May 31, 2012
NYC bank indicted on mortgage fraud charges
New York, A community bank and 19 ex-employees have been criminally charged with issuing hundreds of millions of dollars in fraudulent mortgages that ended up in unwitting investors' portfolios, prosecutors said Thursday in announcing a rare indictment of a bank in the mortgage meltdown that rocked the U.S. economy.
Abacus Federal Savings Bank was hit with mortgage fraud, grand larceny and other charges in what Manhattan District Attorney Cyrus R. Vance Jr. called "a systematic scheme to falsify and fabricate mortgage applications" so that unqualified borrowers could get loans. The loans later were sold to mortgage giant Fannie Mae, which repackaged them into securities for investors.
Abacus, a Chinatown-based bank with mainly immigrant customers and branches in New Jersey and Pennsylvania, said it had investigated and reported the problems and would vigorously defend itself.
Vance said most of the mortgages in this case were being paid on schedule. But the allegations reflect the lax lending that convulsed the economy in 2008 as borrowers defaulted and the effects rippled through a financial system that had transformed individual loans into mortgage-backed securities held by countless investors. The crisis spurred multibillion-dollar government bailouts of Fannie Mae, big banks and financial institutions.
"What you're seeing in the allegations is the norm in 'liars' loans,'" a term for the unverified and fraudulent lending at the heart of the meltdown, said William K. Black, a law and economics professor at the University of Missouri-Kansas City.
The crisis has spurred lawsuits and regulatory action against banks; Abacus agreed in February 2011 to enhance training, do a risk assessment and take other steps as part of an agreement with the federal Office of Thrift Supervision, which said the bank's loan underwriting and documentation practices were inadequate. The agency is now part of the Office of the Comptroller of the Currency.
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