Tommy K and the Shitpile

by emptywheel

I'm still trying to sort through what it might mean that, after signing an unlikely plea agreement with the government, Duke Cunningham briber Tommy K has continued to engage in mortgage fraud, at the expense of the company most deeply buried in the shitpile, Washington Mutual (WaMu).

But let's start with the description John Michael's lawyers gave of Tommy K's method.

Kontogiannis would have a loan application prepared in the name of a putative home purchaser, sometimes with the knowledge of the person (who might be paid a fee) and sometimes without the person’s knowledge, for a property that Kontogiannis either had developed or had planned to develop. Fraudulent paperwork would be prepared related to, for example, income, assets, or appraisal. (Kontogiannis presumably would pay a kickback to the individual preparing these documents.) Applications would then otherwise be submitted for approval to various financial institutions in accordance with normal industry practices. At closing, all title documentation (such as the mortgage and note, the uniform settlement statement (HUD-1 form), title-insurance paperwork, and affidavits pertaining to the purchaser’s identity and intent of occupancy) would be fraudulently executed by a loan officer controlled by Kontogiannis. The settlement agent, using money that had been forwarded by the lender and placed in escrow, would issue checks to cover mortgage taxes, transfer taxes, recording fees, title insurance, and lender fees, as well as the net proceeds (the balance of the loan money), all of which (with the exception, sometimes, of lender fees) would go to Kontogiannis-controlled entities, including companies ostensibly owned by one of Kontogiannis’s daughters and controlled by Kontogiannis. The mortgage and note, however, would never be recorded, the taxes never paid, and title insurance never purchased. Instead, the funds that had been disbursed for these purposes would eventually be steered to another company ostensibly owned by one of Kontogiannis’s daughters but controlled by Kontogiannis.

These fraudulent loans would ultimately be sold into the secondary-mortgage market to a lender who would be led to believe, based on the loan documentation provided by Kontogiannis’s agent, that the loan had been sent for recording and that all taxes and recording fees had been paid. A Kontogiannis controlled financial-services company, typically Parkview Financial, Inc. (“Parkview”), would assume responsibility for making monthly payments on the loan. So long as timely payments were made, the loan would be viewed by the new owner as performing and, consequently, never questioned.

Kontogiannis’s greed, however, did not stop there. He would then market the property to an end-user, whose financing was often out of Kontogiannis’s control. Upon closing with the end-user, Kontogiannis would take a second bite from the mortgage-fraud apple: iin light of the fact that the first mortgage on the property had never been recorded, the settlement
agent would release the net proceeds of the second loan directly to a Kontogiannis-controlled company without paying off the existing loan because the latter had never been recorded. For
its part, the lender who had purchased the first mortgage would not know that the property had been sold again and that, consequently, its position in the chain of title had been compromised. [my emphasis

So basically, Tommy K would double dip on mortgages on houses that no one (except for at least one corrupt Congressman) was really buying. Here's where we get into WaMu's role in this. The "one company alone" in the following paragraph must be WaMu, given the government's assertion that WaMu had purchased $50 million in Tommy K's fraudulent loans.

The volume of Kontogiannis’s fraudulent loans as of June 1995 is shown by one of Parkview’s bank-account statements. See Exhibits 12 and 13. The statement reveals mortgage payments on 140 different properties. One company alone had purchased over 100 of the loans in the secondary market, with an average loan amount of approximately $500,000. That publicly traded and federally chartered bank thus had approximately $50,000,000 in loans that were potentially worthless because, as a result of Kontogiannis’s scams, none of the mortgages were recorded in primary position as the bank had assumed. That, in turn, meant that if any of the loans defaulted, the bank would not be able to foreclose on any real property and thereby recoup any of the losses. Needless to say, the impact of such losses would be profound both on the individual bank and on the shareholders of the company. Even scarier, that bank may have since purchased many more such loans from Kontogiannis. [my emphasis]

Note, Michael's lawyers are citing how many bad mortgages WaMu had bought in 1995, not how many they bought by 2007. And, as they helpfully point out, Tommy K may well have continued this fraud after he signed his plea deal in February. That's certainly the implication of this passage from yesterday's filing.

...as a direct result of being contacted by Michael's defense counsel, Washington Mutual contacted the government with information regarding Mr. Kontogiannis's continued illegal activity.  [my emphasis]

Michael's filing was in August, which would leave several months after Tommy K's plea deal for him to continue to sell Greek shitpile to WaMu. And of course, the government didn't bother to tell anyone that Tommy K had been selling Greek shitpile until June, which appears to have allowed WaMu to continue to buy up Tommy K's fraudulent loans. Five or seven months of Greek shitpile, depending on how you're counting--that might be a significant amount of shitpile.

Now, I might feel bad for WaMu. Except for the fact that they're pretty damned corrupt themselves, and seem to have been in the business of making sure they didn't know if they bought shitpile. Here's what Andrew Cuomo alleges them to have done.

WaMu retained eAppraiseIT in Spring 2006, after WaMu decided to close its internal appraisal office and terminate its staff appraisers. WaMu quickly became eAppraiseIT’s largest client, providing nearly 30 percent of its business in New York. Over the course of the business relationship, eAppraiseIT conducted more than 260,000 appraisals for WaMu, receiving over $50 million from WaMu.

[snip]

In February 2007, WaMu directed eAppraiseIT to stop using its usual panels of staff and fee appraisers to perform WaMu appraisals. Instead, WaMu’s loan origination staff demanded that eAppraiseIT use a Proven Panel of appraisers selected by the loan origination staff, who were chosen because they provided high values.

[snip]

Even beyond picking the Proven Panel, WaMu’s loan officers at times also directly selected specific individual appraisers on the panel to conduct their appraisals.

In other words, after the Federal government passed a law requiring appraiser independence, WaMu set up a scheme where it could rely exclusively on a bunch of appraisers hand-picked because they would appraise house values on the high side, thereby ensuring WaMu could continue to make loans on houses that were over-valued.

Now, there is nothing in Cuomo's complaint that says WaMu was using select appraisers to allow it to buy fraudulent loans--there'd be no reason (at least none that I can think of) for them to do that. But I'll bet you that WaMu's efforts to ensure there was inadequate oversight over the loans they were making made it a lot easier for Tommy K to continue to sell them Greek shitpile. And I'm a little curious about the timing. The government says they just got more information from (presumably) WaMu.

(8) Within the past two weeks, we obtained clearer indications that Mr. Kontogiannis was engaged in post-plea illegal activity

Cuomo filed his suit against First American and eAppraiseIT on November 1--so just two weeks before the government got this additional information from WaMu.

If this convergence of the Cunningham scandal and the shitpile scandal weren't already giving you vertigo, here's something that is almost certainly just a creepy coincidence.

That star is where Brent Wilkes' former office for ADCS was located. And eAppraiseIT and First American--those companies allowing WaMu to buy mortgages it shouldn't have? They're located right at the end of First American Way--just around the corner in corrupt Poway, CA (h/t Citizen 92 and chrisc; and I used to live there so I can call it corrupt). It's probably a coincidence. But it's pretty remarkable, nevertheless.

Comments

[skimble]

Very impressive reporting. Shitpile's backstory could keep us all busy for years. Thanks.

[Gary]

I live in Brooklyn, and the local media (NYC-wide, Queens, Newsday, etc.) have completely ignored every aspect of the Kontogiannis story.

I have emailed the Times, the Daily News, even the Post, as well as local Queens papers in the past several months . . . and nothing but crickets.

What the fuck is up with that?

[pinson]

Wow, that takes some stones. Continuing to run a major bank fraud while you're cutting a deal with the feds. So it turns out that Tommy K is kinda like Omar on the Wire - stealing from the bad guys. But a whole lot less admirable and stylish, and one would assume that he worked without a sawed-off 12 gauge.

[anon]

...Wow, that takes some stones...

Yes, but I still think the Greek vacation is the bigger stone. And, hey, Tommy K's still walking around free. That, by itself, is pretty impressive.

And speaking of Tommy K., did anyone every run down who the "influential" Congressman is in the school board report on TK's school swindle? He shows up in the report as a participant in several meetings with TK but he's not named for some reason.

