Fraudulent deals use FHA backing to generate cash

Fictitious buyers frequently employed by Perry Hall broker

`Sales' to 7-year-old girl

June 19, 2000|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

It was just about three years ago that Asheala Jasmine Shirvani was first counted as a homeowner.

The official record shows that she bought two houses and paid for them with two mortgages from two different lenders. All the papers were signed, studied and approved.

It hadn't taken long for Shirvani to get her slice of the American Dream. She was, after all, just 7 years old.

The slight child with dark hair and wire-rimmed glasses was not some kind of precocious investor. Instead, bogus paperwork and a phony photo ID created an aura of adulthood. From afar, the lenders saw a good risk. A perfect candidate for 30-year mortgages.

In fact, the girl's name had been hijacked by her drug-addled mother and a Perry Hall real estate broker with his own Web site and a legitimate business.

Together they created fictitious buyers to bilk the government of thousands of dollars in inflated mortgages. The scheme is another wrinkle in Baltimore's boom in fraudulent housing sales. In the end, their deals meant upward of a half-million dollars in profit for the broker.

All told, William Otto Schmidbauer, operating from his Perry Hall offices, has bought and quickly resold about 30 Baltimore houses for a markup of nearly $1.5 million.

Asheala's mother, Mary Anne Shirvani Kintop, has signed more than a dozen mortgages worth more than $1 million, using eight different names. Most of the deals involved Schmidbauer.

The audacious Schmidbauer-Kintop transactions came as a surprise to lenders.

Brett Carter, president of First Mariner Mortgage Corp., was unaware that his firm had provided loans to Kintop in three names until The Sun asked him about the transactions. After a review of the files, federal authorities were notified and the loan officer was fired -- though Carter refused to say that the dismissal was linked to those loans.

Kintop wasn't the only Schmidbauer "buyer" to sign multiple mortgages in different names. At least one other person signed four mortgages using three names. And at least three other Schmidbauer buyers have faced burglary or drug charges.

In all, the Federal Housing Administration, an agency of the U.S. Department of Housing and Urban Development, insured more than $2.2 million in loans for Schmidbauer's deals.

"We have detected evidence of possible fraud in cases he is involved in," said Matt Franklin, a HUD deputy assistant secretary for housing. He said the agency had moved to deny Schmidbauer the ability to act as real estate agent in the sale of HUD-owned homes and is pursuing other administrative penalties.

And it has called in the agency's inspector general, who does criminal investigations.

Egregious problem

"Baltimore is what we call a hot zone," Franklin said. "There are particularly unique problems in Baltimore around appraiser fraud and property flipping."

Most of the houses that were flipped -- purchased and then resold at greatly inflated prices -- by Schmidbauer have gone into foreclosure.

FHA insurance promises lenders that the government will cover their losses when buyers default on the mortgages. In such cases, lenders go to court to seize the houses through foreclosure. They then turn the properties over to the agency, which reimburses them for their losses and eventually tries to sell the properties through real estate agents.

In the past four years, state records show, more than 2,000 Baltimore houses have been bought and quickly resold for a price increase of at least 100 percent -- and sometimes as much as 1,000 percent. Often, the deal is accompanied by falsified documents and inflated appraisals -- all designed to convince the lender that the purchaser is creditworthy and the house is worth the price.

A Sun examination of more than 500 such transactions shows that most deals are financed by conventional mortgages in which a lender provides only 60 percent to 80 percent of the purchase price.

But in some cases -- such as those involving Schmidbauer -- the deals were financed by lenders who provided FHA-insured mortgages for virtually the entire purchase price.

Critics say that the ability of flippers to get FHA insurance for buyers shows that private lenders have been given too much freedom to make the loans. At one time, the FHA approved all loans in advance and assigned appraisers to do the valuations that are a key part of home sales.

Now, agency-approved lenders can issue mortgages without an OK from the FHA and can choose their appraisers from an FHA list of approved individuals or firms.

All of this is a problem, said Susan Gaffney, the HUD inspector general.

"Many of the worst-performing lenders with the greatest risk of improper loan originations" do not get the scrutiny they should, said a recent report by Gaffney's staff.

And, it added, "HUD lacks assurances about the quality of appraisals" used to justify loans.

The story of Mary Anne Shirvani Kintop offers insight into the inventiveness of some house flippers to get loans to finance their enormous profits.

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