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http://www.triduanum.com/memo.pdf
RESTORING INTERNATIONAL CONFIDENCE IN AMERICAN MBS/CMBS/ABS
INVESTMENT SYSTEM
BY: CHRISTOPHER JARED WARREN
A. Resume
Before diving into the heart of what is wrong, why its wrong, and what is needed to fix it, I must
speak on my qualifications for this dissertation to substantiate my arguments. My name is
Christopher Jared Warren, and in 2001 I was hired as a 19 year old to become a sales Account
Executive for ACC Capital Holdings subsidiary, the now infamous “Ameriquest Mortgage
Company”. Over the next three years of employment, I became the shining star of “portfolio
retention”, a predatory division that would specialize in refinancing home owners who JUST got
loans from Ameriquest in the last 24 months. I was the number one producer in the region over
60% of the time I was there, the company sent me to management training in Orange CA twice,
trips to the Super bowl twice, Hawaii and Las Vegas based on my large production statistics and
paychecks. Most moths I would individually sell more then $5,000,000 in volume and bring in
over $30,000 in net income……typically ore then 15 loans with more then 3 points and all rates
higher then 7.00% - much higher then industry standard at the time and not to mention not bad
for a 19-22 year old kid with no degree. As a19 then 20 year old boy, my managers and handlers
taught me the ins and outs of mortgage fraud, drugs, sex, and money, money, and more money.
My friend and manager handed out crystal methamphetamine to loan officers in a bid to keep
them up and at work longer hours. At any given moment inside the restrooms - cocaine and meth
was being snorted by my estimates more than a third of the staff, and more than half the staff
manipulating documents to get loans to fund and more then 75% just completely made false
statements on 1003s regarding stated income etc to get loans funded. A typical welcome aboard
gift was a pair of scissors, tape, and white out, three things a loan officer or financial professional
should never need.. Of course no where in training OR in management training did this 20 year
old ever learn that false statements on a 1003 were a federal offense. Overall in the two and half
years I was at Ameriquest I funded over $90,000,000 in mortgages, of which more then
$75,000,000 contained some sorts of material frauds undetected by management and funders.
However, near the end of my employment there, I had hacked the computer systems run by
EMPOWER for Ameriquest and was clearing my own funding conditions with no
documentation, literally waiving file conditions as if I were an underwriter. The day I left I left
with the entire customer database. I had made over $700,000 I was 22 had beat their system, had
gotten paid and ripped off one of the largest private companies in the worlds entire customer
database.
So what to do with 680,000 Ameriquest customer private information? Well………..start a
mortgage company and offer better rates and lower fees then AMC. So at the ripe old age of 22, I
founded a mortgage brokerage/bank - WTL FINANCIAL INC., at 22, a fraudster trained by the
best corporate environment for fraud, I built a company modeled after the movie boiler room and
got WTL licensed in OR CA, MN, CT, RI, FL as a mortgage banking company. From 2004 until
its grand 2007 collapse, WTL killed it. As a 22, 23, and 24 year old with no credentials I made
over $2.25m all of which was spent on 24 cars(at 26 the number is only 31 total), 5 houses,
drugs, 1 engagement and split, 1 300 person wedding, 2 kids. Our company boasted region-best
30,000 square feet, 120 employees, and handling a monthly gross revenue over $5m. Fraud was
rampant. We found investors that were not re-pulling credit reports, so we would change a 500
fico to a 700 fico, a person in foreclosure and make It look like they were never late, fake w2s,
pay stubs, bank statements, verification of deposits, none of which was being re-verified. These
investors, who were securitizing these assets as AAA rated were not even verifying anything in
the files? I am sure that their investors were assured everything from correspondents was being
audited. Every time a lender caught a file we would “fire” the employee produce termination
paperwork to the investor, and re-hire the employee under a different alias. Over the course of
the 3 years, over $810,000,000 in mortgage backed securities originated from my companies.
That’s a 24 year old selling a billion dollars in bad mbs securities which by 2008 were in default
with out doubt. With the collapse of sub prime giant New Century, came our defeat, as we were
too big and too stiff to be agile enough to change.