[anon]

Oh, and if you want to do some interesting mapping, try sorting out the tenants in TK's office building at One Cross Island Plaza in Queens.

[Citizen92]

The settlement agent is key here - he is the one that oversees execution of the loan documents and their eventual filing and recording -- not the loan agent... So this would depend on having a settlement agent that was in on this whole scheme too.

Also, regarding WAMU, their appraisal scheme is confusing. Why overappraise properties they're lending $ on? Sure, that leads to bigger fees since bigger mortgages carry more points, fees, etc to close. But if WAMU were keeping their loans in portfolio, then they *eventually* would take the hit when buyers lost money on their homes. So they were either stupid, or....

WAMU was also playing fraudulently? If they were to sell their over-valued loans into the Secondary Market, then their hands would be clean and those loan investors are left holding the bag.

WAMU had its fish to fry -- I guess Tommy just saw an opportunity. Still, who was his settlement agent?

[dead last]

FYI, eappraiseit is a division of First American of First American Title Insurance. So the physical location probably is a coincidence.

In terms of the subprime meltdown and the shift toward WAMU-approved appraisers, this is interesting from market perspective. I doubt many have not made the connection between First American's financial stability (one of the largest title insurers in the world) and the fact that they may have been involved in offering faulty appraisals. Watch for their stock to tank if anyone shows a link. I doubt they realize they have a potential conflict of interest underwriting property title insurance and providing appraisals. I am sure no one in the media or regulatory bodies have made this connection yet. Give it six months then short their stock.

And we think the mudflows and firestorms are bad here in California. Just wait for the pending financial deriviative disaster to hit!!! I wonder what corporate entities are not involved? We have banks, developers, title insurance, realtors, what about casualty/fire/loss insurance companies?

[ignoreland]

Pardon my ignorance, but where were the title insurers in all this? Shouldn't they have been following up on these transactions?

[prostratedragon]

Oh hallellujah, I have got to pore over this! I'v been wating for the outright guys to start showing up in this mortgage beez-ness.

[Neil]

Gladly Muhammad the cross I'd -eyed bare bear

[TheOtherWA]

But if WAMU were keeping their loans in portfolio

Uh, no, they didn't plan to keep any of these loans. That's the point. Pump up the price, sell the loan, get the money and never look back.

That way it's someone else's problem when it blows up.

[Citizen92]

Why don't we call Kontigiannis' making fruaudulent loans through WaMu the "Cunningham Method?"

Why? Take a jump to page 40 of this affadavit from the Cunningham case:

170. Michael told federal agents that his company Coastal Capital made two separate mortgage loans (nos. 7161401 and 7161725) related to Cunningham's Rancho Santa Fe home purchase in late November 2003. The first mortgage was for $595,000 and the second mortgage was for $500,000.

Michael stated that Coastal sold the $595,000 loan (bearing a 5.85 percent interest rate) to Washington Mutual Bank, and the $5OO,OOO loan (bearing a 10 percent interest rate) to Parkview Financial, a company owned or controlled by Tommy Kontogiannis.

I think we can be pretty certain that Coastal Capital was a mortgage broker with some sort of warehouse line of credit (or at least a conduit) to WaMu.

WaMu is a huge and siginificant company.

[Henry Holland]

I live in Los Angeles and starting working in 1992 for a popular local bank called Great Western in their loan department as a clerk. Great Western was bought by WaMu in 1997 after a hostile take-over bid failed from Ahmanson (see: the Ahmanson family, huge wingnut welfare providers). Great Western was a cool company to work for, WaMu was a total freaking nightmare.

I'm loving all the WaMu bad news as it comes out in one sense, but it's the lowly employees like I was that get screwed.

Great stuff, Emptywheel [polite golf applause]

[emptywheel]

Citizen92

It's really funny--all that WaMu stuff has been sitting out there for a year. But it didn't really make sense until Auugst, when WaMu started to meltdown, that they'd be the ones holding Cunningham's empty bag.

