RESTORING INTERNATIONAL CONFIDENCE IN AMERICAN MBS/CMBS/ABSINVESTMENT SYSTEMBY: CHRISTOPHER JARED WARRENA. ResumeBefore diving into the heart of what is wrong, why its wrong, and what is needed to fix it, I mustspeak on my qualifications for this dissertation to substantiate my arguments. My name isChristopher Jared Warren, and in 2001 I was hired as a 19 year old to become a sales AccountExecutive for ACC Capital Holdings subsidiary, the now infamous “Ameriquest MortgageCompany”. Over the next three years of employment, I became the shining star of “portfolioretention”, a predatory division that would specialize in refinancing home owners who JUST gotloans from Ameriquest in the last 24 months. I was the number one producer in the region over60% 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 andpaychecks. Most moths I would individually sell more then $5,000,000 in volume and bring inover $30,000 in net income……typically ore then 15 loans with more then 3 points and all rateshigher then 7.00% - much higher then industry standard at the time and not to mention not badfor a 19-22 year old kid with no degree. As a19 then 20 year old boy, my managers and handlerstaught 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 keepthem up and at work longer hours. At any given moment inside the restrooms - cocaine and methwas being snorted by my estimates more than a third of the staff, and more than half the staffmanipulating documents to get loans to fund and more then 75% just completely made falsestatements on 1003s regarding stated income etc to get loans funded. A typical welcome aboardgift was a pair of scissors, tape, and white out, three things a loan officer or financial professionalshould never need.. Of course no where in training OR in management training did this 20 yearold ever learn that false statements on a 1003 were a federal offense. Overall in the two and halfyears 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 byEMPOWER for Ameriquest and was clearing my own funding conditions with nodocumentation, literally waiving file conditions as if I were an underwriter. The day I left I leftwith the entire customer database. I had made over $700,000 I was 22 had beat their system, hadgotten paid and ripped off one of the largest private companies in the worlds entire customerdatabase.So what to do with 680,000 Ameriquest customer private information? Well………..start amortgage company and offer better rates and lower fees then AMC. So at the ripe old age of 22, Ifounded a mortgage brokerage/bank - WTL FINANCIAL INC., at 22, a fraudster trained by thebest corporate environment for fraud, I built a company modeled after the movie boiler room andgot WTL licensed in OR CA, MN, CT, RI, FL as a mortgage banking company. From 2004 untilits grand 2007 collapse, WTL killed it. As a 22, 23, and 24 year old with no credentials I madeover $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-best30,000 square feet, 120 employees, and handling a monthly gross revenue over $5m. Fraud wasrampant. We found investors that were not re-pulling credit reports, so we would change a 500fico 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. Theseinvestors, who were securitizing these assets as AAA rated were not even verifying anything inthe files? I am sure that their investors were assured everything from correspondents was beingaudited. Every time a lender caught a file we would “fire” the employee produce terminationpaperwork to the investor, and re-hire the employee under a different alias. Over the course ofthe 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 defaultwith out doubt. With the collapse of sub prime giant New Century, came our defeat, as we weretoo 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: moneylaundering, escrow company management, real estate, flipping, lease-backs, joint ventures, llcunit capital offerings. I found my place to learn AFG HOLDINGS COMPANY, the parentcompany of LOOMIS WEALTH SOLUTIONS, AFP of California LLC., AFG Technologies,and Nationwide Lending Corp(their mortgage banking division). I started as the general managerfor the mortgage company, turning it around in 90 days. When I showed up they hadn’t funded aloan in 66 days, they had no warehouse line and no investors. Within 90 days NLG was fundingagain, with a warehouse line, investors like Indymac, Lehman Brothers, and CITI MortgageCorp. The trick to this company was simple: AFG would partner with developers and buy realestate at 50 cents on the dollar, then sell it to his “financial consulting” members for 80 cents onthe dollar, wed appraise the properties at 100 cents on the dollar artificially inflate the purchaseprices so the loans were at 80 AFG would credit back the down and the closing costs. AFGwould 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 enoughhouses. This is what you call a classic panzi scheme because it requires exponential growth tocontinue. Words I never knew or understood prior to my experience there. Even in that volatileand crunching down market, fraud was still easy to execute. Another $44m funded while Imanaged the firm, until I got kicked out for starting my own title and escrow company. Thecomplete operation was highly illegal and a form of a panzi scheme. Still, I had no problems orresistance in getting close to fifty million in mortgages purchased and closed. Loomis Wealthand AFG Holdings ended up getting indicted by the Department of Justice after extensiveinvestigation by the FBI and the IRS. There is currently an investigation into my role with thisfirm and likely I myself will be indicted.Built a fraudster by my trainers in corporate America. Mastered the fraud. Trained others in thefraud. 