New data suggests that mortgage fraud—which got tougher to pull off after the collapse of the U.S. real estate market—is returning in a big way.

Data prepared for The Wall Street Journal by research firm CoreLogic, examining about seven million home loans made by hundreds of lenders, show that losses from mortgage fraud—ranging from falsified credit reports to identity theft—rose 17% last year after declining 57% in the two years after its 2006 peak.

In 2009, $14 billion in loans, or about 0.7% of all mortgage loans made in the U.S., were originated with fraudulent application data.

The figures are a fraction of the mortgage market, but the increase is sharp.

CoreLogic, which tracks fraud only by mortgage value, examines about 7 million loans each year using a proprietary computer program that detects discrepancies in loan documents and predicts the likelihood of fraud. The real losses to banks won’t be known for several years when banks are forced to write off the value of the loans’ value.

Some of CoreLogic’s profits come from selling market research to lenders aiming to cut losses from mortgage fraud.

Investigators and lenders say they are seeing a similar upswing in fraud.

The Federal Bureau of Investigation in June indicted a Phoenix man for mail and wire fraud among other alleged crimes when the agency says he tried to steal a house from his landlord. Also in June, federal prosecutors in New Jersey charged 29 defendants—including 12 real-estate agents, four mortgage consultants, an appraiser, a bank employee and a mortgage broker—with wire fraud in an alleged scheme involving 17 properties in the state and losses of $5.5 million.

“Even though we have certain compliance measures in place, people will adapt whatever scheme,” said Sharon Ormsby, the FBI’s section chief for financial crimes. “It doesn’t matter if the market is going up or down.”

The kinds of fraud that contributed to the mortgage crisis and the collapse of the housing market were relatively simple. Crooks took advantage of the size of mortgage loans and the lax rules governing who qualified for them.

In one common con, they would recruit as accomplices “straw buyers” with good credit to apply for “no-doc” loans, which required no documentation or proof of income, to buy their house. Good credit was required because lenders generally did check a borrower’s credit score, even if they didn’t require pay stubs or bank statements.

When the bank sent funds, typically to make a down payment or for a home-equity loan, the schemers and the fake buyer would split the profits and walk away, leaving the house to fall into foreclosure and the bank stuck with the loss.

Since the mortgage crisis, banks and the government-sponsored entities that underwrite or insure mortgages, including Fannie Mae, Freddie Mac and the Federal Housing Administration, have tightened lending standards and closely scrutinize mortgage applications.

No-doc loans are a thing of the past, and many lenders now require borrowers to furnish proof of employment, tax forms, credit reports, bank statements and other documents.

Fraudsters have adapted to the new restrictions. With banks less apt to lend to borrowers with shaky finances, criminals rely more on falsifying documents, recruiting loan officers and other bank insiders to work for them, and stealing identities to get loans, federal investigators and mortgage industry research reports.

In the Phoenix case, prosecutors allege, Jose Victor Buencamino did all three. Some people who knew Mr. Buencamino describe him as a large, friendly man devoted to his children, the life of many a party and a passionate golfer. Gary Weaver, who rented a home to Mr. Buencamino last year, has a different impression. He said the Arizona businessman tried to snare him in an elaborate mortgage scheme.

According to a federal indictment unsealed in June, while Mr. Buencamino was renting Mr. Weaver’s house on the golf course at Moon Valley Country Club, he intercepted mail intended for Mr. Weaver and obtained his social security number, then applied for a driver’s license in Mr. Weaver’s name.

Then, the indictment alleges, with the help of a friend who worked as a loan officer at a local branch of Compass Bank, a unit of Spanish bank Banco Bilbao Vizcaya Argentaria SA, Mr. Buencamino obtained a $245,000 cash-out mortgage on the property. A homeowner using a cash-out mortgage refinances the home loan for more than the mortgage is currently worth and pockets the difference in cash.

A Compass Bank spokesman didn’t respond to requests for comment. Mr. Buencamino, who couldn’t be located for comment, has not responded to the charges.

A federal agent said he had been tracked to Vancouver, where the agent said he is applying for Canadian residency. Prosecutors involved in the case said he didn’t have an attorney on whom they could serve court papers. U.S. authorities said they were seeking his extradition.

“Fraud continues to be a pervasive issue, growing and escalating in complexity,” said an April report from LexisNexis’s Mortgage Asset Research Institute, which cited as reasons easy access to records via the Internet and, in many cases, though not Mr. Weaver’s, the vulnerability of cash-strapped homeowners.

MARI’s breakdown of the numbers reflects the shift in technique. Fraud related to falsified credit reports has declined each year since the boom years, MARI reports, while the share of mortgage fraud involving false appraisals jumped 50% between 2008 and 2009.

Application fraud—in which borrowers lie about their names, where they live, how much money they earn, their employment, their debt or their assets—remains high, accounting for 59% of all mortgage fraud.

One of the defendants in the New Jersey dragnet, a mortgage consultant with Newark-based Invest & Investors LLC named Viviane Bernardim, allegedly paid accomplices $15,000 apiece to steal the identities of several New Jersey residents who earned $90,000 or more and had good credit ratings. She used those identities to obtain second mortgages on a number of homes in the Newark area, according to U.S. Attorney Paul J. Fishman, head of the office prosecuting the case.

But since good credit ratings are no longer enough to get a mortgage, Ms. Bernardim also needed friends who worked for the lenders to pull off the caper.

“Having players at every level of a conspiracy makes it easier to carry out fraud,” said Mr. Fishman. “But each bad actor and criminal act is also another chance for law enforcement to find a way in.”

Maria Delgaizo Noto, an attorney for Ms. Bernardim, said that she had no comment until an indictment was unsealed, but that her client “maintains her innocence of any criminal activity.”

In Phoenix, Mr. Buencamino’s alleged fraud was assisted by an insider, but also by easy access to public documents on the Internet. After intercepting mail intended for Mr. Weaver and obtaining his Social Security number, Mr. Buencamino applied online for an Arizona driver’s license in Mr. Weaver’s name, according to the criminal complaint and law enforcement agents involved in the case.

When he received the permit, he submitted mortgage application documents by mail to Compass Bank and, with the help of co-conspirator William Baxaveneous, the Compass loan officer, obtained a second mortgage on Mr. Weaver’s home—which had no mortgage—without ever having to meet any bank officials face to face, Mr. Weaver said. He said he learned this from the federal agents investigating the case.

Mr. Baxaveneous’s attorney said he was trying to settle the case and declined to comment further.

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WASHINGTON (AP) — Nearly half of the 1.3 million homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have fallen out.

The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday’s report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

“The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications,” said Mark Zandi, chief economist at Moody’s Analytics.

Besides forcing people from their homes, foreclosures and distressed home sales have pushed down on home values and crippled the broader housing industry. They have made it difficult for homebuilders to compete with the depressed prices and discouraged potential sellers from putting their homes on the market.

Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government program have been cut loose through July, according to the Treasury report. That’s about 48 percent of the those who had enrolled since March 2009. And it is up from more than 40 percent through June.

Another 421,804, or roughly 32 percent of those who started the program, have received permanent loan modifications and are making their payments on time.

RealtyTrac reported that the number of U.S. homes lost to foreclosure surged in July to 92,858 properties, up 9 percent from June. The pace of repossessions has been increasing and the nation is now on track to having more than 1 million homes lost to foreclosure by the end of the year. That would eclipse the more than 900,000 homes repossessed in 2009, the firm says.

Lenders have historically taken over about 100,000 homes a year, according to RealtyTrac.

Zandi said the government effort will likely end up helping only about 500,000 homeowners lower their monthly payments on a permanent basis. That’s a small percentage of the number of people who have already lost their homes to foreclosure or distressed sales like short sales — when lenders let homeowners sell for less than they owe on their mortgages.

Zandi predicts another 1.5 million foreclosures or short sales in 2011.

“We still have a lot more foreclosures to come and further home price declines,” Zandi said. He said home prices, which have already fallen 30 percent since the peak of the housing boom, would drop by another 5 percent by next spring.

Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork.

The banking industry said borrowers weren’t sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers’ monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out.

Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period. Those who have successfully navigated the program to reach permanent modifications have seen their monthly payments cut on average by about $500.