So then in 2007 I diversified. I knew everything at the age of 25 about mortgage banking,
origination, funding, reselling securities, underwriting. It was time to learn new things: money
laundering, escrow company management, real estate, flipping, lease-backs, joint ventures, llc
unit capital offerings. I found my place to learn AFG HOLDINGS COMPANY, the parent
company of LOOMIS WEALTH SOLUTIONS, AFP of California LLC., AFG Technologies,
and Nationwide Lending Corp(their mortgage banking division). I started as the general manager
for the mortgage company, turning it around in 90 days. When I showed up they hadn’t funded a
loan in 66 days, they had no warehouse line and no investors. Within 90 days NLG was funding
again, with a warehouse line, investors like Indymac, Lehman Brothers, and CITI Mortgage
Corp. The trick to this company was simple: AFG would partner with developers and buy real
estate at 50 cents on the dollar, then sell it to his “financial consulting” members for 80 cents on
the dollar, wed appraise the properties at 100 cents on the dollar artificially inflate the purchase
prices so the loans were at 80 AFG would credit back the down and the closing costs. AFG
would net 25 points per closing and promise the buyers they would oer the mortgage payment,
property management and even buy them free life insurance policy if they bought enough
houses. This is what you call a classic panzi scheme because it requires exponential growth to
continue. Words I never knew or understood prior to my experience there. Even in that volatile
and crunching down market, fraud was still easy to execute. Another $44m funded while I
managed the firm, until I got kicked out for starting my own title and escrow company. The
complete operation was highly illegal and a form of a panzi scheme. Still, I had no problems or
resistance in getting close to fifty million in mortgages purchased and closed. Loomis Wealth
and AFG Holdings ended up getting indicted by the Department of Justice after extensive
investigation by the FBI and the IRS. There is currently an investigation into my role with this
firm and likely I myself will be indicted.
Built a fraudster by my trainers in corporate America. Mastered the fraud. Trained others in the
fraud. Paid by the fraud. Mastered mortgage banking, escrow, real estate. Every scam possible:
fraud for profit, fraud to fund loans for the under-qualified, fraud of evasion of taxes, reverse
flipping, flipping, false liens, software manipulation.
And it utterly disgusts me. Looking back at the life I have led, I beg a higher power for
forgiveness. For mercy. For I got caught up, my first corporate experience taught me fraud mixed
with drugs and money. The very top ranks of the corporate ladders knew what was going on.
“When a pool of loans gets audited they will audit less then 10% of that bulk pool, and if they
find a loan with misreps we simply replace it with a loan from another pool and put the bad loan
back in to another pool and hope it wont get audited”2002 Vice President of Collateral –
Ameriquest Mortgage in Orange, CA. But its always the small guy, the kid, the kid off the street
with no college degree no ethics training no nothing they teach how to do their dirt, like a gang
recruiting a minor who will only go to juvy. I was only rewarded for my actions. Trips, over 16
trophies from AMC alone, prizes and huge paychecks. I am disgusted. This is the reason
American Mortgage Backed Securities and ABS pools are being hammered and default rates are
at heir highest level. And what has been bred is a new generation of younger fraudsters that are
young, technology adapt, and much quick and innovative then their two generation older
counter-part regulators and regulation authors.
And it is around that final point that is the center for this memo on mortgage fraud its
consequences and final solution: the disparity between the talent of the regulators and the
fraudsters. The age plays into it. The ambition and drive plays into it. The technology plays into
it. But still, if you could only put the correct people at the top of regulation, writing the reg
manuals and enforcing them to 100% on pre-purchasing of assets by the government, you could
literally cut mortgage fraud down so massively that you could see a return to below traditionally
acceptable foreclosure rates, somewhere in the 1.5 – 2.5% range vs the typically accepted range
of 3-5% and the current level of 13.9% and in California, FL, NV over 21%. That’s right,
eliminate mortgage fraud. Completely. Forever.
And if it doesn’t happen, this economic downturn which was entirely started by mortgage
fraud(well get into that in a minute) will continue to plague us and housing will not get a solid
footing in housing again because currently I would speculate that over 40% of mortgage
securitizations today in Q1 2009 have some form of misrepresentation on them, whether detected
or undetected. If you fix MBS and ABS securities, you will re-ignite performance and foreign
and domestic investors will believe again in a broken system, putting back much needed cash
into the system to increase liquidity, balance sheet, and the overall economic production of the
nation.
I helped ruin this nations economy. Almost a billion dollars of toxic assets came from me
making others above me rich beyond my imagination. They asked for more and more,
knowingly, and I gave it to them. Now I intend to fix it and help the best I can by sharing what I
have learned and know. I am the best at what I was taught and then re-created again and again
and mastered myself. I am the best man for shutting it down. Completely and forever.
2. The Heart of The Problem
The credit crisis. The recession. The total fall out of investors foreign and domestic fleeing from
once-loved American ABS and MBS securities. The fall out of the this has spread to a lack of
liquidity from home owners to corporations, affecting everything from gas to employment
figures, to the auto industry. The current state of the financial markets as of Q1 09 entirely has its
roots in the mortgage and real estate collapse which in turn crippled and effectively killed the
credit markets. When the problems first started arising in 2006, economic experts predicted that
the problem was only a “sub prime” and “alt a” problem that would stay confined to the
companies like Long Beach Mortgage, Ameriquest, New Century, ABC Mortgage, Indymac,
those companies that insured, purchased, and securitized loans with horrible underwriting
guidelines. The problem was this: it wasn’t just these independent or subsidiary companies at all.
Deutche Bank, Merryl Lynch, Citi Group, all were purchasing insanely high volumes of funded
loans with horrible underwriting guidelines that would have made an underwriter from the 70s or
80s complete scream at the top of his lungs in concern. But its not just the underwriting
guidelines that caused this, because that is already fixed by Q1 09. In today's current climate,
underwriting guidelines are where they should be. Full documentation on income, lower levels of
debt allowed vs your income, and more needed for down payments or more equity to be
approved for a refinance. All this being done, still does not come close to fixing the problem.