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, reverseflipping, flipping, false liens, software manipulation.And it utterly disgusts me. Looking back at the life I have led, I beg a higher power forforgiveness. For mercy. For I got caught up, my first corporate experience taught me fraud mixedwith 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 theyfind a loan with misreps we simply replace it with a loan from another pool and put the bad loanback 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 streetwith no college degree no ethics training no nothing they teach how to do their dirt, like a gangrecruiting a minor who will only go to juvy. I was only rewarded for my actions. Trips, over 16trophies from AMC alone, prizes and huge paychecks. I am disgusted. This is the reasonAmerican Mortgage Backed Securities and ABS pools are being hammered and default rates areat heir highest level. And what has been bred is a new generation of younger fraudsters that areyoung, technology adapt, and much quick and innovative then their two generation oldercounter-part regulators and regulation authors.And it is around that final point that is the center for this memo on mortgage fraud itsconsequences and final solution: the disparity between the talent of the regulators and thefraudsters. The age plays into it. The ambition and drive plays into it. The technology plays intoit. But still, if you could only put the correct people at the top of regulation, writing the regmanuals and enforcing them to 100% on pre-purchasing of assets by the government, you couldliterally cut mortgage fraud down so massively that you could see a return to below traditionallyacceptable foreclosure rates, somewhere in the 1.5 – 2.5% range vs the typically accepted rangeof 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 mortgagefraud(well get into that in a minute) will continue to plague us and housing will not get a solidfooting in housing again because currently I would speculate that over 40% of mortgagesecuritizations today in Q1 2009 have some form of misrepresentation on them, whether detectedor undetected. If you fix MBS and ABS securities, you will re-ignite performance and foreignand domestic investors will believe again in a broken system, putting back much needed cashinto the system to increase liquidity, balance sheet, and the overall economic production of thenation.I helped ruin this nations economy. Almost a billion dollars of toxic assets came from memaking 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 Ihave learned and know. I am the best at what I was taught and then re-created again and againand mastered myself. I am the best man for shutting it down. Completely and forever.2. The Heart of The ProblemThe credit crisis. The recession. The total fall out of investors foreign and domestic fleeing fromonce-loved American ABS and MBS securities. The fall out of the this has spread to a lack ofliquidity from home owners to corporations, affecting everything from gas to employmentfigures, to the auto industry. The current state of the financial markets as of Q1 09 entirely has itsroots in the mortgage and real estate collapse which in turn crippled and effectively killed thecredit markets. When the problems first started arising in 2006, economic experts predicted thatthe problem was only a “sub prime” and “alt a” problem that would stay confined to thecompanies like Long Beach Mortgage, Ameriquest, New Century, ABC Mortgage, Indymac,those companies that insured, purchased, and securitized loans with horrible underwritingguidelines. 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 fundedloans with horrible underwriting guidelines that would have made an underwriter from the 70s or80s complete scream at the top of his lungs in concern. But its not just the underwritingguidelines 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 ofdebt allowed vs your income, and more needed for down payments or more equity to beapproved 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 thenin 2005. More fraud. Bigger fraud. Bigger profits. More defaults and foreclosure. So theunderwriting is fixed but the industry still cannot improve the performance of their mortgagebacked securities.The problem is mortgage fraud has morphed, and will never ever bee a stagnate thing. Theregulators, managers, qc department employees, guideline writers, and board members ofmortgage lending institutions and banks are all, when averaged, over the age of forty seven. Theaverage mortgage fraudster is in mid twenties to early thirties. Most fraudsters are completeidiots, 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, 1003sthat don’t match Super pages or cant pass a Veri-tax.com Mortgage Fraud Report. The currentsystem is good at catching these gentlemen and ladies. The problem is the 5% of fraudsters outthere there are extremely intelligent, agile, and constantly innovating techniques to beat everyeffort of the anti-fraud forces in the banking industry. Age plays into this, because the youth isinnovative and aggressive, and as we age and approach AARP land, we become less nimble inour mind, closed to new ideas.I actually had an FBI agent ask me “how in this market with all the changes is it even stillpossible to get cash back on a purchase”. Any FBI agent who has to ask that question, shouldn’tbe involved in a mortgage fraud investigation, period. This example brings us the secondproblem, and that’s the