Homeowners first receive temporary modifications and those are supposed to become permanent after borrowers make three payments on time and complete all the required paperwork. That includes proof of income and a letter explaining the reason for their troubles. But in practice, the process has taken far longer.

The more than 100 participating mortgage companies get taxpayer incentives to reduce payments. As of mid-June only $490 million had been spent out of a potential $75 billion the government has made available to help stem the wave of foreclosures.

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Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”-an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.

That means hordes of victims of predatory lending could end up owning their homes free and clear-while the financial industry could end up skewered on its own sword.

California Precedent

The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E-11. The court held that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:

Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.

In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:

Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.

The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:

This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

What Could This Mean for Homeowners?

Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS’ technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.

An August 2010 article in Mother Jones titled “Fannie and Freddie’s Foreclosure Barons” exposes a widespread practice of “foreclosure mills” in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.

In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders’ case in 2004. Five years later, she says, some of the homeowners she’s helped are still in their homes. According to a Huffington Post article titled “‘Produce the Note’ Movement Helps Stall Foreclosures”:

Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action ‘quiets’ all other claims). Charney says she’s helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.

Criminal Charges?

Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used “the artifice of MERS to sabotage the judicial process to the detriment of borrowers;” that “to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;” that the scheme depended on “the MERS artifice and the ability to generate any necessary ‘assignment’ which flowed from it;” and that “by engaging in a pattern of racketeering activity, specifically ‘mail or wire fraud,’ the Defendants . . . participated in a criminal enterprise affecting interstate commerce.”

Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.

By Their Own Sword: MERS’ Role in the Financial Crisis

MERS is, according to its website, “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Or as Karl Denninger puts it, “MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!”

MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:

Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder’s office where documents reflecting any ownership interest in real property are kept….

After MERS, . . . the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible …. The servicer was interested in only one thing - making a profit from the foreclosure of the borrower’s residence - so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the ‘beneficiary’ under millions of deeds of trust in Nevada and other states.

Axing the Bankers’ Money Tree

If courts overwhelmed with foreclosures decide to take up the cause, the result could be millions of struggling homeowners with the banks off their backs, and millions of homes no longer on the books of some too-big-to-fail banks. Without those assets, the banks could again be looking at bankruptcy. As was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko [pdf] decision:

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

. . . The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail . . . .

Nationalization of these giant banks might be the next logical step-a step that some commentators said should have been taken in the first place. When the banking system of Sweden collapsed following a housing bubble in the 1990s, nationalization of the banks worked out very well for that country.

The Swedish banks were largely privatized again when they got back on their feet, but it might be a good idea to keep some banks as publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century it served as a “people’s bank,” making low interest loans to consumers and businesses through branches all over the country.

With the strengthened position of Wall Street following the 2008 bailout and the tepid 2010 banking reform bill, the U.S. is far from nationalizing its mega-banks now. But a committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.

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The latest buzz about the tiff between the helpless homeowners and the lenders brings out a new tale which could be due to possible miscommunication and improper information. Some homeowners in California, who were facing difficulty in making their payments on their mortgage, have claimed that they were informed by their banks that they had to be delinquent on their mortgage payments to qualify for modifications. Thereby, their Chase representative kept them from paying their mortgage payments in order to make them eligible for the above said modifications. This plan clicked and the owners received a letter informing them about their qualification for the modified program in June 2009. But just three weeks later the owners again received a letter. This time it informed them of that Chase was foreclosing on the home. When asked, the banks denied this. In fact, they claimed that they have not foreclosed on the properties at all. Meanwhile real estate agents started dropping in under the impression that their home was an REO. Though the banks have denied any kind of foreclosure, the public records narrate a different story altogether. Public records clearly show the foreclosure mentioned above. No one has any clue what the bank was actually up to! At the receiving end, the poor families spent months trying hard to clear the air with the bank, to no avail. Finally one family filed a complaint in the District Court and sued the bank. The causes of action were breach of contract, violation of Fair Credit Reporting Act, predatory lending and fraud. The couple demanded from JP Morgan Chase a sum of $150,000 as compensation.

This is not all.