Now, more then ever, in this market, as an industry insider I see more fraud happening now then
in 2005. More fraud. Bigger fraud. Bigger profits. More defaults and foreclosure. So the
underwriting is fixed but the industry still cannot improve the performance of their mortgage
backed securities.
The problem is mortgage fraud has morphed, and will never ever bee a stagnate thing. The
regulators, managers, qc department employees, guideline writers, and board members of
mortgage lending institutions and banks are all, when averaged, over the age of forty seven. The
average mortgage fraudster is in mid twenties to early thirties. Most fraudsters are complete
idiots, as they are just the typical criminal, that have found a different arena to smash around in.
They are the easy ones to find: first payment defaults, obvious white out on documents, 1003s
that don’t match Super pages or cant pass a Veri-tax.com Mortgage Fraud Report. The current
system is good at catching these gentlemen and ladies. The problem is the 5% of fraudsters out
there there are extremely intelligent, agile, and constantly innovating techniques to beat every
effort of the anti-fraud forces in the banking industry. Age plays into this, because the youth is
innovative and aggressive, and as we age and approach AARP land, we become less nimble in
our mind, closed to new ideas.
I actually had an FBI agent ask me “how in this market with all the changes is it even still
possible to get cash back on a purchase”. Any FBI agent who has to ask that question, shouldn’t
be involved in a mortgage fraud investigation, period. This example brings us the second
problem, and that’s the individuals fighting fraud are doing it completely backwards and with the
wrong skill-sets. Mortgage fraud can be, should be, and is desperately needed to be fought from
the front, aggressively stopping mortgage fraud before the funding date by a special division, a
nationwide division, that is focused on mortgage data, title and records, and streaming
information from investors, funders, and originators. Mortgage fraud currently is regulated by
prosecution. This is unacceptable.
Lastly there is way too much duplication in our current system of collateralized lending and
mortgage securitization. This leads to poor performance, fragmented information sharing if any
at all, and low securities performance. The fact is simple that with the nationalization of Freddie
and Fannie that is four government-owned agencies that are purchasing and/or insuring over
96.5% of the mortgage fundings on residences in America. That is so beyond against the
constitution, but mandatory in todays market. We must realize that subsidy is the savior from
depression, which can easily be accepted once studied. But if the government if this country is
going to be this big of a player on the nations biggest natural resource: American land and
lending on that land, then it absolutely and unequivocally cannot run it like it runs most of its
bureaucracy's: inefficiently. It has to be streamlined. It has to be non-duplicated in roles and
responsibilities. It has to have its own internal mechanisms of regulations and controls and
checks and balances.
Why are there THREE institutions that do the EXACT same thing for the federal government
and the three boards and senior managements of those firms take out over $200m a year in
compensation when the companies are losing money? Why is the performance of the securities
suffer so much? Because they aren’t doing it right and haven’t been. The answer is simple: the
mortgage industry fell behind the technology industry department, and never caught up, and it
has cost them and now the entire country greatly, in the trillions of dollars.
The philosophy is wrong: instead of regulation by prosecution it should be regulation to prevent
fraudulent fundings. This has to change first and foremost. When your at war, and trust me, this
is a financial war with huge consequences(fraud losses topping over ¾ of a trillion dollars in
2008), you don’t wait for the opposing enemy to bomb, then invade your home towns and then
after they have burned your bridges and farms and houses drop a nuke on your own home town
to kill them. That is the equivalent of our current regulation. Let the fraudsters do fraud, they
fund a bunch of bad loans, and after the losses have piled high enough then and only then do we
go in a tear it all up. You have to catch them upfront. Its possible. The current staffing,
regulators, and investors simply are too under-qualified, under-trained, and not coordinated with
each other enough to make it happen. Their solution is fancy computer modular software that
gives you “mortgage fraud scores” or “avm modules” to “reconcile discrepancies”. Its all
bullshit, I have beaten those computer models time and time again and other fraudsters know
how to as well and you will continue to see the same results if the same regulators, regulation
writers, and enforces stay in place that exist today.
The analysis is wrong: many times FBI agents who just got transferred from narcotic divisions or
international assignments are put on mortgage fraud with absolutely no background. It has taken
me ten years of learning to get to where I am and I would consider myself an extremely capable
and fast learner far above average and anyone with less then five experience has no right leading
or working a mortgage fraud case. Mortgage fraud cases MUST be worked by industry insiders.