individuals fighting fraud are doing it completely backwards and with thewrong skill-sets. Mortgage fraud can be, should be, and is desperately needed to be fought fromthe front, aggressively stopping mortgage fraud before the funding date by a special division, anationwide division, that is focused on mortgage data, title and records, and streaminginformation from investors, funders, and originators. Mortgage fraud currently is regulated byprosecution. This is unacceptable.Lastly there is way too much duplication in our current system of collateralized lending andmortgage securitization. This leads to poor performance, fragmented information sharing if anyat all, and low securities performance. The fact is simple that with the nationalization of Freddieand Fannie that is four government-owned agencies that are purchasing and/or insuring over96.5% of the mortgage fundings on residences in America. That is so beyond against theconstitution, but mandatory in todays market. We must realize that subsidy is the savior fromdepression, which can easily be accepted once studied. But if the government if this country isgoing to be this big of a player on the nations biggest natural resource: American land andlending on that land, then it absolutely and unequivocally cannot run it like it runs most of itsbureaucracy's: inefficiently. It has to be streamlined. It has to be non-duplicated in roles andresponsibilities. It has to have its own internal mechanisms of regulations and controls andchecks and balances.Why are there THREE institutions that do the EXACT same thing for the federal governmentand the three boards and senior managements of those firms take out over $200m a year incompensation when the companies are losing money? Why is the performance of the securitiessuffer so much? Because they aren’t doing it right and haven’t been. The answer is simple: themortgage industry fell behind the technology industry department, and never caught up, and ithas 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 preventfraudulent fundings. This has to change first and foremost. When your at war, and trust me, thisis a financial war with huge consequences(fraud losses topping over ¾ of a trillion dollars in2008), you don’t wait for the opposing enemy to bomb, then invade your home towns and thenafter they have burned your bridges and farms and houses drop a nuke on your own home townto kill them. That is the equivalent of our current regulation. Let the fraudsters do fraud, theyfund a bunch of bad loans, and after the losses have piled high enough then and only then do wego 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 witheach other enough to make it happen. Their solution is fancy computer modular software thatgives you “mortgage fraud scores” or “avm modules” to “reconcile discrepancies”. Its allbullshit, I have beaten those computer models time and time again and other fraudsters knowhow to as well and you will continue to see the same results if the same regulators, regulationwriters, and enforces stay in place that exist today.The analysis is wrong: many times FBI agents who just got transferred from narcotic divisions orinternational assignments are put on mortgage fraud with absolutely no background. It has takenme ten years of learning to get to where I am and I would consider myself an extremely capableand fast learner far above average and anyone with less then five experience has no right leadingor 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 thetop and managing it, those insiders must be younger or show extreme signs of quick learningability and/or demonstrate knowledge of today's advanced fraud techniques. Its a very basicprinciple that each generation that comes up through the professional world takes the work fromthe previous generation and makes strides to improve the efficiencies, technologies, and methodsof the generation before them. The industry must self regulate with law enforcement assistancewith the help of the generation and industry insiders. Meaning if a majority of the fraud is beingcommitted by 20-30 year olds inside the industry utilizing highly technological techniques whydo you have 40-60 year olds who don't understand the technology who got transferred to thistype of work from interstate commerce, traditional banking, narcotics,etc? You wouldn't andyou shouldn't. As previously stated, traditional law enforcement figures are fine for oversightand 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 moreconcrete understanding of the business and the fraud. The bigger and more elaborate thefraudster, the better permanent asset that individual could be if flipped into a consultant and/oremployee for the federal government, specifically the Department of Justice and the MortgageFraud tasks forces.The time is wrong: the FBI and DOJ are prosecuting their regulation. This is incorrect becauseby being reactive instead of proactive you are allowing massive frauds to occur for billions andbillions 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 resaleon capital markets. Operate under the assumption that every mortgage application is beingprocessed by a fraudulent borrower, loan officer, processor, or underwriter. Assume that thecomputer technology being used by investors and mortgage banking institutions are inadequateand are already being beaten by fraudsters, because they are. Assume nothing works and that nomatter what the "representations and warrants" are of a warehouse lender, the correspondentlender, or the Freddie Mac or Fannie Mae seller, that is not good enough and there is