Fast downtown for Md. lender

Crash: In 2 1/2 years, a Timonium firm became a top national lender of FHA-backed mortgages then collapsed amid allegations of fraud.

January 09, 2001|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

The rise of American Skycorp was stunning. So was its flameout.

In less than three years, the Timonium firm soared to the heights as one of the nation's top lenders of Federal Housing Administration-backed mortgages. Then it crashed under the weight of defaulted borrowers, severe criticism of its business practices and multiple inquiries, including at least one fraud investigation.

Documents emerging from the investigations paint a picture of a company that skirted the law and government regulations as it aggressively collected high fees on questionable loans in pursuing its goal of being the No. 1 mortgage lender in the nation.

They also offer insight into the profitable world of property "flipping" - the purchase and quick resale of property at a substantial markup - sometimes described as more lucrative than drug dealing or bank robbery. They describe how Skycorp was paying its founder and majority owner, Lee P. Woody III, more than $1 million a year while he and the firm financed fraudulently inflated sales of shabby houses to low-income buyers who sometimes defaulted on mortgages they could not afford and should not have received.

In little more than 2 1/2 years, Skycorp granted about 3,000 mortgages valued at nearly $270 million - most of them government-insured, according to figures from the company, the government and Mortgage Data Web, a Virginia firm that tracks the lending industry. In the first 10 months of last year, Skycorp issued $105 million worth of FHA-backed loans.

Like many other lenders, Skycorp sold its loans to other companies soon after making them. But investigators say Skycorp went to illegal lengths to make sure those loans did not go bad in the first year, which would have alerted the FHA and investors who owned the loans of serious problems.

"It is safe to say they were very aggressive in their business plan," said Nerry L. Mitchell, deputy commissioner in the Division of Financial Regulation, the state agency that licenses mortgage lenders in Maryland. "But they did not in my opinion look at the bigger picture in terms of doing loans in a safe and sound manner ... looking out for the consumer interests."

Mitchell said his agency's examiners found in recent months that one-third of the loans that Skycorp had made in its brief existence were in default, with payments at least 90 days in arrears.

Such a high default rate for a company that has been doing business for less than three years "means a lot of loans are going bad in the first year" and probably should not have been made, said Jim Croft, who runs the Mortgage Asset Research Institute Inc., a Reston, Va., corporation that tracks mortgage fraud.

Under fire

By last fall, Skycorp was under pressure from state and federal regulators and criminal investigators. In mid-November, the federal Department of Housing and Urban Development revoked the company's authority to issue FHA-insured loans, delivering a crippling blow to a firm that had built its business on those loans, and barred its founder from any dealings with the government.

Less than two weeks later, Skycorp turned in the operating license for its Timonium headquarters as the Division of Financial Regulation was moving to revoke it. Mary Louise Preis, who heads the agency, finalized that revocation Dec. 18 while also yanking the licenses of the company's two remaining Maryland branches.

An order signed by Mitchell, Preis' deputy, said the action was necessary "to allow borrowers to avoid mortgage loan charges which are both excessive and beyond the amounts lawfully permitted in Maryland."

While Skycorp is now out of business, the company and its top officials face charges of "unfair and deceptive trade practices" filed by the state Consumer Protection Division and, according to court documents, federal criminal probes in Baltimore and Greenbelt.

A key figure in the case is Lee P. Woody III, 34, founder of American Skycorp. Before starting the firm, he worked for four years at another company that was kicked out of the FHA program, Capitol Mortgage Bankers Inc. Woody was a loan officer and, at one time, a vice president of the firm.

Capitol closed last year after fighting a losing court battle with the federal government to keep its authority to issue FHA-backed mortgages. Woody left Capitol Mortgage Bankers in 1997 and incorporated American Skycorp that same year.

Skycorp almost didn't get off the ground. State regulators considered revoking the firm's newly issued provisional license before the first loan was finalized after concluding that Woody had made "material misstatements" in the Skycorp license application.

They had learned that what Woody described in the application as a cocaine possession conviction was actually a federal conviction for "interstate travel in aid of racketeering." They asked for an explanation and Woody, through the firm's lawyer, told them under oath that, whatever the formal wording of the charge, it "arose out of possession of cocaine."

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