And while there must be oversight and traditional law enforcement structure and attorneys at the
top and managing it, those insiders must be younger or show extreme signs of quick learning
ability and/or demonstrate knowledge of today's advanced fraud techniques. Its a very basic
principle that each generation that comes up through the professional world takes the work from
the previous generation and makes strides to improve the efficiencies, technologies, and methods
of the generation before them. The industry must self regulate with law enforcement assistance
with the help of the generation and industry insiders. Meaning if a majority of the fraud is being
committed by 20-30 year olds inside the industry utilizing highly technological techniques why
do you have 40-60 year olds who don't understand the technology who got transferred to this
type of work from interstate commerce, traditional banking, narcotics,etc? You wouldn't and
you shouldn't. As previously stated, traditional law enforcement figures are fine for oversight
and management but you must leverage the best from the other side against themselves,
increasing efficiency bringing in the newer fresher though processes with a better and more
concrete understanding of the business and the fraud. The bigger and more elaborate the
fraudster, the better permanent asset that individual could be if flipped into a consultant and/or
employee for the federal government, specifically the Department of Justice and the Mortgage
Fraud tasks forces.
The time is wrong: the FBI and DOJ are prosecuting their regulation. This is incorrect because
by being reactive instead of proactive you are allowing massive frauds to occur for billions and
billions of dollars in losses and damages further pushing MBS and ABS ratings into the dump,
and eroding investor confidence in the securities. You regulate by doing just that, regulating.
Increase efficiencies and processes, require more burden of proof prior to loan funding and resale
on capital markets. Operate under the assumption that every mortgage application is being
processed by a fraudulent borrower, loan officer, processor, or underwriter. Assume that the
computer technology being used by investors and mortgage banking institutions are inadequate
and are already being beaten by fraudsters, because they are. Assume nothing works and that no
matter what the "representations and warrants" are of a warehouse lender, the correspondent
lender, or the Freddie Mac or Fannie Mae seller, that is not good enough and there is truly no
amount of net worth or security can cover a 50% default or fraud rating.
Change the philosophy change the analysis, change the team and/or add a lot of new team mates,
and change the timing of regulation.
C. Executing Change and Expected Results, A Return to Stability in Securities
Just on the platform that our new commander in chief used, the time for change is now. You can
restore confidence in MBS and ABS, and REITS, and American investing by eliminating fraud.
Today the guidelines have been fixed, but the fraud hasn't, and it has worsened. As more and
more loan officers go broke and more and more real estate professionals go broke they are
turning to fraud to fund deals and raise money. Eliminate fraud and you lower delinquencies, get
rid of foreclosures restore confidence in securities, restore confidence and the credit markets are
restored, and with credit markets restored the rest of the economy will utilize much needed
facilities and regain a solid footing once again. Literally you can fix the majority of the problems
by regulation and eliminating fraud. Streamlining effeciencies must be the first step by merging
the four government agencies into two(Freddie, Fannie, Ginnie, and HUD) into two (HUD and
Freddie) and have Freddie absorb FNMA and Ginnie Mae. Immediately cutting overhead and
costs by over 60% and reducing the staffing and overhead costs, hence increasing profitability
for the government to help offset costs of future defaults of all the mortgages booked prior the
execution of a business plan modeled after this memo.
Next step is to increase the information sharing by all agencies and utilize a platform as an
information verification center. MERS is a perfect government-sponsored entity is the perfect
entity for this. It is already used as an anti-fraud and mortgage transferree platform by all four
government investment houses, all major mortgage funding sources, and a majority of
correspondent lenders. Expand its access to include title searching capabilities, access to all IRS
documentation, and access to FDIC depository records and SEC holding records to verification
of assets independent from the origination processes. Use this verification platform to build the
security, as opposed to utilizing documentation provided by borrower and/or originator. While
this will be the most expensive and very costly endeavour, it pales in comparison to the hundreds
of billions of dollars spent on curing and/or selling toxic assets insured by the tax payers at a
loss. Even at a cost of $1b the return on investment will be over 1000%.
Then infuse talent to any and all federal mortgage fraud investigations currently in process, and
mandate co-operation by all lenders and investment companies for the new blood to have access
to files prior to funding and pipeline reviews - truly regulating pipelines and helping find
criminals prior to funding. Have all Suspicious Activity Reports filed in regards to mortgage
activity immediately diverted to the new task forces force teams. Just as any part of the FBI you
bring in talent on every level, low level, mid level, and management. Not to replace but to act in
concert, provide guidance and speciality information to assist with the cases, and identify and
prevent mortgage fraud in action before fundings occur, bringing regulation to pro-active instead
of re-active.
Following this steps increases efficiency, saves billions of dollars, gets the right people in the
right place, utilizes the talent of the people that actually know what to look for, and will bring
defaults caused by fraud down to acceptable levels: 0-1%. At a maximum. This is what is
wrong and how to fix it. I am the man for the job, Chris Warren, have the management
experience, the banking experience, and could assist in the oversight of the most major
transformation of mortgage regulation without changing one guideline and still completely
eliminate mortgage fraud and restore confidence in the American dream and the securities that
that very dream provides for investors. The performance of the securities improves, the funds
will come back, the government can re-sell off positions in Freddie Mac, or keep possession and
return to massive profitability which could act as a huge profit center to help pay for many
needed budget and defecit shortfalls and provides answers for the overall performance of the
national budget and economy.