truly noamount 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 SecuritiesJust on the platform that our new commander in chief used, the time for change is now. You canrestore 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 andmore loan officers go broke and more and more real estate professionals go broke they areturning to fraud to fund deals and raise money. Eliminate fraud and you lower delinquencies, getrid of foreclosures restore confidence in securities, restore confidence and the credit markets arerestored, and with credit markets restored the rest of the economy will utilize much neededfacilities and regain a solid footing once again. Literally you can fix the majority of the problemsby regulation and eliminating fraud. Streamlining effeciencies must be the first step by mergingthe four government agencies into two(Freddie, Fannie, Ginnie, and HUD) into two (HUD andFreddie) and have Freddie absorb FNMA and Ginnie Mae. Immediately cutting overhead andcosts by over 60% and reducing the staffing and overhead costs, hence increasing profitabilityfor the government to help offset costs of future defaults of all the mortgages booked prior theexecution of a business plan modeled after this memo.Next step is to increase the information sharing by all agencies and utilize a platform as aninformation verification center. MERS is a perfect government-sponsored entity is the perfectentity for this. It is already used as an anti-fraud and mortgage transferree platform by all fourgovernment investment houses, all major mortgage funding sources, and a majority ofcorrespondent lenders. Expand its access to include title searching capabilities, access to all IRSdocumentation, and access to FDIC depository records and SEC holding records to verificationof assets independent from the origination processes. Use this verification platform to build thesecurity, as opposed to utilizing documentation provided by borrower and/or originator. Whilethis will be the most expensive and very costly endeavour, it pales in comparison to the hundredsof billions of dollars spent on curing and/or selling toxic assets insured by the tax payers at aloss. 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, andmandate co-operation by all lenders and investment companies for the new blood to have accessto files prior to funding and pipeline reviews - truly regulating pipelines and helping findcriminals prior to funding. Have all Suspicious Activity Reports filed in regards to mortgageactivity immediately diverted to the new task forces force teams. Just as any part of the FBI youbring in talent on every level, low level, mid level, and management. Not to replace but to act inconcert, provide guidance and speciality information to assist with the cases, and identify andprevent mortgage fraud in action before fundings occur, bringing regulation to pro-active insteadof re-active.Following this steps increases efficiency, saves billions of dollars, gets the right people in theright place, utilizes the talent of the people that actually know what to look for, and will bringdefaults caused by fraud down to acceptable levels: 0-1%. At a maximum. This is what iswrong and how to fix it. I am the man for the job, Chris Warren, have the managementexperience, the banking experience, and could assist in the oversight of the most majortransformation of mortgage regulation without changing one guideline and still completelyeliminate mortgage fraud and restore confidence in the American dream and the securities thatthat very dream provides for investors. The performance of the securities improves, the fundswill come back, the government can re-sell off positions in Freddie Mac, or keep possession andreturn to massive profitability which could act as a huge profit center to help pay for manyneeded budget and defecit shortfalls and provides answers for the overall performance of thenational budget and economy.Christopher Jared Warren
Tuesday, February 10, 2009
California Fugitive Charged In $100 Fraud Scheme
Christopher Jared Warren, 27, of Sacramento, California, and currently a fugitive, has been formally charged with defrauding investors and financial institutions in a $100 million mortgage fraud and investment scheme. Warren, who was an executive of Loomis Wealth Solutions, and Triduanum Financial, based in Roseville, California, is alleged to have made fraudulent loan applications submitted to financial institutions involving some 500 properties in at least five states. According to his arrest warrant, Warren used the alias, Mark A. Seagrave, when he fled to Mexico. Prosecutors also allege that Warren solicited investors via seminars, encouraging individual investors to use funds from their home equity and retirement plans, to invest in the company in what prosecutors described as a Ponzi scheme. Warren reportedly chartered an aircraft for $156,000 to fly to Mexico, where he is believed to be in hiding. According to prosecutors, Warren had been cooperating with the investigation and had posted a lengthy confession on the triduanum web site, which is no longer up, prior to his fleeing last week. Another individual charged in relation to this case is Garret Griffith Gililland III, 27, of Chico, California, who is also a fugitive and believed to have fled the US. A third defendant, Scott Edward Cavell, 25, of Sacramento, California, has been charged with conspiracy to commit bank and mail fraud in this case. Cavell, also a fugitive, has used the alias of Adam Kingsbury Curry.
Read Warren's arrest warrant here.
Here is the text of Warren's confession: