Image: Mike Rainis, Camille Rainis
Damian Dovarganes  /  AP
"They didn't do anything at all," says Michael Rainis, who paid Green Credit for a modification that was never completed on his Orange County home. "They just took the money and that was pretty much it."
updated 1/2/2011 1:09:08 PM ET 2011-01-02T18:09:08

PacWest Funding's CEO watched in late 2007 as rival mortgage brokerages, banks and collaborators collapsed under the weight of the declining housing market.

Fearing his company would be next, Curtis Melone restructured his business to offer what he felt people needed most: help with their crushing mortgage debt.

Melone re-christened his company Green Credit Solutions, a loan modification firm dedicated to aiding people facing rapidly ballooning payments on loans many of them couldn't afford in the first place.

The journey from subprime-era lender into purported troubled homeowners' helper has been a common post-meltdown path in the mortgage industry hotbed of Southern California.

Loan brokers put out of work by the housing market collapse went looking for the next big thing — and found it in the mortgage modification business, which provided a way of cashing in on the problems they helped create.

Many of those firms, including Green Credit Solutions, have been shut down and are now facing state and federal investigations trying to prove that they bilked their customers.

"Some of the same people who were involved in luring people into loan origination schemes years ago are now back," said Benjamin B. Wagner, a Fresno-based U.S. attorney who co-chairs a nationwide multi-agency mortgage fraud task force.

For example, Bernardette Perry was banned by a judge from working in the loan-modification industry after she helped transform Fountain Valley-based lender Synergy Financial Management Corp. into a foreclosure relief firm called Loss Mitigation Services Inc. Regulators say it did little to help the 1,400 clients it took on after they'd paid up to $5,500 apiece.

But that's dwarfed by Green Credit, which had some 6,400 separate loan modification files in its Foothill Ranch offices when they were raided by state officials in late 2009.

The company had placed itself at the apex of a national network of brokers who fed it clients and made it perhaps the largest loan modification company to attract legal scrutiny, investigators said.

"The volume and the way they branched out ... they were kind of at the center of it," said California bar investigator John Noonen, who led the raid.

California's attorney general began investigating Green Credit after customers complained they each paid thousands of dollars for loan workouts that never happened. The state Department of Real Estate also filed allegations that prompted Melone and other company officials to surrender their real estate licenses in April.

Attorney general spokeswoman Becca MacLaren said no criminal charges have been filed but her office's investigation is ongoing.

Melone, 36, declined to be interviewed, though a former company loan salesman gave some insight into PacWest, which was established in 2003, and its evolution into Green Credit.

"There wasn't a lot of outright fraud going on (at PacWest) but there was certainly a lot of stuff where they would exaggerate the income," said the salesman, who spoke on condition of anonymity because he feared his involvement with the companies would hurt his future job prospects. "You didn't have to have a job. You could still get financing. You just had to pretend to have a job."

Among the mortgages PacWest peddled were adjustable-rate loans with low teaser rates that could have left borrowers in dire financial straits when they later ballooned to much higher levels, he said.

When the demand for the mortgage derivatives came to an abrupt halt in 2007, Green Credit advertised aggressively for brokers who could deliver struggling customers.

For many mortgage brokers who were seeing their own business dry up as credit and home sales became scarce, Green Credit was a lifeline: Instead of charging to write mortgages for lenders, they could get paid to arrange modifications.

In return for brokers' files, they kept a cut of the $3,450 Green Credit charged for most modifications, court records show.

The resulting volume even prompted the company to open an office in Guatemala City, where lower-wage employees handled customer service calls from the growing number of Spanish-speaking customers, the bar association's Noonen said.

At first, the salesman said, Green Credit's staffers were having reasonable success with modifications. But about six months into the company's operation, the volume of applications it took in had outpaced its capacity to handle them, and hundreds of files were going untouched for months at a time, he said.

Noonen likened the operation to a Ponzi scheme. "They're taking in new money and new fees to pay for the processing of the old files because they got bogged down," he said.

Filings by the state's real estate department, bar association and attorney general's office contain dozens of examples of Green Credit customers who got nothing in return for the money they paid the company.