Christopher Jared Warren
INVESTMENT SYSTEM
BY: CHRISTOPHER JARED WARREN
A. Resume
Before diving into the heart of what is wrong, why its wrong, and what is needed to fix it, I must
speak on my qualifications for this dissertation to substantiate my arguments. My name is
Christopher Jared Warren, and in 2001 I was hired as a 19 year old to become a sales Account
Executive for ACC Capital Holdings subsidiary, the now infamous “Ameriquest Mortgage
Company”. Over the next three years of employment, I became the shining star of “portfolio
retention”, a predatory division that would specialize in refinancing home owners who JUST got
loans from Ameriquest in the last 24 months. I was the number one producer in the region over
60% of the time I was there, the company sent me to management training in Orange CA twice,
trips to the Super bowl twice, Hawaii and Las Vegas based on my large production statistics and
paychecks. Most moths I would individually sell more then $5,000,000 in volume and bring in
over $30,000 in net income……typically ore then 15 loans with more then 3 points and all rates
higher then 7.00% - much higher then industry standard at the time and not to mention not bad
for a 19-22 year old kid with no degree. As a19 then 20 year old boy, my managers and handlers
taught me the ins and outs of mortgage fraud, drugs, sex, and money, money, and more money.
My friend and manager handed out crystal methamphetamine to loan officers in a bid to keep
them up and at work longer hours. At any given moment inside the restrooms - cocaine and meth
was being snorted by my estimates more than a third of the staff, and more than half the staff
manipulating documents to get loans to fund and more then 75% just completely made false
statements on 1003s regarding stated income etc to get loans funded. A typical welcome aboard
gift was a pair of scissors, tape, and white out, three things a loan officer or financial professional
should never need.. Of course no where in training OR in management training did this 20 year
old ever learn that false statements on a 1003 were a federal offense. Overall in the two and half
years I was at Ameriquest I funded over $90,000,000 in mortgages, of which more then
$75,000,000 contained some sorts of material frauds undetected by management and funders.
However, near the end of my employment there, I had hacked the computer systems run by
EMPOWER for Ameriquest and was clearing my own funding conditions with no
documentation, literally waiving file conditions as if I were an underwriter. The day I left I left
with the entire customer database. I had made over $700,000 I was 22 had beat their system, had
gotten paid and ripped off one of the largest private companies in the worlds entire customer
database.
So what to do with 680,000 Ameriquest customer private information? Well………..start a
mortgage company and offer better rates and lower fees then AMC. So at the ripe old age of 22, I
founded a mortgage brokerage/bank - WTL FINANCIAL INC., at 22, a fraudster trained by the
best corporate environment for fraud, I built a company modeled after the movie boiler room and
got WTL licensed in OR CA, MN, CT, RI, FL as a mortgage banking company. From 2004 until
its grand 2007 collapse, WTL killed it. As a 22, 23, and 24 year old with no credentials I made
over $2.25m all of which was spent on 24 cars(at 26 the number is only 31 total), 5 houses,
drugs, 1 engagement and split, 1 300 person wedding, 2 kids. Our company boasted region-best
30,000 square feet, 120 employees, and handling a monthly gross revenue over $5m. Fraud was
rampant. We found investors that were not re-pulling credit reports, so we would change a 500
fico to a 700 fico, a person in foreclosure and make It look like they were never late, fake w2s,
pay stubs, bank statements, verification of deposits, none of which was being re-verified. These
investors, who were securitizing these assets as AAA rated were not even verifying anything in
the files? I am sure that their investors were assured everything from correspondents was being
audited. Every time a lender caught a file we would “fire” the employee produce termination
paperwork to the investor, and re-hire the employee under a different alias. Over the course of
the 3 years, over $810,000,000 in mortgage backed securities originated from my companies.
That’s a 24 year old selling a billion dollars in bad mbs securities which by 2008 were in default
with out doubt. With the collapse of sub prime giant New Century, came our defeat, as we were
too big and too stiff to be agile enough to change.
So then in 2007 I diversified. I knew everything at the age of 25 about mortgage banking,
origination, funding, reselling securities, underwriting. It was time to learn new things: money
laundering, escrow company management, real estate, flipping, lease-backs, joint ventures, llc
unit capital offerings. I found my place to learn AFG HOLDINGS COMPANY, the parent
company of LOOMIS WEALTH SOLUTIONS, AFP of California LLC., AFG Technologies,
and Nationwide Lending Corp(their mortgage banking division). I started as the general manager
for the mortgage company, turning it around in 90 days. When I showed up they hadn’t funded a
loan in 66 days, they had no warehouse line and no investors. Within 90 days NLG was funding
again, with a warehouse line, investors like Indymac, Lehman Brothers, and CITI Mortgage
Corp. The trick to this company was simple: AFG would partner with developers and buy real
estate at 50 cents on the dollar, then sell it to his “financial consulting” members for 80 cents on
the dollar, wed appraise the properties at 100 cents on the dollar artificially inflate the purchase
prices so the loans were at 80 AFG would credit back the down and the closing costs. AFG
would net 25 points per closing and promise the buyers they would oer the mortgage payment,
property management and even buy them free life insurance policy if they bought enough
houses. This is what you call a classic panzi scheme because it requires exponential growth to
continue. Words I never knew or understood prior to my experience there. Even in that volatile
and crunching down market, fraud was still easy to execute. Another $44m funded while I
managed the firm, until I got kicked out for starting my own title and escrow company. The
complete operation was highly illegal and a form of a panzi scheme. Still, I had no problems or
resistance in getting close to fifty million in mortgages purchased and closed. Loomis Wealth
and AFG Holdings ended up getting indicted by the Department of Justice after extensive
investigation by the FBI and the IRS. There is currently an investigation into my role with this
firm and likely I myself will be indicted.
