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HUD Inspector General Opens Investigation of Equitable Trust Mortgage Corp.

By Edward Ericson Jr. | Posted 7/4/2007

A federal law-enforcement agency has demanded loan documents from a local mortgage company whose prominent frontman, David Carey, was profiled by City Paper ("Where Credit Is Due," Feature, Feb. 21).

The subpoena, served at Equitable Trust Mortgage Corp.'s White Marsh headquarters, asks for records pertaining to about 20 loans the company made during the past three years, according to Equitable Trust co-owner William Scott Lucas.

"We met with them two months ago," Lucas says. "They already have all the files they're looking for, but they want to do it this way, so I say, `Stop by--I'll burn them for you on a CD.'"

Instead of a cordial informal request, agents of the federal Department of Housing and Urban Development's Office of Inspector General subpoenaed the records, Lucas says. HUD's Office of Inspector General is an independent agency that investigates HUD programs to prevent waste and fraud.

A subpoena is an order to testify or produce documents; receiving one does not mean a crime has been committed. Officials at the HUD inspector general's Baltimore office referred a reporter to the Washington office, saying that as policy they do not comment on investigations. Messages left with two public information officers at the D.C. office were unreturned at press time.

Equitable Trust is a seven-year-old mortgage brokerage with offices in Baltimore City, Baltimore County, and Harford County. It has "full underwriting capacity" to make loans backed by the Federal Housing Administration. The company is well-known in Southeast Baltimore, where Carey, one of three partners to Lucas, assembled a one-stop home-rehab shop and rebuilt hundreds of rowhouses.

Carey operates a branch office for Equitable Trust, and also co-owns at least one other lending company, a kitchen cabinet retailer, and other businesses. Overlapping connections among Carey's business partners, customers,and corporate entities have raised eyebrows around Canton and elsewhere. One Equitable Trust partner, Brent Kluge, filed suit against the other three last year seeking $5.5 million. The complaint, which is still pending in Baltimore County Circuit Court, focuses on Carey's side businesses.

Those businesses, however, are not the subject of the subpoena, which Lucas says covers only government-backed loans that were in default. A woman who answers the phone at Carey's Fells Point office says she knows nothing about the subpoena. Carey says he has no comment.

Lucas sounds annoyed by the government's inquiry. "HUD asked to see files that are six years old--or maybe not six, but four or five. I'd call them really, really old," Lucas says during a phone interview on June 27. "We only have to keep them for three years."

Lucas says HUD already has all the paperwork agents demanded, and he says HUD nitpicks loan documents in an effort to avoid paying for loans that go bad. If the borrower doesn't pay back an FHA loan, the federal government pays back the lender--unless the lender did something improper in making the loan in the first place.

"They still do this method of auditing, looking for a way to screw the lender," Lucas says. "Maybe we didn't get enough pay stubs. . . . One lady--she went into default because her son was on heroin--but we only had six or seven months of child support" documented, instead of the year required by the loan regulations.

Lucas says his company had to eat that loan even though child-support payments had nothing to do with the default. "If you have a fight with HUD," Lucas says, "you're talking with the judge, jury, and executioner."

If the loan papers aren't right, HUD can require an "indemnification letter" from the lender, meaning the government is off the hook if the loan goes bad. That makes it hard for the mortgage brokerage to sell the loan to other lenders and investors, Lucas says.

Indemnification letters cost Equitable Trust about $120,000 over the past three years, Lucas says. But Equitable Trust doesn't make very many bad loans: Lucas says the company's default rate, meaning payments 90 days late at some point, "is like 2 percent. Our average rate of people paying late is right in the middle."

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