One customer, Rhociana Smithers, told investigators she received a notice of trustee sale for her Contra Costa County home after she paid Green Credit $3,000 to arrange a loan modification.

When she contacted her lender — contrary to Green Credit's advice — she was told the bank began foreclosure proceedings after the firm ignored requests for information.

"They didn't do anything at all," said Michael Rainis, who paid Green Credit for a modification that was never completed on his Orange County home. "They just took the money and that was pretty much it."

Indeed, when officials executed their raid last December, Green Credit appeared to have given up on processing its modification files, Noonen said.

"They seemed kind of relieved that we were there to take them," Noonen said. "They had reached a dead end."

A year after that raid, Melone has pivoted some of his attention to the movie business, identifying himself as the producer of a film called "Death of a Ladies' Man" on a website seeking investors to pay for its production.

An online promotional clip shows the film's plot centered on a newlywed writer who is lured into an adulterous relationship.

In a producer's statement, Melone portrays the film's message — finding satisfaction with what one already has — as an antidote to the gloom hanging over the nation after the economic meltdown.

"I hope this movie gets that message across; especially in the times we are in today as a country," he writes. "We need to be uplifted and reminded how good we have it."

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Where are the Mortgage Mods?

Explainer: The top 10 business stories of 2010

  • Image: BP CEO Tony Hayward surveys gulf spill repair work

    In 2010, the economy rebounded fitfully from the Great Recession — starting strong, wobbling at midyear but showing enough vigor by year's end to quell fears of a second recession. Yet Americans hardly felt relief under the weight of high unemployment, which began the year at 9.7 percent and is now 9.8 percent.

    An oil spill devastated the economy and environment along the Gulf Coast and hammered energy giant BP's stock price and reputation.

    China muscled past Japan to become the world's No. 2 economy, a reminder that the global economic order is shifting and America's supremacy is diminishing.

    It was a year of job shortages and swollen budget deficits that disheartened Americans and caused deep losses for incumbent Democrats on Election Day. The Federal Reserve tried with scant success to jolt the economy with record-low interest rates.

    The struggling economy was voted the top business story of the year by U.S. newspaper editors surveyed by The Associated Press. The oil spill in the Gulf came in second, followed by China's economic rise.

  • 1. Economy struggles

    Image: Unemployment brochures are seen on display at the employment training facility, JobTrain, in Menlo Park, Calif.,

    Climbing out of the deepest recession since the 1930s, the economy grows at a healthy rate in the January-March quarter. Still, the gain comes mainly from companies refilling stockpiles they had let shrink during the recession. The economy can't sustain the pace. The lingering effects of the recession slow growth.

    The benefits of an $814 billion government stimulus program fade. Consumers cut spending in favor of building savings and slashing debt. Businesses hesitate to hire. Cities and states lay off workers. Growth slows through spring and summer.

    Unemployment stays chronically high. In May, the number of people unemployed for at least six months hits 6.8 million — a record 46 percent of all the unemployed.

    Pointing to the deficits, Congress resists backing more spending to stimulate the economy. The Federal Reserve seeks to fill the void by announcing it will buy $600 billion in Treasury bonds to try to further lower interest rates, lift stocks and coax consumers to spend.

    As the year closes, the economy makes broad gains. Factories produce more. Consumers — the backbone of the economy — return to the malls. Congress passes $858 billion in tax cuts and aid to the long-term unemployed. Yet more than 15 million Americans are still unemployed. Economists say a full economic recovery remains years away.

  • 2. Gulf oil spill

    Image: Plaquemines Parish coastal zone director P.J. Hahn lifts his boot out of thick beached oil at Queen Bess Island.

    An explosion at a rig used by BP kills 11 workers and sends crude oil gushing into the Gulf of Mexico. The spill devastates the fishing and tourism industries along the Gulf Coast and causes environmental damage that may last for decades. BP sets up a $20 billion fund to compensate fishermen, restaurateurs and others whose livelihoods were damaged.

