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The FBI on Thursday arrested eight people in Honolulu and one in Seattle, all of whom were accused in a mortgage fraud scheme that involved flipping houses and a web of brokers, real estate agents and accountants.
A federal grand jury indictment named a total of 14 people in the scheme. The five remaining alleged co-conspirators were expected to turn themselves in. Court documents listed more than $27 million in wire transfers, many of them involving properties in Honolulu's Salt Lake neighborhood.
Employees of businesses including Easy Mortgage, R and M Rentals, Accufast Mortgage and Hawaii Real Estate Professionals were named in the indictments.
"The defendants are accused of operating their mortgage businesses as fraud factories - creating false documents to dupe lenders into funding sham home purchases," said FBI Special Agent Tom Simon.
The names of the defendants' attorneys weren't immediately known Thursday. The federal public defender's office in Honolulu said it wasn't representing them.
The alleged scheme, which started in September 2003, resulted in banks losing money and housing price inflation before the properties were foreclosed on. After foreclosures, property values plunged and devalued communities, Simon said.
"The mortgage fraud described in this indictment is a direct assault on the American dream of home ownership," Simon said. "Foreclosures caused by mortgage frauds blanket the Hawaiian Islands, depress housing prices and erode the confidence in the local market. In that regard, we are all victims."
The defendants who worked for Easy Mortgage allegedly falsified mortgage application documents to persuade banks to give loans to a buyer who never intended to make payments.
The buyer, who also allegedly worked with the suspects, then flipped the newly purchased property for more than it was worth to another buyer who also worked with Easy Mortgage to get a loan.
Everyone involved in the conspiracy - the mortgage broker, accountant, real estate agent and buyers - would share the profits of the difference between the two sale prices, Simon said. The broker also made money in fees for bringing the buyer to the lender.
"The purposes of the conspiracies and fraud schemes were to defraud lending institutions and others by submitting loan documents containing false information," Florence Nakakuni, U.S. Attorney for the District of Hawaii, said.
The defendants face maximum penalties of five years and $250,000 in fines on the conspiracy count, 20 years and $250,000 in fines for wire fraud counts and 30 years and $1 million in fines for the false statement on loan application charges.
Trial is set to start Oct. 13.