A federal jury heard closing arguments Tuesday in a multimillion-dollar mortgage fraud case that shed light on just how frenzied and sloppy the home-lending market was during the Las Vegas building boom.
Assistant U.S. Attorney Brian Pugh told jurors that the three defendants, including former real estate broker Eve Mazzarella and her estranged husband, mortgage broker Steven Grimm, were guilty of bank fraud, wire fraud, mail fraud and conspiracy. Prosecutors allege they participated in a five-year scheme that included the bogus purchase of 227 homes worth about $107 million.
Prosecutors also allege the scheme involved scores of "straw buyers." A straw buyer is a person who pretends to be a legitimate buyer to conceal the identity of the actual purchaser.
Most of the straw buyers never intended to make a single mortgage payment and were told by the defendants they wouldn’t have to, prosecutors said.
But defense attorneys said lenders created risky loan programs that encouraged professionals and laypeople to flip homes with wild abandon to make money during the boom.
They said that but for the collapse of the housing market, the defendants would have committed no crime.
On trial with Mazzarella and Grimm, who are going through a divorce, is former Las Vegas mortgage broker Melissa Beecroft.
"Many people were flipping houses, selling into an increasing market," said Beecroft’s attorney, Larry Semenza.
He said the lending products banks offered at the time included "liar loans and don’t-ask-don’t-tell loans."
"Lenders didn’t want to know the (buyers’) income," he said. "If they knew, then no one would get a loan."
Pugh acknowledged the jury heard complicated testimony during the trial, which began nine weeks ago.
He said the scheme began in 2003 and continued until March 2008. Several other defendants also were indicted. Each of them pleaded guilty and testified against the three defendants who went to trial.
Here is how prosecutors allege the scheme worked: The defendants recruited scores of straw buyers and used their credit to qualify for loans.
The defendants also lied about employment history and exaggerated their income, grossly in some cases, Pugh said.
For those who were retired or unemployed, the defendants created a mythical job, Pugh said. One straw buyer, for instance, was a retiree living on a fixed income of $1,800 a month, but she listed a monthly income of $12,000 a month. The straw buyers also told lenders they would live in the home when that was almost never the truth, Pugh said.
The defendants, he said, told the straw buyers they had no obligation to make mortgage payments or maintain the homes, which would be rented until housing prices increased even more in a year or two, at which time they would be sold.
Straw buyers received payments of between $2,500 and $5,000.
Grimm and Mazzarella even paid earnest money to ensure the loans closed in many cases, prosecutors said.
Assistant Public Defender William Carrico, who represents Grimm, said lenders could have been more diligent in verifying loan documents but chose not to. He disputed Pugh’s acknowledgement that lenders were simply irresponsible.
"Lenders were not irresponsible," Carrico said. "They made a lot of money by making loan programs people would readily qualify for."
While Semenza described the programs in less-than-flattering terms, Carrico used their actual names: no-asset loans and no-verified-income loans. No-document loans and subprime loans also were made.
"And they instructed their underwriters to evaluate loans just that way," he said.
Carrico also said that lenders were implicated in knowingly making bad loans throughout the nation.
"They did this with a wink and nudge," he said. "These were very high-risk loans with an eight-hour turnaround from submission of the application to approval."
The jury deliberated briefly Tuesday afternoon and is scheduled to resume its discussions this morning.
Contact Doug McMurdo at firstname.lastname@example.org or 702-224-5512.