Summit Mortgage One brokers jailed
By COCO SALAZAR
4/15/2005

A California couple, both mortgage brokers, were jailed for allegedly deceiving Spanish speaking borrowers into signing loans with terms they didn't understand.

If convicted of the charges filed so far, Esperanza Valverde and Herman Covarrubias, both 37, respectively face up to 17 and 14 years in prison, the office of the district attorney in Santa Clara County announced.

The San Jose couple was arrested on March 23, Yen Dang, a Santa Clara County deputy district attorney in the consumer protection unit, told MortgageDaily.com. The $3 million bail bond applies to each of the two brokers.

Covarrubias and Valverde operated Summit Mortgage One, a mortgage brokerage in Milpitas, Calif. Valverde negotiated most of the allegedly fraudulent loans, of which some, dated as far back as 2000, were done when she worked for previous employers. At Summit, the loans she negotiated were illegally made under Covarrubias' license as she was not licensed to conduct such activity until January 2005, Dang said.

At the time of the arrest, 18 victims had complained against the brokers and Summit, alleging fraud and predatory lending practices. Since the arrest, 11 more have come forward. Each new victim could add an additional 8 month prison sentence for each of the brokers if convicted, the deputy attorney added.

According to Dang, the charges involve $2.5 million in loans made by lenders who were unaware that the brokers had failed to make proper disclosures to the borrowers.

Covarrubias and Valverde targeted Spanish-speaking borrowers. Many could not read or write English. The brokers gained borrowers' trust by speaking to them in Spanish and falsely representing that they would be placed in a low-rate, low-cost or fixed-rate loan, depending on the borrowers' individual needs, the attorney said.

But borrowers ended up in adjustable rate loans when they thought they were getting fixed rate loans or wound up with much higher cost than they were promised, according to Dang. Some did not receive copies of their loan documents and those who did got them well after their three-day cancellation period had expired.

Valverde falsely told victims she was paid by the banks or lenders, but she actually charged the borrowers a broker's fee averaging five percent of the loan amount, Dang said -- noting that the loans were often between $400,000 to $500,000. While the fee was much higher than the usual range of one percent to two percent being charged elsewhere at the time the loans were made, Valverde violated the law by failing to disclose such a fee to the borrower, she added.

The brokers have a preliminary hearing on April 18.

Frank Ubhaus and John Williams, the attorneys Dang said represented Valverde and Covarrubias, respectively, did not return calls for comment.

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