thehousingbubble@gmail.com
Blog

The Breadth Of The Alleged Fraud Has Grown Greater And Larger

A report from the Buffalo News. “Over the course of 13 years, Robert Morgan built a real estate empire that stretches across 14 states and includes 36,000 apartments. But federal prosecutors said he did so with the help of nearly $500 million in fraudulent bank loans. Morgan is also named in a new Securities and Exchange Commission lawsuit that likens the conspiracy to a Ponzi scheme.”

“‘It’s obviously significant,’ U.S. Attorney James P. Kennedy Jr. said of the size and scope of the criminal wrongdoing. ‘This type of fraud strikes at the very heart of the banking industry.'”

“In what is believed to be one of the biggest mortgage fraud cases since the Great Recession, Morgan was charged Wednesday with overseeing a criminal conspiracy from 2007 to 2019 that cheated lenders and insurers. The 114-count indictment – which builds on an earlier case against four other individuals – accuses Morgan of working with others to deceive financial institutions, as well as Fannie Mae and Freddie Mac, into providing larger mortgages on apartment properties than would otherwise have been issued.”

“The indictment also claims the Rochester man used ‘false and fraudulent’ promises to trick lenders into thinking the properties were worth more, and then using false information to hide the lies and conceal the actual financial condition of the real estate. It also claims he and others deceived insurance companies into paying out more for damage claims than the actual cost of repairs.”

“Investigators say that during the 13 years Morgan oversaw the conspiracy, it expanded and reached the point where at least a half-billion dollars of loans came under federal scrutiny. ‘The breadth of the alleged fraud uncovered has grown greater and larger,’ Gary Loeffert, special agent in charge of the FBI in Buffalo, said Wednesday.”

“In a 20-minute arraignment before U.S. Magistrate Judge Michael J. Roemer, Morgan pleaded not guilty to the 46 charges against him, including conspiracy, bank fraud, wire fraud and money laundering. He was released on $100,000 bail. Since the investigation and indictments were unveiled, Morgan has been squeezed for financing, as Fannie Mae and Freddie Mac barred new loans to him and other lenders reined in their exposure. Some lenders have even initiated foreclosure proceedings, citing the fraud.”

The Wall Street Journal. “The federal government accused one of the nation’s largest landlords of running a ‘Ponzi scheme-like’ effort using cash from small investors and of misleading banks to obtain bigger loans by using fake loan documents.”

“The SEC said Mr. Morgan raised $110 million from more than 200 mostly small investors beginning in 2013, promising them a target return of 11%. Morgan used most of the cash as a ‘fraudulent slush fund’ to pay previous investors, the SEC said. In one instance, the SEC said cash was used to pay off an $11 million loan that Morgan allegedly obtained by falsifying financial information on a property in Pennsylvania.”

“The Morgan case is being followed closely by the real-estate industry because many of Mr. Morgan’s apartment loans flowed through government mortgage giants Fannie Mae and Freddie Mac, which bought and repackaged them into securities purchased by investors. That has raised questions whether Fannie Mae and Freddie Mac sufficiently ensure buyers of multifamily apartment buildings aren’t misstating incomes—a common problem that plagued single-family housing before the 2008 crisis.”

“‘The excesses that happened in single-family are now being transferred to multifamily,’ said Greg Michaud, director of real estate at Voya Investment Management in Atlanta, which lends to multifamily and other commercial properties.”

“The SEC said investors are still owed $63 million, but funds through which Mr. Morgan raised money from investors have ‘few if any assets’ available to repay them. Mr. Morgan was personally involved in the fundraising, the SEC said. In one 2015 email exchange detailed by the SEC, Mr. Morgan told a colleague to ‘push as hard as you can’ and ‘put the hammer down and raise more funds’ from investors. In an effort to help repay investors, the agency also is seeking to freeze Mr. Morgan’s assets.”

Related Posts
This Post Has 43 Comments

    1. I disagree. This was a strong report, if not the strongest, of the entire cycle thus far. Note that numbers have been revised up significantly every month of 2019. The headline data is one thing, but monitoring for revisions is also just as important. There is weakness in housing, but it is not currently in new home sales. It has recovered since the late 2018 downturn.

      4. Unfortunately, the strength in new construction is in no way making up for the weakness in existing home sales. Rates are also 50bp lower than they were this time last year. I see this as the light burning the brightest right before it goes out. Time will tell…

          1. One reason I think there are knife catchers is because people just can’t wait. Their children are getting older and they are ready for the next phase of their lives. They feel like they have to move and when they look at EHS vs new, they see that new is better. So even though new is still ridiculously high, they figure it’s better than used. But the supply of greater fools and knife catchers is nearing its end.