There is some more bad news for JP Morgan Chase. More customers from different locations have come forward with the same claims and charges against JP Morgan Chase for predatory lending and foreclosures. JP Morgan Chase though went on to claim that in one of such cases the home was not foreclosed at all while the records clearly show that the property was sold to another party while the actual homeowners who toiled hard every day were evicted out. The reality for the banks should be coming clear and it is hoped that the lenders will take notice of the experience of JP Morgan Chase and will work in an honest way along with the home owners so that the home foreclosures decrease and more mortgages are modified to let people manage their mortgage payments during this recession.

Countrywide is paying the biggest tab yet in settling a subprime class action suit

And like it or not, the deal brings a rare bit of good news for some embattled former executives of the troubled mortgage lender, including longtime CEO Angelo Mozilo (right).

angelo mozilo

A federal judge signed off Monday on a settlement under which former shareholders of the troubled mortgage will get $624 million, the Los Angeles Times reported. The plaintiff lawyers called the sum the largest shareholder settlement since the mortgage meltdown started in 2007.

The company didn’t admit to any wrongdoing. “Countrywide denies all allegations of wrongdoing and any liability under the federal securities laws,”  a spokeswoman writes. “We agreed to the settlement to avoid the additional expense and uncertainty associated with continued litigation.”

But shareholders led by a group of New York pension funds say they were ripped off when Countrywide failed to inform them of its growing dealings in low-quality loans.

“Countrywide’s actions have improperly enriched executives at the expense of shareholders,” New York City Comptroller John C. Liu, who serves as a trustee of some of the plaintiff pension funds, said in May when a preliminary deal was reached. “This historic settlement sends a strong message that this behavior is unacceptable in Corporate America, and that management will be held accountable to shareholders, especially when they put self-interest before shareholders’ interests.”

But how strong is the message when all the payments will be made by Countrywide’s owner and its auditor? Not a penny will be paid by the executives and directors who were at the helm when the company plunged head-on into the business of lending to riskier customers.

Bank of America (BAC), which acquired the mortgage lender two years ago and has since stopped using the Countrywide name, will pay $600 million and accounting firm KPMG will pay $24 million.

The Countrywide settlement comes just days after officers and directors in another big subprime class action agreed to pay $90 million to settle claims in that case. New Century co-founder Brad Morrice said then that he hoped the settlement “would make up for some of the losses suffered and provide closure to me and the shareholders.”

Closure isn’t coming any time soon for Countrywide. Bank of America’s annual report provides a list of legal cases tied to Countrywide that covers parts of three pages.

Nor is Mozilo out of the woods. He and two other former Countrywide execs still face a Securities and Exchange Commission fraud suit that centers on familiar allegations, that the company duped shareholders by failing to disclose the growing risk of its subprime lending business.

Still, for one more day at least he and his friends atop the nation’s most notorious subprime lender got off scot-free.

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New documents released by the House Committee on Oversight shed shocking new light on the cozy partnership between Countrywide Financial Corporation and Fannie Mae — which left taxpayers holding the bag for billions in subprime loans.

The documents show that dozens of Fannie Mae employees accepted VIP loans and VIP treatment from Countrywide.

According to investigators, Countrywide’s VIP treatment could range from special handling of customer phone calls to discounted loan rates worth thousands of dollars on a loan.

Rep. Darrell Issa is asking investigators to see whether the VIP loans violate conduct codes of the government sponsored mortgage funder. According to Issa, employees may have benefitted personally from the risky relationship forged between Countrywide and Fannie Mae, even as the system was falling apart.

Previously named recipients of VIP loans from Countrywide included Senator Christopher Dodd (D-CT) and Senator Kent Conrad. (D-ND) After a yearlong investigation, a Senate ethics committee cleared Sens. Dodd and Conrad saying it found “no substantial credible evidence” that they broke Senate gift rules.

D.C. Power Players Get Sweetheart Deals

New Twist in Countrywide Loan Probe

The documents come from Countrywide’s successor, Bank of America, which has now produced 44,000 documents under subpoena for the VIP program records. In all, they show 153 Countrywide VIP loans to borrowers employed by Fannie Mae. Some borrowers accepted multiple VIP loans from Countrywide.

