Abacus Federal Savings Bank, which caters to Chinese immigrants in New York and other communities, has been charged with selling hundreds of millions of dollars worth of fraudulent mortgages to Fannie Mae.
The bank’s managers and employees schemed to falsify loan applications so that borrowers would qualify for mortgages, Manhattan District Attorney Cyrus Vance said on Thursday. It then sold those mortgages to Fannie Mae, Mr. Vance said.
Nineteen employees of the bank also were charged in the case, eight of whom have pleaded guilty. Those charged include Yiu Wah Wong, the bank’s chief credit officer, who reported to the bank’s chief executive, and loan origination supervisor Wai Hung “Raymond” Tam.
The charges include grand larceny, conspiracy, residential mortgage fraud and falsifying business records.
Abacus said in a statement it was “disappointed” New York prosecutors decided to indict the bank. The bank uncovered the irregularities more than two years ago, conducted an internal investigation and reported the results to authorities, the statement said.
“There is no evidence that any senior executive at the bank engaged in illegal behavior,” the statement said. “Moreover, the only victim in this matter is the bank itself. Neither Fannie Mae nor the borrowers were ever harmed.”
The bank said its loan default rate is one of the lowest in the country: Less than one-half of 1 per cent compared to the current national average of more than 5 per cent.
Widespread mortgage fraud led to the financial crisis in 2008. Law enforcement authorities have been criticized for their failure to bring criminal charges against major banks for the roles they played in causing the crisis.
Unlike the widespread defaults that led to foreclosures during the crisis, most of the loans Abacus originated have not defaulted, prosecutors said.
“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,” Mr. Vance said at a news conference in New York.
The scheme resulted in the sale of hundreds of millions of dollars worth of fraudulent loans to Fannie Mae between 2005 and the first quarter of 2010, Mr. Vance said.
The defective loans falsely represented details regarding credit-worthiness, employment status and income, and the source of down payments, Mr. Vance said.
“These alleged actions in this case are egregious,” said Steve Linick, inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae. “Poor quality loans are at greater risk of default.”
Some of the fraudulent Abacus loans also were securitized into mortgage-backed securities and sold to investors, authorities said.
Fannie Mae and Freddie Mac, another government-sponsored enterprise, guarantee or own residential mortgages in the United States.
Abacus was founded in 1984 by business leaders in New York’s Chinese community, according to its website. It has branches in New York, New Jersey and Pennsylvania.
In its statement Thursday, the bank said it is well-capitalized and strong and assured customers that its deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
In 2003, depositors at Abacus caused a “run on the bank” by rushing to take out money after news that a former branch manager had been fired for allegedly embezzling money.
The last time the Manhattan District Attorney’s office indicted a bank was the Bank of Credit and Commerce International (BCCI) in 1991.