Giuliani offered to help troubled Melville lender

Shortly before federal housing officials yanked a key license from Melville-based Lend America, former New York City Mayor Rudy Giuliani offered to monitor the firm to prevent the very fate that hit the home loan company last week: complete shutdown.

But despite concessions offered by Giuliani, the federal government last week canceled the license, a move that left 600 people out of work and up to 800 loan applicants in a lurch. The decision capped a year of battles between the lender and federal agencies, mainly over Lend America's default rates and fraud allegations against the company, including those in a 155-page civil complaint filed by the U.S. Attorney General's office in October.

The closing also led to criticism that there could have been more damage-control planning.

"What upsets me is that there is no backup plan for this kind of situation," said Ana Kaiser of Patterson, Calif., who was supposed to close Tuesday on a Lend America loan for a house that was going to be auctioned off as a foreclosure next week. "I thought surely they have to fulfill the ones that are about to close."

Sen. Charles Schumer (D-N.Y.) has called on FHA to find qualified lenders for the pending borrowers and to give them mortgages under the same terms if they're qualified.

"The bottom line is we cannot let honest Long Island borrowers lose out on their dream of owning a home because of Lend America's shoddy business practices," Schumer said.

HUD officials did not respond to questions about what some consider to be quick actions against Lend America, but FHA Commissioner David Stevens cited a "disturbing pattern" of senior officials and underwriters "not knowing what they were doing or not caring."

Troubles mounted

Problems dogged Lend America, whose business was at least 90 percent FHA-backed loans, over the past 12 months. A year ago, HUD issued a $6,500 fine and six-month probation over mailings that looked like federal government documents, which the company blamed on a contractor. In January, HUD notified the business, which operates in 46 states and is also known as Ideal Mortgage, that it was pulling the FHA license from the Melville branch, because the rate of default and insured loan claims was much higher than average.

The company installed fraud and compliance detection software, but it also sued HUD in May over the way it calculates defaults. In September, the two sides settled out of court and the license was reinstated.

But the next month, HUD struck two major blows. First, it issued Lend America two notices of violations over "numerous" instances of underwriting and loan approval problems. Second, at HUD's request, the U.S. attorney general's office filed a civil complaint over 40 loans, saying Lend America fraudulently manipulated borrowers' credentials to give FHA-backed mortgages to people who may not have the means to pay them back, which means the federal government picks up the tab.

Giuliani, whose law and consultant firms were hired by the lender last month to fight fraud and other charges, met with the U.S. Department of Housing and Urban Development in Washington, D.C., said Michael D. Hess, vice chairman of Giuliani Partners consultants. To keep the business open, he said, Lend America promised to eventually exit the loan-making business, focus on servicing loans, cover any loans made against HUD rules and agree to monitoring. Also, its executive vice president, Michael Ashley, who in 1993 pleaded guilty to mortgage wire fraud, would quit the firm.

Investigation continues

Federal officials said the investigation is ongoing and have not ruled out a criminal case and arrests. A HUD spokesman said authorities are also going to examine the actions of president Michael Primeau and vice president Helene DeCillis, who HUD alleges submitted false certifications in connection with Lend America's annual reports. A spokesman for Lend America declined to comment on the investigation.

Calling what happened a "disgusting injustice," Ashley said bad loans were made by "bad actors," who were fired. "We tried everything we could do to block it and catch it," he said. "But you can't say the company was a fraudulent company because there were several people that were bad people within hundreds and hundreds of people with 700 to 800 loans a month."