MANHATTAN — A small New York bank that caters to the city's Chinese community, along with 19 of its former employees, has been charged with selling hundreds of millions of dollars worth of fraudulent mortgages to Fannie Mae, the nation's largest mortgage buyer, Manhattan district attorney Cyrus Vance Jr. said on Thursday.
Abacus Federal Savings Bank, based in Chinatown, was slammed with a 184-count indictment that includes charges of mortgage fraud and grand larceny for what Vance called a "systematic scheme to falsify and fabricate mortgage applications."
Prosecutors allege that bank managers and employees falsified applications that allowed borrowers to secure loans even though they weren't qualified.
Between 2005 and 2010 Abacus sold these shaky mortgages to Fannie Mae, based on the doctored applications, prosecutors said. Fannie Mae then unwittingly sold some of the bunk Abacus loans to investors as part of mortgage-backed securities packages.
This type of mortgage fraud scheme, on a widespread scale, led to 2008's financial collapse when overextended borrowers couldn't then pay back their loans. "If we’ve learned anything from the recent mortgage crisis," Vance said at a press conference, "it’s that at some point, these schemes will unravel and taxpayers could be left holding the bag.”
Fortunately, the Abacus loans don't seem to be in danger of default. "The irony of this case is the majority of the loans originated by Abacus have continued to perform, which means the monthly mortgage payments are being made by the borrowers," Vance added.
Vance said his office was tipped off to the scam when a prospective borrower filed a police report with Chinatown's 5th Precinct, alleging that an Abacus bank loan officer had stolen money from her.
Eight of the 19 accused ex-employees have already pleaded guilty, and those remaining have been indicted by a grand jury, prosecutors said.
Through a released statement, Abacus said they were dismayed by the charges because they had done their own investigation, fired some employees and reported the problem to regulators.
The bank also said it does not understand why a community bank is being targeted especially "when many other banks that contributed to the national economic crisis remain untouched."
This is the first time the DA's office has indicted a bank since 1991, when it charged Bank of Credit and Commerce International (BCCI) with fraud and other charges.