Mortgage fraud cases top 50 since Western Pennsylvania's task force formed

Jason Cato

Jun. 17, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- Four federal mortgage fraud cases filed Tuesday in Pittsburgh bring the number of prosecutions to more than 50 since a task force was formed last year to investigate such allegations.

"Mortgage fraud doesn't just hurt lending institutions and real estate professionals. It also negatively impacts significant numbers of homeowners each year," U.S. Attorney Mary Beth Buchanan said.

Her office yesterday charged:

--Crystal Spreng, 38, of Cabot in Butler County. Prosecutors say Spreng, while working for Citizens Bank, verified financial documents for real estate loans that she knew were fraudulently inflated.

--Daniel Hoey, 43, of Sewickley with wire fraud conspiracy. Prosecutors say he submitted a fraudulent loan application and inflated property appraisal, and lied about making a downpayment on a Sewickley residence he planned to buy and renovate.

--Robert J. McCully III, 36, of Verona with access device fraud. He is also accused of using another person's Social Security number on a loan application submitted to First Franklin (NASDAQ:FFHS) Financial to buy property and other goods.

--Robert Arakelian, 47, of Friendship with wire fraud conspiracy. The operator of Pittsburgh Home Loans Inc. is accused of inflating the value of collateral property and submitting inflated appraisals, as well as falsely telling lenders that downpayments had been made.

None of those charged could be reached for comment.

Banks and lenders were the victims each time, as they are in most mortgage fraud schemes, said Dan Egan, a spokesman for the state Department of Banking.

"They cause loans to happen that shouldn't happen, or the banks make a loan for more than the house is worth -- sometimes a lot more," Egan said.

When that happens, banks are forced to set aside money to cover bad loans. That means less money is available to loan to others, Egan said. Neighboring property owners become indirect victims when their property values decrease because of empty or foreclosed properties, he said.

"It's not a victimless crime by any means if it is 'just banks' losing money," Egan said.

More than 62,000 reports of suspected mortgage fraud were filed with the federal Treasury Department in the 2007-08 fiscal year. That marked a 44 percent increase from the previous year. There were 6,400 such reports filed in 2002-03.

"Because consumer and industry complaints remain one of our most valuable sources of timely information to identify illegal borrowing and lending activities, I encourage citizens as well as industry insiders to continue to report suspected fraud," Buchanan said.

Since the task force was formed in Western Pennsylvania in February 2008, the U.S. Attorney's Office has filed 53 cases of mortgage fraud. It filed seven in 2007.

Newstex ID: 35807461