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Homeowners entangled in loan scheme

BY KATIE THOMAS | katie.thomas@newsday.com

November 18, 2007

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By all appearances, Aaron Wider is the chief executive of a flourishing mortgage bank in Garden City, issuing more than $33 million in home loans to buyers across Nassau and Suffolk counties over the past four years.

A closer look at his lending practices, however, reveals that many of these loans relied on faulty appraisals and exaggerated loan applications, leaving behind angry homeowners who are struggling to pay mortgages on overpriced homes.

"I trusted him, I felt like he was an honest person," said Robin Fitzgerald, who negotiated with Wider to pay $805,000 for a home in North Massapequa in 2005 that a later appraisal valued at $545,000. Fitzgerald is now facing foreclosure. "I wasn't familiar with the prices of houses here. I'm a first-time homeowner."

Along with a handful of associates, Wider bought and sold houses and issued mortgages for at least 30 properties, pushing the prices of some homes to as much as $300,000 above similar sales in the area, a Newsday investigation has found. Most of the time, the houses were sold twice on the same day.

One of his bank's biggest borrowers was Wider himself, who received $10.8 million in home loans. Banks have begun foreclosure proceedings against the owners of at least 12 of these homes, exacerbating an already rising foreclosure rate in East Massapequa, the community where most of Wider's activity has been concentrated.

Wider's bank, HTFC Corp., is being sued in federal court by two large banks it sold millions of dollars in loans to -- Pennsylvania-based GMAC Bank and a subsidiary, Minnesota-based Residential Funding Company -- which charge in court records that the loans were fraudulent.

If the allegations are true, it suggests that Wider and his associates turned a profit on the real-estate deals by selling homes at inflated prices; issuing loans to cover those higher prices; and selling off the loans to other banks, thereby eliminating his responsibility for the loans if the borrowers stopped paying their mortgage. The two banks are seeking $19 million in damages.

In June, Nassau County Assessor Harvey Levinson's office forwarded details of several of Wider's sales to the Nassau district attorney's office, which declined to comment.

Wider's activities are coming to light in a time when foreclosures are mounting locally and nationally, focusing attention on lending practices that flourished during the housing boom. Throughout the last decade, as housing prices rose rapidly, mortgage companies loosened the rules that required buyers to document their income and make substantial down payments on houses. During this period, the companies earned money by selling mortgages to buyers such as GMAC, which assumed the risk that the homebuyer wouldn't be able to pay the hefty mortgage.

Trail of transactions

The story of Wider's real-estate transactions is told in voluminous court records, deeds, mortgages, appraisals, loan applications and other documents examined by Newsday during the last two months, as well as interviews with people involved in the transactions.

Wider was interviewed for this story, answering several questions before refusing to go further. He said his practices are legal and proper. When he declined requests for additional interviews, a Newsday reporter submitted written questions to him, which he also declined to answer. Two of Wider's associates whose names appear on documents related to some of these sales also either could not be reached or declined to comment. In the interviews, Wider said he has the right to buy and sell homes at any price he wants.

"These are houses that were bought in distress," Wider said, adding that he later renovated them. "Since I lend my own money, I can sell the property any price that I want."

One example of Wider's actions is the Fitzgerald house at 1004 North Broadway -- an ordinary high ranch in the middle-class neighborhood of North Massapequa, with a stone facade and a view of a busy street. On a single day in April 2005, the house inexplicably skyrocketed in value.

House flipped for big bucks

First, Wider bought it for $475,000, Nassau County property records show. Then he transferred the property to a real estate trust, with a trustee who was Wider's personal lawyer.

The same day, the trust sold the house to a one-time account executive at Wider's bank for $750,000. At the same time, HTFC issued the account executive two loans totalling $700,000.

In less than 24 hours, the pricetag of the home went from $475,000 to $750,000 -- at a time when similar homes in the neighborhood were selling for just more than $500,000. HTFC later sold these loans to another bank.

Experts interviewed by Newsday say Wider's practices have all the hallmarks of what are called flipping schemes, which consist of turning a quick profit on a home by selling it to a buyer, then convincing a bank to issue a mortgage. Often the second sale is on the same day and is for a price that far exceeds what the house is really worth. Unless fraud is involved, experts describe these practices as legal.

In Wider's case, records show, he frequently bought properties and transferred them to private trusts before they were sold to known associates, such as his lawyer or others once listed on the HTFC Web site as bank employees. Newsday's examination of the records show Wider sometimes used inaccurate appraisals and documents that falsely stated an applicant's financial situation as the underpinning of a loan.