[radiofreewill]

Is the 'Cunningham Method' related to the "Pemberton Model'?

http://en.wikipedia.org/wiki/Coca_cola

By 1888, three versions of Coca-Cola — sold by three separate businesses — were on the market. Asa Griggs Candler acquired a stake in Pemberton's company in 1887 and incorporated it as the Coca Cola Company in 1888.[8] The same year, while suffering from an ongoing addiction to morphine, Pemberton sold the rights a second time to four more businessmen: J.C. Mayfield, A.O. Murphey, C.O. Mullahy and E.H. Bloodworth. Meanwhile, Pemberton's alcoholic son Charley Pemberton began selling his own version of the product.[9]

In an attempt to clarify the situation, John Pemberton declared that the name Coca-Cola belonged to Charley, but the other two manufacturers could continue to use the formula. So, in the summer of 1888, Candler sold his beverage under the names Yum Yum and Koke. After both failed to catch on, Candler set out to establish a legal claim to Coca-Cola in late 1888, in order to force his two competitors out of the business. Candler purchased exclusive rights to the formula from John Pemberton, Margaret Dozier and Woolfolk Walker. However, in 1914, Dozier came forward to claim her signature on the bill of sale had been forged, and subsequent analysis has indicated John Pemberton's signature was most likely a forgery as well.[10]

In 1892, Candler incorporated a second company, The Coca-Cola Company (the current corporation), and in 1910, Candler had the earliest records of the company burned, further obscuring its legal origins.

---

[chrisc]

I've just reread the filing from the San Diego USAs. And I am just a little curious. I am not sure just how much Kontogiannis shared with the USAs before his plea agreement regarding his fraudulent mortgages. Nevertheless, the FBI report had made it very clear that they suspected K was a major money laundering. I was surprised at the time that the SD USAs didn't investigate what else K's laundered money was all about. Even after John T Michael told them about it, they sort of blew it off saying it was someone else's jurisdiction and they didn't know about it, etc.

They seem ready to go after him this time. Has something changed? What happened to those guys from the CIA or whatever other agency they were from? There was so much secrecy involved but I had the suspicion that they were keeping Judge Burns and the USAs in the dark a bit. So was somebody holding them back before and have the changes at the justice dept changed the way this case is proceeding?

[Jemand von Niemand]

Tommy The K is a predator. Of course, many of the players at WaMu and elsewhere in the real estate 'industry' were just as greedy and ready to feed off each other, and off of you and me.

I'm laughing my ass off after reading this. And, in the background, Little Dana Perino is saying how really Strong and Pretty our economy is.

Jesus Christ On A Stick.

[orionATL]

so -

tommy k is a (greek) con artist.

no surprise there.

but that observation misses the most important point (for me)

what does tommy k know or what did he do,

that made it worthwhile for the federal govt to allow him to vacation in the greek isles this summer?

while under indictment!

it never ceases to amaze me the idiots that the

federal "police" (cia included) will engage with

who turn out to be flakes.

so

the fundamental question for me is:

what did tommy k do for the federal gov't that secured him a trip out of this country, to his homeland, while he was under judicial sanction?

or more generally,

what does this guy know that warrants such "soft gloves" treatment?

[jwp]

Agree with OrionATL

who are the officers of WAMU?

[prostratedragon]

Go here and click on "Corporate governance," underneath the nice tandem bike.

Did I ever say how violently I detest cheap sentiment?

[zorro]

Actually your star on the map is a little bit off. Wilkes' former company headquarters was located on the north side of the Stowe/Danielson intersection, which puts it even closer to First American Way.

[prostratedragon]

More on WaMu. Gotta love those Occasio branches!

Expandig the scope of retail consumer banking per The Bank Formerly Known as Washington Mutual is part of the business rationale for specialty shops that subcontract out work to local suppliers, like eAppraisit or whatever the f!0! their name is.

[William Ockham]

Another coincidence?
http://www.signonsandiego.com/news/business/20070309-9999-1b9adcs.html

[hauksdottir]

Secret Offshore Trusts named "Banyan"?

Hmm...

I wonder if there are any funds named "Aspen"?

People connected by the roots might also be connected by the pocket, and setting up a trust fund to pay for members' expenses is another way to launder money or hide the involvement of those wealthy enough to conceal their political activities.