The former president of Hesperia, Calif.-based Mortgage One Corp. has been sentenced to 13 years in federal prison and ordered to pay nearly $30 million in restitution for what prosecutors said was his central role in a mortgage fraud scheme involving 905 FHA-backed loans.

John Richard Varner, 56, is among 15 defendants convicted to date in a mortgage fraud scheme involving U.S. Department of Housing and Urban Development-approved Direct Endorsement Lenders Mortgage One Corp. in Hesperia and M-1 Capital Corp. in Riverside and Rancho Cucamonga.

From 1997 to 2002, prosecutors said, the scheme relied on falsified loan applications and straw buyers to obtain FHA mortgage insurance on loans that Mortgage One and M-1 Capital funded and then sold to banks including Firstar Bank N.A. and Chase Manhattan Mortgage Corp.

Prosecutors said Mortgage One and M-1 Capital also used falsified documents, including bogus audits, to obtain and maintain their FHA Direct Endorsement Lender status from HUD.

The fraudulent loans cost the Federal Housing Administration (FHA) and HUD $29.6 million, including interest paid by HUD during the foreclosure and resale process, prosecutors said.

Varner was convicted in April of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns, the U.S. Attorney’s Office for the Central District of California said.

Richard Elroy Giddens, 69, the former CEO of Mortgage One, pleaded guilty to the same charges and was sentenced in September to 6 1/2 years in prison.

In arguing for a stiffer sentence for Varner, prosecutors said he gave "blatantly false testimony" at his trial.

Varner denied having knowingly approved fraudulent loan applications, despite testimony from numerous mortgage brokers that they discussed the fraud in the loan files with Varner and were told to submit them, prosecutors said.

At his sentencing Monday, U.S. District Judge Virginia Phillips agreed that Varner "was knowingly untruthful on a number of points."


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