A controversial Timonium lender accused of fueling property flipping in Baltimore has been barred from issuing mortgages backed by the Federal Housing Administration and fined $220,000.
The U.S. Department of Housing and Urban Development took the action after finding that American Skycorp Inc. had used "falsified documents" to issue FHA-insured loans, had failed to assure that borrowers were qualified for the mortgages and had not followed FHA guidelines.
The five-year ban from the FHA program is a severe blow to a 3-year-old company that has built itself into one of the nation's top FHA lenders. It comes as American Skycorp is under legal assault on several fronts.
HUD has been trying for six months to revoke the FHA lending authority of Skycorp's headquarters branch on different grounds - that the rate of default on mortgages issued by the branch is far higher than that of competitors. Skycorp has managed to stave off that HUD effort in federal court while continuing to issue FHA-insured loans.
Meantime, as HUD was moving against Skycorp last year, the firm's owners formed a new company, Casey-Duncan Group Inc., and won HUD approval to issue FHA mortgages.
For more than three weeks, HUD has not responded to questions about its decision to license the new firm as it was trying to ban the other from the FHA program.
American Skycorp has other problems, too. Lee P. Woody III, its founder and majority owner, is "the subject" of federal criminal probes by prosecutors in Baltimore and Greenbelt, his lawyers said recently in court papers. And two state agencies, the Consumer Protection Division and the Division of Financial Regulation, which licenses lenders, are investigating the firm, according to officials and court documents.
One of Woody's lawyers, Richard D. Bennett, says his client plans to get out of the mortgage business and is selling American Skycorp and Casey-Duncan.
"The business is going to either be sold or he's going to terminate it," Bennett said. He said Skycorp has begun laying off employees.
The Division of Financial Regulation was notified last week that John D. Hall, the minority owner of both firms, is acquiring Woody's interest in Casey-Duncan. The agency received no notification of a change at Skycorp, said Nerry Mitchell, deputy commissioner of financial regulation.
Mitchell said his agency has to approve the change.
Critics charge that Skycorp aided property flipping in Baltimore by granting inflated FHA-backed mortgages to first-time homebuyers, sometimes using questionable means to approve borrowers who should not be getting loans.
The firm has denied in the past that it has done anything wrong and has said it moved to correct problems that caused its high default rate.
The current HUD action - by its Mortgagee Review Board - marks the first time that a regulatory body has publicly stated what critics have charged - that Skycorp used falsified documents and committed other irregularities in making FHA-insured loans.
Woody declined to comment. Bennett, his lawyer, said "There was no knowing and intentional use of falsified documents by Mr. Woody." He said he did not know whether falsified documents were used by loan officers, who work on commission, or other employees.
With a $500,000 investment and soaring ambitions, Woody, 34, started the firm in late 1997 after working six years at Capitol Mortgage Bankers. Today, Skycorp's Web site proclaims, "Our goal is to become the #1 mortgage company in the country."
Since making its first loan in early 1998, the firm has granted about 3,000 mortgages valued at nearly $270 million - most of them government insured - according to company and government figures and Mortgage Data Web, a Virginia firm that tracks the lending industry.
American Skycorp made Mortgage Data Web's list of the top 100 FHA lenders in the country for the first 10 months of this year.
Woody appears to have done well. Last year, he and his wife sold their Timonium house for $159,900 and paid $1,175,000 for a 43-acre Worthington Valley horse farm. They signed a $1 million mortgage.
Woody's past almost tripped him up as he was starting Skycorp three years ago.
After a background check, the Division of Financial Regulation concluded that Woody had made "material misstatements" on his license application and considered yanking the company's provisional license.
Among other things, officials found that what Woody had disclosed as a federal conviction for cocaine possession while a college student was actually a conviction for interstate travel in aid of racketeering.
Regulators weren't happy. They asked for an explanation.
Frank C. Bonaventure Jr., a lawyer for the firm, provided the explanation in a February 1998 letter. He said, "There was no intent to mislead your office. ..."
