Another accused of loan fraud on Grand Strand

A Texas man is the latest person to be indicted on mortgage-related fraud charges along the Grand Strand in a case that raises questions about whether banks should be held more responsible for loans they made during the real estate boom.

Blake Matthew Adams, 31, faces two felony charges of making false statements on home loan applications. Each charge carries a maximum penalty of up to 30 years in prison and a $1 million fine. He is one of at least a dozen people who have been charged in real estate fraud cases here.

In one of Adams' cases, Washington Mutual Bank gave Adams a $990,000 loan in April 2007 for a home along the Intracoastal Waterway in North Myrtle Beach. In the other case, Citibank gave Adams a $230,000 home-equity loan in November 2006 for property in Myrtle Beach.

Federal prosecutors say Adams overstated his assets on loan applications by failing to tell either bank about mortgages he had on other properties. Adams also failed to disclose that some of those mortgages were in default, according to prosecutors.

Court documents, however, show the banks easily could have learned about Adams' other loans and defaults with a standard credit check or property records search. It is not clear what steps either bank took to corroborate information on the loan applications.

For example, three home loans Adams had were in default for more than a month by the time Washington Mutual made its loan, foreclosure records show. And property records show Adams had at least four other mortgages when Citibank approved its loan.

Adams declined to comment to The Sun News. He was arrested Nov. 12 near Houston and was arraigned in federal court in Florence four days later. Adams pleaded not guilty and is free on $25,000 bail while awaiting trial.

Bill Nettles, a court-appointed public defender, represents Adams. Nettles said he is not yet familiar enough with the case to comment.

Washington Mutual, once one of the nation's largest banks, no longer exists primarily because of the bad real estate loans it made during the boom. Federal regulators seized the bank's holding company in 2008 and later sold its subsidiaries to JP Morgan Chase.

A spokesman for Citibank could not be reached for comment.

Russell Mace, a Myrtle Beach criminal defense lawyer who specializes in mortgage-related fraud cases, said many consumers are being indicted over what amounts to banks' poor underwriting practices.

"A lot of borrowers had no intent to lie or commit a crime," Mace said, adding that the indictments are giving banks an opportunity to avoid any blame for their part in the real estate meltdown.

"This is a way for them to get out of the loans and go back to their shareholders and say, 'We were duped,'" Mace said. "Banks are now using the Justice Department as their weapon of choice."

There now is plenty of evidence that banks failed to properly scrutinize mortgage applications during last decade's real estate bubble. Investors in securities that were backed by those toxic loans now are suing the banks that made them.

One of those lawsuits, filed by Boston hedge fund Cambridge Place Investment Management Inc., details underwriting failures at banks, including Washington Mutual.

Court records show those banks were focused on making as many loans as possible regardless of the risks because of Wall Street's eagerness to buy mortgage-backed securities.

That quantity-over-quality attitude created such bank programs as stated-income loans, also known as "liar loans," where employment data was never verified, according to court documents. In one case cited by the lawsuit, a pizza delivery worker claimed a $6,000 monthly salary.

In other cases, documents including tax returns and pay stubs were falsified and properties were appraised at inflated values to support higher loan amounts, court records show.

Such abuses "make a great argument to the jury," Mace said. "You can show that banks had the opportunity time and time again to check things, yet they never bothered."

Unfortunately, Mace said, such arguments ultimately can't defend consumers who are accused of fraud.

"That's because the banks weren't the ones that lied," he said.

Bill Day, an assistant U.S. attorney in Florence who has prosecuted mortgage fraud cases, said poor underwriting practices do not matter in criminal cases.

"It's the material false statements on loan documents," Day said. "Whether the banks should have looked closer is another question. Just because someone doesn't run their business very well, that's not an excuse to defraud them."

Adams made few payments on the Horry County mortgages he received, according to court records. For example, he made nine payments on one loan and three payments on two others before they went into default. Adams never made a payment on the Washington Mutual loan, court records show.

In addition to the foreclosures, Adams was sued in 2009 by American Express Centurion Bank over an unpaid $89,419 credit account. That lawsuit is pending.

Adams now is living with his mother in Kodak, Tenn. As part of his bond agreement, Adams is not allowed to have a job with access to financially sensitive information and he is not allowed to open lines of credit, checking accounts or savings accounts.