Built a fraudster by my trainers in corporate America. Mastered the fraud. Trained others in the
fraud. Paid by the fraud. Mastered mortgage banking, escrow, real estate. Every scam possible:
fraud for profit, fraud to fund loans for the under-qualified, fraud of evasion of taxes, reverse
flipping, flipping, false liens, software manipulation.
And it utterly disgusts me. Looking back at the life I have led, I beg a higher power for
forgiveness. For mercy. For I got caught up, my first corporate experience taught me fraud mixed
with drugs and money. The very top ranks of the corporate ladders knew what was going on.
“When a pool of loans gets audited they will audit less then 10% of that bulk pool, and if they
find a loan with misreps we simply replace it with a loan from another pool and put the bad loan
back in to another pool and hope it wont get audited”2002 Vice President of Collateral –
Ameriquest Mortgage in Orange, CA. But its always the small guy, the kid, the kid off the street
with no college degree no ethics training no nothing they teach how to do their dirt, like a gang
recruiting a minor who will only go to juvy. I was only rewarded for my actions. Trips, over 16
trophies from AMC alone, prizes and huge paychecks. I am disgusted. This is the reason
American Mortgage Backed Securities and ABS pools are being hammered and default rates are
at heir highest level. And what has been bred is a new generation of younger fraudsters that are
young, technology adapt, and much quick and innovative then their two generation older
counter-part regulators and regulation authors.
And it is around that final point that is the center for this memo on mortgage fraud its
consequences and final solution: the disparity between the talent of the regulators and the
fraudsters. The age plays into it. The ambition and drive plays into it. The technology plays into
it. But still, if you could only put the correct people at the top of regulation, writing the reg
manuals and enforcing them to 100% on pre-purchasing of assets by the government, you could
literally cut mortgage fraud down so massively that you could see a return to below traditionally
acceptable foreclosure rates, somewhere in the 1.5 – 2.5% range vs the typically accepted range
of 3-5% and the current level of 13.9% and in California, FL, NV over 21%. That’s right,
eliminate mortgage fraud. Completely. Forever.
And if it doesn’t happen, this economic downturn which was entirely started by mortgage
fraud(well get into that in a minute) will continue to plague us and housing will not get a solid
footing in housing again because currently I would speculate that over 40% of mortgage
securitizations today in Q1 2009 have some form of misrepresentation on them, whether detected
or undetected. If you fix MBS and ABS securities, you will re-ignite performance and foreign
and domestic investors will believe again in a broken system, putting back much needed cash
into the system to increase liquidity, balance sheet, and the overall economic production of the
nation.
I helped ruin this nations economy. Almost a billion dollars of toxic assets came from me
making others above me rich beyond my imagination. They asked for more and more,
knowingly, and I gave it to them. Now I intend to fix it and help the best I can by sharing what I
have learned and know. I am the best at what I was taught and then re-created again and again
and mastered myself. I am the best man for shutting it down. Completely and forever.
2. The Heart of The Problem
The credit crisis. The recession. The total fall out of investors foreign and domestic fleeing from
once-loved American ABS and MBS securities. The fall out of the this has spread to a lack of
liquidity from home owners to corporations, affecting everything from gas to employment
figures, to the auto industry. The current state of the financial markets as of Q1 09 entirely has its
roots in the mortgage and real estate collapse which in turn crippled and effectively killed the
credit markets. When the problems first started arising in 2006, economic experts predicted that
the problem was only a “sub prime” and “alt a” problem that would stay confined to the
companies like Long Beach Mortgage, Ameriquest, New Century, ABC Mortgage, Indymac,
those companies that insured, purchased, and securitized loans with horrible underwriting
guidelines. The problem was this: it wasn’t just these independent or subsidiary companies at all.
Deutche Bank, Merryl Lynch, Citi Group, all were purchasing insanely high volumes of funded
loans with horrible underwriting guidelines that would have made an underwriter from the 70s or
80s complete scream at the top of his lungs in concern. But its not just the underwriting
guidelines that caused this, because that is already fixed by Q1 09. In today's current climate,
underwriting guidelines are where they should be. Full documentation on income, lower levels of
debt allowed vs your income, and more needed for down payments or more equity to be
approved for a refinance. All this being done, still does not come close to fixing the problem.