According to the documents, the number of loans to Fannie Mae workers spiked twice during Countrywide’s VIP program: in 1998 as Countrywide was negotiating a volume discount with Fannie Mae - the House Oversight Committee says that was followed by the exclusive agreement the two arrived at in 1999 to sell Fannie Mae billions of dollars in mortgages for what amounted to a volume discount.

According to the documents, the second spike in Countrywide loans to Fannie Mae workers happened in 2001-2003 on the leading edge of the mortgage boom - from late 2002 and 2004 - when Countrywide expanded its VIP loan unit.

Specifically, around the time that the partners were negotiating their exclusive partnership in 1999, documents indicate Countrywide CEO Angelo Mozilo gave Fannie Mae CEO Jim Johnson preferential treatment on more than $10 million in personal loans.

The documents show Countrywide also gave VIP loans to other senior leadership of Fannie Mae including:

–Then-CEO Franklin Raines, who succeeded Mr. Johnson on Jan 1, 1999.

–Then-Fannie Mae Vice Chairman Jamie Gorelick

–Then-Fannie Mae COO Daniel Mudd

Key figures, including Franklin Raines, have all said they did not get special treatment and/or were not aware they received any special treatment connected to their Countrywide VIP loans.

Read the New Documents Below

CBS News has obtained the following list of then-Fannie Mae employees whose names have been turned over to investigators as having received VIP loans from Countrywide:

Sandra Adams: Fannie Mae Account Associate

Nitirwork Armstrong: Fannie Mae Director

Gregg Ayres: Fannie Mae Customer Acct Manager

Jeffrey Baker: Fannie Mae Business Analyst

Ingrid Beckles: Freddie Mac VP Default Mgmt

Cherry Billings: Fannie Mae Asst to CEO

Christine Buckley: Fannie Mae Sr Assistant

Sharon Canavan: Fannie Mae Govt Relations/Lobbyist

Delynn Conley: Fannie Mae Underwriter

Carla Corpuz: Fannie Mae Senior Underwriter

Tanguy De Carbonnieres: Fannie Mae Legal Counsel

Bernard Deane: Fannie Mae Director

Mollie Dougherty: Fannie Mae Sr Business Manager

Roy Downey: Fannie Mae Director

Cynthia Fatica: Fannie Mae Legal Counsel

Jamie Gorelick: Fannie Mae Vice Chair

Lizbeth Grant: Fannie Mae Director Tec/Secondary Mkt

Greta Hamilton: Fannie Mae Manager/Home Loans

Lester Handy: Fannie Mae Consultant

James Johnson: Fannie Mae Chairman and CEO

Jack King Fannie: Mae Manager

Karen King Fannie: Mae Credit Risk manager

Gerald Langbauer: Freddie Mac VP Sales

Derek Lowe Fannie: Mae Technician/Home Loans

Mary Lee Moriarity: Fannie Mae Sr Underwriter Consult/Lending

Daniel Mudd: Fannie Mae Vice Chair and COO

Paulette Porter: Fannie Mae Sr Proj Mgr/Mtg Securities

Alan Quirion: Freddie Mac Director

John Radwanski: Freddie Mac Sr Port Direc

Franklin Raines: Fannie Mae Chairman and CEO

Robin Ramsay: Fannie Mae Customer Acct Manager

Rebecca Rosena: Fannie Mae Credit Risk manager

Irwin Rosenstein: Fannie Mae Ass. General Counsel

Robert Sanborn: Fannie Mae Vice President

William Shirreffs: Fannie Mae Director

Joseph Silva: Fannie Mae Servicing Portfolio Manager

Donna Simpson: Fannie Mae Customer Acct Manager

Michelle Sorensen: Fannie Mae Sr Business An/Mortgage

Mary Ann Staley: Fannie Mae Marketing Dir

Deborah Kay: Tretler Fannie Mae VP Risk Management

Kirk Willison: Freddie Mac VP Trade Relations/Dir Industry Relations

David Yoon: Fannie Mae Acct Associate

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As part of a nationwide analysis, CoreLogic has identified parts of Orange County where their data reflects some mortgage fraud occurred between 2005 and 2009. These rates are compared to a national average of 0.55%:

I asked the folks at CoreLogic about their use of the term ‘hot spots” in light of the statistics. Not to make light of any type of fraud, but even in the O.C. ZIP that they cited as the worst, Fullerton’s 92832, the fraud rate was 1.55% — obviously a very small percentage of loans.