    2. From the article:
      “What happened: Even though home sales fell in April, the trend is solidly up. The revised March sales figures were the highest since October 2007, and there were upward revisions to every month stretching back to December.
      Sales were 7% higher than a year ago in April.
      The median sales price in April, $342,200, was 8% higher than a year ago. At the current pace of sales, it would take 5.9 months to exhaust available supply, about matching the 6 months that’s traditionally been considered the marker of an evenly balanced market.
      In the year to date, sales are 6.7% higher than the same period a year ago. “

        1. While this is true, it lacks context. New homes sales have recovered to nowhere near the last peak, which was July 05 at 1,389,000 new home sales. In this cycle, it has only reached half of this. It would be more favorable to an upcoming crash if it was highest since the previous peak.

          1. Dead cat bounce from last bubble? The bounce resulting from the Fed dramatically lowering interest rates to unprecedented rates and holding them there?

    1. I hope so but it appears nothing is going to get done on anything to after the 2020 election

      1. At least things are getting a little better at FHA. Smelly Mel’s term at FHFA (the funding arm of FHA I think) was finally up. We aren’t hearing talk about combining roomies for mortgage income, or laxer and laxer giveaways in the name of SJW.

    2. This investigation has been going on for 18 months. Remember Mel Watt and his pedal to the metal thing about multi-family? We’re talking a trillion or more in the past 7 or 8 years. So now it’s revealed that a handful of guys, using not very sophisticate activity (sandals on mats, etc) can blow a half a billion hole in the loans?

    3. Why do they find the fraud so long after the fact?

      Don’t they have appraiser’s /Underwriters who can see that the underlying security was inflated to the Moon at the time the loan was given?

      My point is that fraud isn’t as possible if lenders do their job, and in this case it should of been clear.

      1. Appraisers? Heh. They probably hired some outfit in Mumbai to appraise the properties based on the GoogleEarth street view.

  5. Government Intelligence….City Fails to Study the Impacts of its Rezonings, Legislators Want This to Change

    The city anticipated, according to its Environmental Impact Statement in 2001, that no more than 300 residential units would be built in the rezoned area by 2010, according to a report released by The Municipal Art Society of New York last year. In 2010, there were 800 residential units and by 2018 almost 10,000 units—with more coming.

    https://licpost.com/city-fails-to-study-the-impacts-of-its-rezonings-legislators-want-this-to-change

    1. Instead of legislating the EIS process, they should simply legislate a number into the zoning board decision. If EIS says “we predict 300 units and that’s ok,” then the zoning board should simply make sure that the area is zoned on the condition that 300 units are built and no more than that.

      But they really want that sweet developer campaign contribution, and later, property tax money. Easier to act like 4-year-olds and blame the EIS folks: “But you SAID 300 units! (footstomp)”

  6. Amazing how many types of “largest……….since the great recession” are coming to light now. You can replace the blank with many different words.

    The rhyming of history is getting louder and I am seeing more similarities from my angle being a service provider within the industry. Beginning to feel quite similar to early to mid 2006 in many respects including rebuttals of some of the downward data from those in the REIC. Same old same old.

      1. Prove you have been here less than 180 days. lol

        I hadn’t thought about SALT forcing New York and New Jersey to try to keep their tax dollars from escaping.

          1. They all do that. When I moved here, my old state wanted to know why wasn’t paying taxes to them anymore: DUH, this year I live in a new state. My new state wanted to know why I wasn’t paying taxes to them the year before. DUH, last year I lived in my old state. Took me hours to assemble the paperwork to prove it.

            Maybe it was because I moved right at the end of the year, so I didn’t have to fill out partial year nonsense. That might have tipped them off.

    1. No real change from earlier stores and surveys – the “recovery” of the past decade has been spread around very unevenly, and lots of people who got hozed in the ’08 crash never recovered.

      I lost most of my retirement accounts in 2009 – but that was to my ex-wife… who cashed it out and spent it all within a year to finance her party lifestyle, despite more than enough cash coming in from alimony. I’m working on teaching my son to never get married.

      2. “I’m working on teaching my son to never get married.”

        What are you teaching your daughter?

        1. Something similar, at least regarding the risks and social pressures to get married. She clearly seems in no hurry.

          However there are multiple factors that have me putting more effort into making my son aware, from my daughter being super close with her mom and siding with her views as policy to my son’s autism, which isn’t obvious given he looks like a football player. Not to mention that I perceive marriage incurring more risk onto men than women. And a couple factors more I’ve yet to mention.

    1. Trump is doing a great job squeezing China and Iran at the same time. Do not think you could have kept oil prices down even with Saudi help without going after China. So much winning, it is great to have a non globalist President. Of course, if oil prices start to materially hurt US producers he will stop jawboning the Saudis.

Comments are closed.