Now, more then ever, in this market, as an industry insider I see more fraud happening now then
in 2005. More fraud. Bigger fraud. Bigger profits. More defaults and foreclosure. So the
underwriting is fixed but the industry still cannot improve the performance of their mortgage
backed securities.
The problem is mortgage fraud has morphed, and will never ever bee a stagnate thing. The
regulators, managers, qc department employees, guideline writers, and board members of
mortgage lending institutions and banks are all, when averaged, over the age of forty seven. The
average mortgage fraudster is in mid twenties to early thirties. Most fraudsters are complete
idiots, as they are just the typical criminal, that have found a different arena to smash around in.
They are the easy ones to find: first payment defaults, obvious white out on documents, 1003s
that don’t match Super pages or cant pass a Veri-tax.com Mortgage Fraud Report. The current
system is good at catching these gentlemen and ladies. The problem is the 5% of fraudsters out
there there are extremely intelligent, agile, and constantly innovating techniques to beat every
effort of the anti-fraud forces in the banking industry. Age plays into this, because the youth is
innovative and aggressive, and as we age and approach AARP land, we become less nimble in
our mind, closed to new ideas.
I actually had an FBI agent ask me “how in this market with all the changes is it even still
possible to get cash back on a purchase”. Any FBI agent who has to ask that question, shouldn’t
be involved in a mortgage fraud investigation, period. This example brings us the second
problem, and that’s the individuals fighting fraud are doing it completely backwards and with the
wrong skill-sets. Mortgage fraud can be, should be, and is desperately needed to be fought from
the front, aggressively stopping mortgage fraud before the funding date by a special division, a
nationwide division, that is focused on mortgage data, title and records, and streaming
information from investors, funders, and originators. Mortgage fraud currently is regulated by
prosecution. This is unacceptable.
Lastly there is way too much duplication in our current system of collateralized lending and
mortgage securitization. This leads to poor performance, fragmented information sharing if any
at all, and low securities performance. The fact is simple that with the nationalization of Freddie
and Fannie that is four government-owned agencies that are purchasing and/or insuring over
96.5% of the mortgage fundings on residences in America. That is so beyond against the
constitution, but mandatory in todays market. We must realize that subsidy is the savior from
depression, which can easily be accepted once studied. But if the government if this country is
going to be this big of a player on the nations biggest natural resource: American land and
lending on that land, then it absolutely and unequivocally cannot run it like it runs most of its
bureaucracy's: inefficiently. It has to be streamlined. It has to be non-duplicated in roles and
responsibilities. It has to have its own internal mechanisms of regulations and controls and
checks and balances.
Why are there THREE institutions that do the EXACT same thing for the federal government
and the three boards and senior managements of those firms take out over $200m a year in
compensation when the companies are losing money? Why is the performance of the securities
suffer so much? Because they aren’t doing it right and haven’t been. The answer is simple: the
mortgage industry fell behind the technology industry department, and never caught up, and it
has cost them and now the entire country greatly, in the trillions of dollars.
The philosophy is wrong: instead of regulation by prosecution it should be regulation to prevent
fraudulent fundings. This has to change first and foremost. When your at war, and trust me, this
is a financial war with huge consequences(fraud losses topping over ¾ of a trillion dollars in
2008), you don’t wait for the opposing enemy to bomb, then invade your home towns and then
after they have burned your bridges and farms and houses drop a nuke on your own home town
to kill them. That is the equivalent of our current regulation. Let the fraudsters do fraud, they
fund a bunch of bad loans, and after the losses have piled high enough then and only then do we
go in a tear it all up. You have to catch them upfront. Its possible. The current staffing,
regulators, and investors simply are too under-qualified, under-trained, and not coordinated with
each other enough to make it happen. Their solution is fancy computer modular software that
gives you “mortgage fraud scores” or “avm modules” to “reconcile discrepancies”. Its all
bullshit, I have beaten those computer models time and time again and other fraudsters know
how to as well and you will continue to see the same results if the same regulators, regulation
writers, and enforces stay in place that exist today.
The analysis is wrong: many times FBI agents who just got transferred from narcotic divisions or
international assignments are put on mortgage fraud with absolutely no background. It has taken
me ten years of learning to get to where I am and I would consider myself an extremely capable
and fast learner far above average and anyone with less then five experience has no right leading
or working a mortgage fraud case. Mortgage fraud cases MUST be worked by industry insiders.