Tim Grace, senior VP of Fraud Analytics at CoreLogic, responded:

“Yes, 1.55% is a seemingly small amount when considered by itself, but what matters is the relative comparison to the national average (0.55%) as well as the Orange County average (0.45%). The Fullerton ZIP code (92832) has an observed fraud rate almost 3X the national average and 4X the Orange County average — it is the most significant ‘hot spot’ for mortgage fraud in Orange County (with Garden Grove (92843) close on its heels at 1.53%).”

As to how the study was conducted, Grace said, “The statistics reported are based on actual reports from lenders (as opposed to a sampling / extrapolation method) regarding non-fraudulent and fraudulent loans.”

More findings from the report in upcoming posts. We’re also seeing if we can get dollar amounts.

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SHANGHAI — A week after the Agricultural Bank of China raised nearly $20 billion from global investors in one of the biggest stock offerings in history, analysts are warning about growing risks to China’s banking system.

A report released on Wednesday by Fitch, the credit ratings agency, said Chinese banks were increasingly engaging in complex transactions that hid the size and nature of their lending, obscuring hundreds of billions of dollars in loans and possibly even masking a coming wave of bad real estate and infrastructure loans.

The report also said that Chinese regulators significantly understated loan growth in the first half of the year, by 28 percent, or about $190 billion, and that many banks continued to secretly shift loans off the books, resulting in a “pervasive understatement of credit growth and credit exposure.”

“The growing amount of credit moving out of the banking system through these channels is one of the most disconcerting trends we’ve seen in China in recent years,” Charlene Chu, a Beijing-based banking analyst at Fitch, said of the practice of repackaging loans and moving them off bank balance sheets.

While China’s economy remains robust, the report is troubling because the country’s recovery has been fueled by aggressive lending and soaring property prices. Lending by state-run banks was one of China’s most aggressive forms of economic stimulus last year, but analysts constantly warned that banks could face the risk from overbuilding and nonperforming loans.

Beijing is trying to tame housing prices, rein in overly aggressive lending and stop banks from shifting loans off their books.

China’s biggest banks, like Bank of China and China Construction Bank, are relatively healthy, analysts say. But many banks could face sizable risks if borrowers failed to repay the loans.

The Fitch report does not name any banks specifically, but it raises concerns about the health of China’s banks as many begin to raise capital through initial public offerings. The Agricultural Bank begins trading on Thursday in Shanghai, while three other big state banks, including the Bank of China, have each raised billions of dollars in public listings in the last five years.

Analysts say that trying to rein in growth is a delicate and precarious balancing act and that even regulators are struggling to keep up with the rapid innovation in the banking system.

Chinese banks reported a sharp drop in lending in the first half of the year after record amounts in 2009, suggesting that the economy was growing at a strong clip with more normalized lending.

But Fitch said on Wednesday that lending had continued to be aggressive — powering the economy, but raising the risk of nonperforming loans.

Much if the lending through off-balance-sheet channels is fueled by privately owned trust companies that are partnering with banks and engaging in complex deals that involve repackaging loans into investment products — akin to an informal type of securitization.

The deals are essentially disguised loans, analysts say. Beijing has tried repeatedly to stop the practice, but analysts say that banks and trust companies have come up with innovative ways around the rules.

Last week, the China Banking Regulatory Commission ordered banks to stop working with trust companies to securitize or repackage loans, according to industry analysts. But the regulator made no official announcement.

A spokesman in Beijing for the commission declined to comment on Wednesday, insisting that senior officials needed to be alerted to the request for an interview.

Analysts are examining what appears to be a widespread practice of funneling billions of dollars into real estate and government infrastructure projects through off-balance-sheet deals with trust companies.

Stephen Green, a Shanghai-based analyst at Standard Chartered Bank, said trust companies in China were acting as intermediaries and partnering with banks to raise and then lend money to a variety of projects…read the rest of this story.