A longtime Charlotte loan officer pleaded guilty Tuesday to taking part in a mortgage-fraud ring that rigged more than $158 million in home loans across the Carolinas, resulting in millions of losses to federal loan programs.
Joseph “Joey” Klakulak approved more than a third of the loans, the U.S. Attorney’s Office says. He pleaded guilty to one count of conspiracy to defraud the United States and making false statements to federal investigators.
Klakulak, 37, faces up to five years in prison and a $250,000 fine. He was one of three loan officers accused of participating in the six-year scheme.
Their partners: top managers of Phoenix Housing Group, a Greensboro-based modular and manufactured home retailer with sales offices in both states, prosecutors say.
Three top company officials were indicted Tuesday. A fourth pleaded guilty in 2011 to related charges.
The investigation marks the second recent major investigation into mortgage fraud with Charlotte-area ties.
‘Operation Wax House’
“Operation Wax House” has focused on mortgage and investment fraud in Charlotte and Waxhaw. Since 2007, some 90 people have been arrested, accused of stealing more than $75 million from investors and lenders.
Tuesday’s arrests and indictments describe a different kind of operation. Where Operation Wax House involved affluent buyers, prosecutors say Phoenix Housing often targeted rural customers.
Both operations were vast. With the help of Klakulak and others, PHG sold more than 1,100 of its homes in North Carolina financed with fraudulently secured government-backed loans, prosecutors say.
Because the loans were federally insured, even if the buyer defaulted, the loan company involved got paid. Klakulak and two other loan officers at the company charged in the case approved mortgage applications even though they knew they had been rigged, investigators say.
PHG’s sales pitch for houses and land used claims of nonexistent “rent to buy” programs or down payments as low as $500.
According to the indictment, company personnel, with the help of Klakulak and the other loan officers, regularly manipulated their customers’ credit reports so they would qualify.
In some cases, the sales staff persuaded customers to sign promissory notes, which they then used to force buyers to sign mortgages much higher than promised. When customers made down payments or put up earnest money, PHG personnel often pocketed them as profit, prosecutors say.
All the actions were part of a culture where employees were pushed to make sales regardless of their customers’ ability to afford the homes, prosecutors say. Even after the federal probe became public, top PHG staffers continued to make fraudulent sales at various company locations.
To slow investigators, PHG and several of the loan officers destroyed documents and told witnesses to lie, prosecutors say.
On Tuesday, the U.S. Attorney’s Office in Charlotte announced indictments against many of the alleged participants in the scheme.
They include Dennis Wayne Parris of Pinehurst, Phoenix Housing’s former senior vice president, along with two of his former sales managers, Andrew B. McKeown, 38, of Asheboro and Fabian Sparrow, 35, of Burlington. Sparrow is considered a fugitive.
The three, along with Isaac “Ike” Vinson, a South Carolina-based loan officer, were charged with one count of making false statements to the U.S. departments of Housing and Urban Development and Agriculture, through which the loan programs were run.
Vinson, Klakulak and Marina McCuen all worked as loan officers for W.R. Starkey Mortgage, a loan originator with offices in the Carolinas and other states.
Paris, Sparrow and Vinson also were charged with aiding and abetting the destruction of documents to impede a federal investigation.
If convicted, Paris, Sparrow and Vinson face up to 55 years in prison and $1.5 million fines; McKeown, 35 years and $1.25 million.
Hickory resident Roger Dean Bailey, the sales manager of PHG’s office in Granite Falls, pleaded guilty to related charges in 2011; McCuen did likewise in 2012. Both await sentencing, as does Klakulak.
Meanwhile, Phoenix Housing Group is no more. The company ceased operations as part of a settlement with the N.C. Attorney General’s Office over deceptive consumer practices.
Staff researcher Maria David contributed.
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