House Financial Services Committee chairman Barney Frank, D-Mass., is threatening to attach a bankruptcy cram-down provision to a regulatory reform bill if servicers don’t speed up the loan modification process.

Rep. Frank said he is “disappointed” in the servicers’ efforts to implement the Obama administration’s Home Affordable Modification Program. But he noted there are legal obstacles such as second mortgage and servicing agreements that made modification decisions difficult.

The 45 Home Affordable Modification Program servicers are now on track to meet the Obama administration’s initial goal of starting 500,000 trial modifications by Nov. 1, according to Treasury Assistant Secretary Michael Barr. Servicers participating in the administration’s Home Affordable Modification Program had over 360,000 homeowners in 90-day trial modifications as of the end of August up from 235,000 in July, according to the latest Treasury report.

While performance of individual servicers has been “uneven,” Mr. Barr told a congressional panel, “we think all the servicers can do more than they are doing now and we would like to continue to work with them for better results.”

If the frustration over voluntary modifications continues to build, Mr. Frank said, it will make it easier to pass a provision that allows bankruptcy judges to modify mortgages on a primary residence. “The best lobbyists we have for getting bankruptcy legislation passed are the servicers that are not doing a very good job of modifying mortgages. If they do not improve their performance then they improve the chances of the legislation,” Chairman Frank said. Previously Frank has warned that a lack of progress on modifications could lead to more cram-down related legislation efforts.

Meanwhile the major mortgage servicers are preparing for the Treasury Department to roll out a short sale program and they are signing up vendors that specialize in handling these difficult real estate transactions that help troubled homeowners avoid foreclosure. Loan Resolution Corp. chief operating officer Travis Olsen said one of the top 10 servicers has hired his firm to manage the short sale process. “We will take their borrowers who have been denied a home retention plan and hand-hold them during the rest of the process,” he said.

Treasury is expected to provide incentives for servicers to conduct short sales and share some of the costs of paying off second lien holders. “The final details of the short sale program are being finalized, and will be announced as soon as completed,” HUD assistant secretary David Stevens told a congressional panel.

In a short sale, the lender agrees to accept a loss on the sale of the property and forgive the remaining balance on the mortgage. If a modification or short sale doesn’t work, the next stop is foreclosure.

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According to the Newark, N.J. office of the FBI, David Findel, from Colts Neck, N.J., surrendered himself to the FBI and made his initial appearance before Judge Mark Falk, regarding a complaint that alleges Mr. Findel, obtained more than $11 million from secondary market lenders through this scheme.

David Findel, the president and CEO of Morganville, N.J.-based Worldwide Financial Resources, was released on a $1 million secured bond.  

Findel expanded Worldwide Financial Resources, originally a financial planning company, to include home mortgage origination and banking services. This allowed Worldwide Financial Resources to both originate and fund mortgages for its clients by borrowing money from a warehouse lender. To repay the lender, Findel would resell each mortgage the company originated in the secondary mortgage market.

Early in 2008 Worldwide Financial Resources began experiencing a liquidity crisis.  Findel allegedly conducted a scheme to defraud mortgage banks by reselling the same mortgages to multiple financial institutions. Once Worldwide Financial Resources sold a mortgage, Mr. Findel would allegedly create a second set of fraudulent mortgage documents and resell the same mortgage to a different secondary market lender.

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Eugene Lockhart, Jr., a former player with the Dallas Cowboys, has been charged, along with eight others, with running an alleged mortgage fraud scheme in the Dallas area from 2001 through 2005.

According to James T. Jacks, U.S. attorney for the Northern District of Texas, the indictment alleges that the defendants, who were involved with several real estate entities, ran a scheme in which they located single-family residences for sale in the Dallas area  including distressed and pre-foreclosure properties and negotiated a sales price with the seller.

The alleged scheme involved 54 fraudulent residential property loan closings resulting in the funding of $20.5 million in fraudulent loans.

In addition to Mr. Lockhart, the following defendants named in the indictment include – Lendell Beacham; Hubert Jones, III; Suzette Switzer Hinds; Patricia Ortega Suarez; William Randolph Tisdale, Jr.; Michael Anthony Caldwell; Donna Lois Kneeland; and Bryan J. Moorman.

The defendants allegedly recruited straw borrowers and caused the loan applications for each straw borrower to include false financial information. Prosecutors say they created surplus loan proceeds by inflating the sales price to an arbitrary amount more than the fair market value of the residence.

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The Census Bureau recently reported that multifamily starts fell to an all-time low of 80,000 units in July, 2009 down 72% from same time last year.  Now the Federal Housing Administration is providing a helping hand to some multifamily developers that started construction but had their financing pulled after completing the foundation.

The FHA mortgagee letter indicates that the agency is not going to insure multifamily loans for condominium projects that are 90% complete and are trying to convert to rental units.

FHA generally does not insure multifamily projects where construction has already started. But for the next six months, the federal mortgage insurer is willing to consider applications in cases where construction was halted early and only site preparation and foundation work was completed.

To qualify, developers have to prove that their financing was cancelled and they have been unable to find alternative financing.

The mortgagee letter points out some lenders are backing out of commitments and refusing to fund construction draws.  The Department of Housing and Urban Development said it is taking this step “due to the illiquidity in the financial markets.”

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Victor Cedeno was a loss mitigation negotiator in the loan resolution management department at the Ocala, Fla.-based company Taylor, Bean & Whitaker.  A spokesman for the U.S. Attorney office said Mr. Cedeno is being sought by authorities.

Cedeno, a former employee at the now defunct Taylor, Bean & Whitaker faces charges he allegedly stole more than $1.6 million from the company by depositing the funds into accounts he controlled at Navy FCU of Virginia.

The scheme allegedly began on July 16, 2008, when Mr. Cedeno opened an account at Navy Fed’s branch in Winter Park under the name, “Tailor Bean W.” The name “Tailor Whitaker” was listed as primary account holder.   

Cedeno allegedly deposited checks made out to Taylor, Bean & Whitaker into this account from July 17, 2008, until as recently as Aug. 10, 2009 according to a criminal complaint filed by the U.S. Attorney’s office.

A total of 58 checks worth $1.6 million were allegedly funneled into the “Tailor Bean W.” account.

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