And while there must be oversight and traditional law enforcement structure and attorneys at the
top and managing it, those insiders must be younger or show extreme signs of quick learning
ability and/or demonstrate knowledge of today's advanced fraud techniques. Its a very basic
principle that each generation that comes up through the professional world takes the work from
the previous generation and makes strides to improve the efficiencies, technologies, and methods
of the generation before them. The industry must self regulate with law enforcement assistance
with the help of the generation and industry insiders. Meaning if a majority of the fraud is being
committed by 20-30 year olds inside the industry utilizing highly technological techniques why
do you have 40-60 year olds who don't understand the technology who got transferred to this
type of work from interstate commerce, traditional banking, narcotics,etc? You wouldn't and
you shouldn't. As previously stated, traditional law enforcement figures are fine for oversight
and management but you must leverage the best from the other side against themselves,
increasing efficiency bringing in the newer fresher though processes with a better and more
concrete understanding of the business and the fraud. The bigger and more elaborate the
fraudster, the better permanent asset that individual could be if flipped into a consultant and/or
employee for the federal government, specifically the Department of Justice and the Mortgage
Fraud tasks forces.
The time is wrong: the FBI and DOJ are prosecuting their regulation. This is incorrect because
by being reactive instead of proactive you are allowing massive frauds to occur for billions and
billions of dollars in losses and damages further pushing MBS and ABS ratings into the dump,
and eroding investor confidence in the securities. You regulate by doing just that, regulating.
Increase efficiencies and processes, require more burden of proof prior to loan funding and resale
on capital markets. Operate under the assumption that every mortgage application is being
processed by a fraudulent borrower, loan officer, processor, or underwriter. Assume that the
computer technology being used by investors and mortgage banking institutions are inadequate
and are already being beaten by fraudsters, because they are. Assume nothing works and that no
matter what the "representations and warrants" are of a warehouse lender, the correspondent
lender, or the Freddie Mac or Fannie Mae seller, that is not good enough and there is truly no
amount of net worth or security can cover a 50% default or fraud rating.
Change the philosophy change the analysis, change the team and/or add a lot of new team mates,
and change the timing of regulation.
C. Executing Change and Expected Results, A Return to Stability in Securities
Just on the platform that our new commander in chief used, the time for change is now. You can
restore confidence in MBS and ABS, and REITS, and American investing by eliminating fraud.
Today the guidelines have been fixed, but the fraud hasn't, and it has worsened. As more and
more loan officers go broke and more and more real estate professionals go broke they are
turning to fraud to fund deals and raise money. Eliminate fraud and you lower delinquencies, get
rid of foreclosures restore confidence in securities, restore confidence and the credit markets are
restored, and with credit markets restored the rest of the economy will utilize much needed
facilities and regain a solid footing once again. Literally you can fix the majority of the problems
by regulation and eliminating fraud. Streamlining effeciencies must be the first step by merging
the four government agencies into two(Freddie, Fannie, Ginnie, and HUD) into two (HUD and
Freddie) and have Freddie absorb FNMA and Ginnie Mae. Immediately cutting overhead and
costs by over 60% and reducing the staffing and overhead costs, hence increasing profitability
for the government to help offset costs of future defaults of all the mortgages booked prior the
execution of a business plan modeled after this memo.
Next step is to increase the information sharing by all agencies and utilize a platform as an
information verification center. MERS is a perfect government-sponsored entity is the perfect
entity for this. It is already used as an anti-fraud and mortgage transferree platform by all four
government investment houses, all major mortgage funding sources, and a majority of
correspondent lenders. Expand its access to include title searching capabilities, access to all IRS
documentation, and access to FDIC depository records and SEC holding records to verification
of assets independent from the origination processes. Use this verification platform to build the
security, as opposed to utilizing documentation provided by borrower and/or originator. While
this will be the most expensive and very costly endeavour, it pales in comparison to the hundreds
of billions of dollars spent on curing and/or selling toxic assets insured by the tax payers at a
loss. Even at a cost of $1b the return on investment will be over 1000%.
Then infuse talent to any and all federal mortgage fraud investigations currently in process, and
mandate co-operation by all lenders and investment companies for the new blood to have access
to files prior to funding and pipeline reviews - truly regulating pipelines and helping find
criminals prior to funding. Have all Suspicious Activity Reports filed in regards to mortgage
activity immediately diverted to the new task forces force teams. Just as any part of the FBI you
bring in talent on every level, low level, mid level, and management. Not to replace but to act in
concert, provide guidance and speciality information to assist with the cases, and identify and
prevent mortgage fraud in action before fundings occur, bringing regulation to pro-active instead
of re-active.
Following this steps increases efficiency, saves billions of dollars, gets the right people in the
right place, utilizes the talent of the people that actually know what to look for, and will bring
defaults caused by fraud down to acceptable levels: 0-1%. At a maximum. This is what is
wrong and how to fix it. I am the man for the job, Chris Warren, have the management
experience, the banking experience, and could assist in the oversight of the most major
transformation of mortgage regulation without changing one guideline and still completely
eliminate mortgage fraud and restore confidence in the American dream and the securities that
that very dream provides for investors. The performance of the securities improves, the funds
will come back, the government can re-sell off positions in Freddie Mac, or keep possession and
return to massive profitability which could act as a huge profit center to help pay for many
needed budget and defecit shortfalls and provides answers for the overall performance of the
national budget and economy.
Christopher Jared Warren
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