    The oil giant still faces civil charges and a criminal investigation by the Justice Department and lawsuits from hundreds of individuals and businesses. BP's stock market value shrinks by more than $100 billion after the April 20 disaster before bouncing about halfway back.

  • 3. China's rise

    Image: Workers install scaffolding at a construction site as a Chinese national flag flies near by in central Beijing.

    China passes Japan as the world's second-biggest economy. The World Bank says it could surpass the United States by 2020. China's gross domestic product is spread out over 1.3 billion people — amounting to about $3,600 per person. That compares with GDP in the U.S. of about $42,000 per person. In Japan, it's about $38,000 per person. China's thirst for raw materials and other products helps the rest of the world recover from the recession. Still, the U.S. and Europe complain that China gives its exporters an unfair competitive edge by keeping its currency artificially low.

  • 4. Real estate crisis

    Image: Home for sale

    Housing remains depressed despite super-low mortgage rates. The average rate on a 30-year fixed mortgage dips to 4.17 percent in November, the lowest in decades. But home sales and prices sink further. Nearly one in four homeowners owe more on their mortgages than their homes are worth, making it all but impossible for them to sell their home and buy another.

    An estimated 1 million households lose their homes to foreclosure, even though the pace slows after evidence that lenders mishandled foreclosure documents. Some did so by hiring "robo-signers" to sign paperwork without checking their accuracy.

  • 5. Toyota recall

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    Toyota's reputation for making high-quality cars is tarnished after the Japanese automaker recalls 10 million vehicles for sudden acceleration and other problems. Toyota faces hundreds of lawsuits alleging that some models can speed up suddenly, causing crashes, injuries and deaths. Toyota blames driver error, faulty floor mats and sticky accelerator pedals for the unintended acceleration. The uproar damages its business. Toyota's U.S. sales rise just 0.2 percent through November in a year when the industry's overall sales climb more than 11 percent.

  • 6. GM's comeback

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    General Motors stock begins trading again. It signals the rebirth of a corporate icon that fell into bankruptcy and required a $50 billion bailout from taxpayers. GM uses some proceeds from its November initial public offering to repay a portion of its bailout. (Washington still holds about a third of GM's stock.) GM's recovery helps rejuvenate the industry. Sales of cars and light trucks rise 11 percent through November compared with the same period in 2009. Shoppers who had put off replacing their old cars return to showrooms.

  • 7. Financial overhaul

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    Congress passes the biggest rewrite of financial rules since the 1930s. The law targets the risky banking practices and lax oversight that led to the 2008 financial crisis. The law creates an agency to protect consumers from predatory loans and other abuses, empowers regulators to shut down big firms that threaten the entire system and shines more light into markets that have eluded oversight. Republican critics say the law goes too far, imposing burdensome rules that will restrict lending to consumers and small businesses.

  • 8. European bailouts

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    Greece and Ireland require emergency bailouts, raising fears that debt problems will spread and destabilize global markets. European governments and the International Monetary Fund agree to a $145 billion rescue of Greece in May and a $90 billion bailout of Ireland in November. The bailouts require both countries to slash spending, triggering protests by workers. Investors fear that debt troubles will spread to Spain, Portugal and other countries, weaken the European Union and threaten the future of the euro as its common currency.

  • 9. 500 million Facebook users

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    Facebook tops the 500-million-user mark. It expands its dominance of social media and further transforms how the world communicates. If it were a country, Facebook would be the world's third-largest. Facebook tightens its privacy settings after criticism that personal information is being disseminated without users' knowledge or permission. Founder Mark Zuckerberg is named Time magazine's "Person of the Year" and is the subject of a high-profile movie about Facebook's creation.

  • 10. iPad mania

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    Apple Inc. unveils the iPad, bringing "tablet" computing into the mainstream and eroding laptop sales. Apple is expected to sell more than 13 million iPads this year. The iPads sell about twice as fast as iPhones did after their 2007 introduction. The price of Apple stock rockets more than 50 percent in 2010. Competitors scramble to try to catch up. They include the Dell Streak, BlackBerry PlayBook, the Samsung Galaxy Tag and HP Slate.


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