins said no. Santos kept pushing. Countrywide’s policy was: Never mind about details, “just do the loans because it’s hot, hot, hot,” he asserted, despite Jenkins statements otherwise.

Bruce Koffsky, Kelly’s lawyer, picked up the thread when it was his turn to cross-examine Jenkins.

He pointed out that loan application forms had a check box to indicate whether they came in by mail, email, fax, or in person. “When your your neighbor’s house went up in value by $30,000,” Koffsky said, everyone wanted to try to get a mortgage using all channels of communication.

“I guess you could sit at your house and just type on the internet a 1003 [loan intake form] to 10 lenders to see if you could get a loan,” Koffsky said. Loan officers must have been “deluged.”

’Twas The Best Of Times

Under cross-examination by Santos, Murphy, who had worked as Constantinou’s boss at GMAC during the time of the alleged conspiracy, volunteered that, in 2008, “me and 5,000 of my closest co-workers lost our job in the mortgage debacle.”

“One of the major contributors to the economic crisis was all those mortgages written by Countrywide, GMAC, and all these other lenders,” Santos said.

“Was the policy of GMAC to try to do as many closings as possible?” Santos asked.

Yes, Murphy replied.

“You wrote too many loans,” Santos said. “You gave loans to the people who couldn’t afford to pay them.”

“Correct,” Murphy said.

In Koffsky’s cross-examination of Murphy, he got personal. Koffsky asked not just about the banking industry in general, but actions that Murphy himself took to get more and more people to borrow money.

Koffsky had Murphy acknowledge that he earns money by getting people to take out loans. In the mid-2000s, countries like GMAC were putting out ads on buses, in newspapers, and on the radio “to bring people in the door.”

“There were also seminars, correct?” Koffsky asked. These would be for laypeople, average guys who wanted to make some money. “In fact, you yourself put on these seminars,” Koffsky said.

Koffsky pulled out a flyer advertising a real estate seminar put on in the ‘80s by Murphy and a real estate broker, held at the Best Of Times Cafe in Old Saybrook. The subject: investing in real estate with little or no money down.

Such seminars took place in the ‘90s and the 2000s, Murphy acknowledged.

“It wasn’t at all unreasonable to have info given to you at seminars about purchasing real estate for no money down,” Koffsky said.

“Correct,” Murphy said.

On re-direct examination, prosecuting attorney John McReynolds seized on the seminar angle, to turn it to his advantage.

“Those seminars you participated in — educating potential buyers to buy property with little or no money down — did the advice that you and your colleagues gave involve the use of fake leases?”

“No,” Murphy replied.

What about the use of undisclosed borrowed funds? Did you tell clients that they could use secret contract documents to change the selling price? Or how to falsify federal housing forms?

No, Murphy said.

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posted by: Brutus2011 on April 3, 2014  12:50pm

I read this headline and my heart leapt.

It is astonishing that our country was fraudulently (through naked short selling, collusion with false credit ratings companies, and proliferation of CDO’s) drained of billions resulting in a spiral of misery for 99% of us that continues to today.

Yet, the profiteers or engineers of this massive fraud not only escaped any prosecution but are back in business wolfing along Wall Street.

Maybe, just maybe these defense lawyers will wake everyone up (at least here in New Haven) to absolute corruption in our municipal, state, and national governments that are essentially in the pockets of the banks and hedge funds.

And we just gave a church here public funds to open a school? And people think this is okay?

Who cares about Al Quaeda? We are doing their job for them.

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