Inman

Real estate fraud haunts convicted felon

Classmates sometimes tease his two sons. His mother refuses his advice on home loans. For former mortgage broker Kevin Barnes, it’s all part of being a convicted felon.

Barnes, 44, was convicted in the early 1990s of being part of a ring that perpetrated $24 million in mortgage fraud in the greater Kansas City area. He now speaks out about his experiences as a way, he says, to give back to the industry he took so much from.

“It’s a lifetime of hell after the fact,” Barnes said.

The multitrillion-dollar mortgage industry is a goldmine for fraudsters, and like most white-collar crimes, mortgage fraud may not be obvious to an outsider or even to honest people in the industry. The schemes have been around for decades, but technology has made the scams easier to pull off and enabled fraud to proliferate.

Barnes first began taking from the mortgage industry in the mid-1980s, though he already had several years experience in the field.

He was working as a loan officer at a bank when a real estate agent friend who listed homes for a builder began bringing him fairly easy loans. Soon the loans he brought were more challenging and needed “creative financing.” They’d been turned down elsewhere, and Barnes would mention to the agent what would make the loan work, and the two would then make the necessary changes.

Soon, the builder came to Barnes with a proposition: Work with him to start their own mortgage brokerage catering to the buyers of builder’s houses.

“It was an opportunity I wanted to grasp,” Barnes said.

Barnes and the builder – whose name he won’t divulge – began figuring out ways to close loans that couldn’t be closed based solely on the information provided. It started with simple cutting and pasting or other alterations of documents. They’d then sometimes float money into applicants’ bank accounts and keep the money there until after lenders verified the accounts.

The fraud grew from there. They contacted finance companies and got information printed on letterhead, which they used to make their own documents. They found a CPA who would produce fraudulent W2s, 1099s and tax returns, a bank that would falsify bank statements and a credit reporting agency employee who would alter credit reports.

They talked with underwriters to find out what sort of documentation and information raised red flags for them. They used that knowledge to either avoid those red-flag warnings or to simply determine which lenders weren’t paying attention.

“We found the ones with the weakest link and then started sending our loans to them,” Barnes said. “When we found out this was getting pretty easy, we started expanding on it.”

They even went so far as to set up dummy companies for applicants to be “employed” with. The dummy companies were listed in the phone book in case a lender wanted to verify their existence, and all had working phone numbers that simply rolled over to Barnes and others in the fraud ring.

Some loan applicants knew about the fraud; others didn’t. Many times, Barnes and the others simply told the applicants they’d take care of all the details and documentation. Applicants oftentimes just signed the blank documents Barnes gave them.

Meanwhile, Barnes was enjoying the high life. Single with no kids at the time, he went out all the time and didn’t worry whether he had the money to do so.

“I had a good idea that this was wrong, very wrong,” Barnes said.

But he was seduced by the money. He was able to flaunt a lifestyle he never had growing up. He owned designer clothing, a BMW and thought nothing of buying rounds of beer for half the people in a bar.

After a few years of the intricate fraud schemes, however, Barnes wanted out. He moved to St. Louis for a bit, then back to Kansas City and was still working in the mortgage industry but was no longer committing fraud. That’s when the FBI swooped in.

It was 1989 and Barnes was soon facing a 100-count federal indictment against him. He eventually struck a deal with the federal government – he would testify against the others involved in the scheme in exchange for only 180 days of prison. Almost all involved in the ring eventually did jail time, Barnes said.

The federal judge overseeing the case agreed to the deal despite his belief that Barnes should receive far worse punishment.

“He told me, ‘I wish you were going to jail for life for what you’ve done,'” Barnes said.

After being released from prison, Barnes was under constant federal scrutiny for five years.

“I couldn’t do anything,” Barnes said. “Literally, if I were to purchase something over $300 I had to prove where my money had come from.”

During that time, he worked at a variety of jobs, including doing manual labor. He no longer wanted to commit fraud, but he still longed to be back in the mortgage industry. At one point, he was hired by a mortgage broker and passed all the background checks required by the state of Kansas.

That’s when he realized the mortgage industry had a huge problem on its hands. To prove his point, he applied for mortgage jobs with big lenders. Three major lenders, including companies that said they conducted full background checks, hired and trained him and asked no questions. After going through their trainings – which never once mentioned fraud – he revealed himself and his background to the lenders. Barnes has promised not to reveal the companies by name.

He began speaking to companies across the country about mortgage fraud, drawing on his own experiences to show how vulnerable they are. Fraud training must center on frontline employees, and companies can’t afford not to offer training on the topic, he said.

“The fraudsters are going to take the loan to the company that doesn’t,” Barnes said.

When he speaks, he sometimes doesn’t initially introduce himself as a convicted felon. Instead, he waits to let audience members learn his background when he gets to a certain slide in his PowerPoint presentation. It shows him being taken off by U.S. Marshals.

“The first response is, ‘You don’t look like a felon,'” Barnes said. “I didn’t know we had a look to us.”

Christina Rhea, president of Mortgage Investors Group, heard Barnes speak at a conference and has now booked him to speak to her company next month. She doesn’t think any of her employees would commit fraud, but said it’s important for them to learn from Barnes’ experience.

“He’s sharing what he did and how easily it just snowballed,” Rhea said.

Rhea said she appreciated Barnes’ ability to be so upfront and honest about what he did. She found his entire talk compelling.

Barnes generally gets responses like Rhea’s. Two people, however, have expressed their disappointment that he’s still making money off the industry. He’s quick to point out that he charges only $750 for his presentations, far less than typical speaking fees. Offering his expertise at such a low price is one way Barnes feels he can give back to the industry.

Besides, speaking out against fraud is one of the few things he can do. He won’t go back into the mortgage business. He can’t pursue another dream of going into law enforcement. Teaching is out, as are any other government positions.

“There’s not too many employers that even want to give you an interview when they know you’re a convicted felon,” Barnes said.

But Barnes is clear he wants no sympathy from anyone. He simply wants to make good as best he can, knowing his crime still haunts him, both personally and professionally.

“The sad thing is there’s probably some performing fraud that I committed that’s still out there,” Barnes said.

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