Company defends mortgages made to accussed family members
By MortgageDaily.com staff
2/10/2003

Option One Mortgage Corp. has taken a loss on fraudulent loans made against properties from a New York builder. In U.S. District Court on Jan. 31, the head of the company's fraud unit defended giving loans to co-conspiring family members of the builder, who are accused of providing lenders with bad appraisals.

When Robert J. Amico applied for a mortgage in 1998, Option One turned him down because the house's size and appraised value had been inflated. But throughout the next year, the same lender gave mortgages to Amico's father, brother, and an associate for 13 new houses built in suburban Rochester, N.Y., according to the Democrat and Chronicle in Rochester. Those houses also ended up being part of the scheme.

"As a responsible lender, Option One may not deny the application of a borrower based on the denial of an earlier applicant's loan file," said Kelly Krautkramer, senior manager of portfolio risk at the lender. "In this case the denied loan was for a different borrower, different subdivision, and was submitted by a different mortgage broker, using a different appraiser."

In the Amico trial on Jan. 31, Krautkramer said Option One posted a $2.3 million loss on Amico-related loans, of which some had to be foreclosed with the properties resold at prices far below the balances.

Defense lawyers tried to show that the company's zeal in granting the loans showed disregard for red flags that information given to Option One could be fraudulent, the publication reported.

Krautkramer responded that Option One rejected two other loans on Amico-built homes in 1999 and suspended a mortgage broker and an appraiser from doing more business with the company after uncovering bad appraisals, according to the Democrat and Chronicle. Option One, owned by H&R Block, granted $4.5 million in mortgages on those houses in 1998 and 1999, Krautkramer testified.

Beginning around July 1994 and continuing to about January 2000, the Amicos built at least 170 residential homes in the Rochester area. The Amicos allegedly used no-down-payment schemes to attract buyers, with purchasers not being required to pay closing costs or attorney fees.

The case against the Amicos involves $67 million in homes built by entities owned and operated by the family, according to U.S. Department of Justice documents. Mortgages against the properties total more than $57 million, and prices paid for some of the individual properties exceed $600,000.

Many of the loans were run through Patrick McNamara, a mortgage broker and star witness for the government in the case against the Amicos. Using state-of-the-art computer technology and scanners, McNamara and the Amicos allegedly altered income and asset documents, created fake leases, and presented fraudulent loan applications to wholesale lenders

In addition to Option One, other lenders defrauded by the scheme included Bank of America, FSB; Chase Manhattan Mortgage Corporation; Citigroup Mortgage, Inc.; Countrywide Home Loans, Inc.; Flagstar Bank, FSB; and Washington Mutual Bank.

Shares of parent company H&R Block were down $0.33 at $35.47 near midday, according to CBSMarketwatch.com.

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