Feds target Melville home loan firm in fraud probe

Lend America and and an executive Michael Ashley Lend America and and an executive Michael Ashley are named in a civil complaint of FHA loan fraud. (October 2009) Photo Credit: John Dunn

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The federal government sought Tuesday to stop Lend America and one of its top executives from making federally backed home loans.

In a 155-page civil complaint, the U.S. attorney's office says the company fraudulently manipulates borrowers' credentials to give Federal Housing Administration-backed mortgages to people who may not have the means to pay them back. If borrowers default, the FHA picks up the tab, not the company.

The complaint, filed in federal court in Central Islip, seeks an injunction against Ideal Mortgage Bankers Ltd., which does business as Melville-based Lend America, and an executive vice president, Michael Ashley.

Company officials, Ashley and their attorney did not respond to requests for comment, but a spokeswoman said the company was "kind of taken by surprise" by the request for an injunction.

The case is assigned to Judge Joseph Bianco, who will decide whether to issue an injunction. Until then, there are no restrictions on the company.

The importance of FHA-backed loans was apparent in the company's parking lot, a couple of blocks north of American Home Mortgage, which went bankrupt in 2007. One gleaming Mercedes-Benz bore the license plate REFI-FHA.

A spokesman for the U.S. attorney's office declined to comment on whether criminal charges were possible.

"We're going to continue to do business as usual," Lend America spokeswoman Lisa Mirabile said. "We don't know what the extent of it is yet. We haven't been able to review all the allegations yet."

Those allegations are voluminous, against both Ashley and Lend America.

"Throughout his career in the mortgage industry, Ashley has violated governing regulations, laws and industry bans," the complaint said. "Each company he has worked at has in turn come under scrutiny, causing him to repeatedly move from company to company."

In October 1993, Ashley pleaded guilty to three counts of conspiracy to commit wire fraud in connection with numerous cases of mortgage fraud while employed by Liberty Mortgage Banking Ltd., which was later convicted of wire fraud.

Despite a State Banking Department ban on working in the industry, Ashley worked for other mortgage companies, where there was a pattern of dramatically increasing loans followed by violations or, in at least one case, the company going out of business, according to the complaint.

At Lend America, the company listed Ashley as involved in "marketing," in an attempt to conceal his true role there, the complaint said.

What he really did was train the staff to originate FHA-backed mortgages, and to make them quickly - in a day, if possible, the complaint said. His pay was tied to the value of the loans the company made. Thus, the complaint says, in the fiscal year that ended Sept. 30, 2008, when the company made $1.075 billion in loans, Ashley's compensation was $5.375 million.

So far, the FHA has had to absorb $800,000 in bad loans, a source familiar with the case said, but that could climb to more than $13 million.

The complaint detailed 40 cases of fraudulent loans.

For a Central Islip mortgage, the company said an applicant worked at an auto body shop, had a savings account and said another person would cosign the loan. But none of it was true, the complaint said. The complaint said without a mysterious $5,000 that appeared in the borrower's bank account on the day of the loan, he had $2.09 to his name.

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