State Attorneys General have forced five giant mortgage firms to shell out $25 billion to settle claims of “robo-signing” and other foreclosure abuses — but putting anyone in jail has proven to be a much more difficult proposition.

In one of only two robo-signing prosecutions nationwide, a judge last week threw out the entire case, including more than 100 felony counts each against Gary Trafford and Geraldine Sheppard of Orange County.

The Californians had worked as title officers for Lender Processing Services, a giant firm that helps banks and mortgage servicers generate legal documents.
A mortgage task force assembled by Nevada Atty. Gen. Catherine Cortez Masto had accused Trafford and Sheppard of directing the fraudulent notarization and filing of notices of default, the paperwork used to start foreclosures, on delinquent Las Vegas-area borrowers.

But Clark County District Court Judge Carolyn Ellsworth ruled last week that prosecutors committed misconduct in their presentations to the grand jury that indicted Trafford and Sheppard in November 2011. The missteps included providing “irrelevant and highly inflammatory evidence” about how the evictions affected the homeowners, the judge said.

The dismissal stands in contrast to the outcome of the second robo-signing prosecution. In that case, Lorraine Brown, founder of DocX, a former Lender Processing Services subsidiary, pleaded guilty to a federal conspiracy charge in Jacksonville and to Missouri state charges of forgery and falsifying documents.

Brown faces a federal sentence of up to five years in prison and a Missouri sentence of at least two years, a spokeswoman for the Missouri attorney general said.

The sentences, to be imposed next month, would run concurrently.

The federal regulator for Fannie Mae and Freddie Mac took the first major step toward possibly shutting down the taxpayer-rescued firms by deciding to merge some functions of the mortgage financing giants into a new company.

The Federal Housing Finance Agency plans to create a “new business entity” that would package home loans owned or guaranteed by the companies into mortgage-backed securities, Edward J. DeMarco, the agency’s acting director, said Monday.

The goal is to create a vehicle that could replace the nation’s biggest mortgage backers should Congress decide to do that as part of a still-pending overhaul of the housing finance market, DeMarco said.

“We are designing this to be flexible so that the long-term ownership structure can be adjusted to meet the goals and direction that policymakers may set forth for housing finance reform,” he said in a speech at the annual conference of the National Assn. for Business Economics in Washington.

The former government-sponsored enterprises, now 80% owned by taxpayers, have received about $187 billion in bailout money as of December, the latest available figures.

They have paid about $55 billion back to the U.S. Treasury in dividends, and their bailout price tag has been shrinking as their finances improved with the housing market recovery.

Still, the Obama administration and Congress want to shut down Fannie and Freddie and reduce the government’s role in the mortgage market. Fannie and Freddie, along with the Federal Housing Administration, now back about 90% of new mortgages.

Efforts to replace Fannie and Freddie have moved slowly because some policymakers are concerned about acting while the housing market still is recovering.

The new, as-yet-unnamed company would be owned and funded by Fannie and Freddie but would be independent and have its own chief executive and board chairman.

Q1. Where do you think the housing market is headed in 2013?
I’m cautiously optimistic for 2013. We’re starting to see trending in the right direction in a lot of key metrics, but as we learned over the last few years, it’s important to understand that real estate is no longer guaranteed to appreciate.

Q2. Where, if at all, do you feel the industry will see the most growth in the coming year?
I think luxury homes will be the first domino to fall, and then single family homes. Starter homes will be that last milestone because lending standards have become so stiff.

Q3. What has changed in the last few years in your relationship with lenders?
Not much has changed, except it’s harder to get a loan. If you can qualify, you’ll be okay. If not, good luck.

Q4. What is the biggest struggle for real estate agents today?
It’s been tough on agents to educate themselves. The good agents seek out counsel from industry organizations, brokers, experienced agents and settlement service providers. Take what they say with a grain of salt however.

Q5. What is the best thing about working in the real estate industry today?
There are plenty of good real estate people out there. Some buyers/sellers assume that the industry is full of corruption – I would caution people away from assuming that a few bad apples represent the large majority of professionals that do things the right way.

A Hayward woman will spend the next 18 months in prison after pleading guilty to mortgage fraud and tax evasion, prosecutors said Tuesday.

Cynthia Suratos Lorica, 51, entered the guilty pleas on Monday before Chief U.S. District Court Judge Claudia Wilken.

The judge sentenced Lorica to 18 months in prison and ordered her to pay more than $1 million in restitution, said U.S. Attorney Melinda Haag. Lorica must also participate in three years of period of supervised release.

She was ordered to start serving the sentence on March 27.

Under a plea agreement, Lorica admitted to participating in a scheme to obtain money from Washington Mutual Bank in 2006 and 2007 by making false statements in loan applications secured by real property.

During that time, she was the owner and CEO of All Ways Financial Services Inc., a financial services company. She was also an officer of Absolute Value Financial Inc., licensed by the state to originate mortgage loans and to engage in real estate transactions.

Lorica was involved in the preparation and submission of loan applications to various federally insured financial institutions and other lending institutions.
She also admitted to evading taxes on income she received in 2006 and 2007 and to substantially underreporting her gains from the sale of real estate as well as underreporting her income from All Ways Financial and claiming a mortgage interest deduction that she was not entitled to receive.

Lender Processing Services Inc. (LPS) agreed to pay $35 million to resolve criminal fraud violations involving fraudulently signed and notarized mortgage documents, the Justice Department announced last week.

LPS entered into a non-prosecution agreement with the department and the U.S. Attorney’s Office for the Middle District of Florida. Through the settlement, LPS announced it will pay $20 million to the United States Marshals Service and $15 million to Treasury.

The agreement also requires the company to meet a series of other conditions.

The department stated LPS has already taken a number of remedial actions to address the misconduct at DocX, a wholly owned subsidiary of LPS, and has wound down all the subsidiary’s operations and re-executed and re-filed mortgage assignments as necessary.

The settlement also follows guilty pleas from Lorraine Brown, the former CEO/president of DocX. In November, Brown pled guilty to conspiracy to commit mail and wire fraud in federal court in Florida and entered a plea deal in Missouri. Michigan attorney general Bill Schuette also brought charges against Brown and recently announced the former CEO pled guilty to racketeering.

The Justice Department statement explained that over a 6-year period ending in 2009, employees of DocX falsified signatures on mortgage-related documents. Brown and others at DocX were accused of directing authorized signers to allow unauthorized staff to sign and have documents notarized in order to increase profits.

The announcement follows a $127 million multistate settlement in January to resolve “robo-signing” allegations.

Q1. Where do you think the housing market is headed in 2013?
I think the housing market is primed for a strong 2013. With interest rates at (or near) a historic low, people who have held off on purchasing will jump in now. There is some capital out there – especially for first-time buyers, and those first timers create demand which leads to families moving from starter homes to larger homes, etc. It’s a good time.

Q2. Are you seeing people rushing to buy?
I’m not seeing people rushing to buy, but from the clients I have talked to, I do see people starting to move that way. Supply, especially in the region I work in (Hermosa Beach, Manhattan Beach, etc) is still low, so as demand grows, prices climb.

Q3. What would you like to see changed with lenders?

Not much. Their restrictions are a bit tighter than I’d like, and lenders are being much more careful with their money. But that is starting to change a bit on its own.

Q4. What is one change that you believe needs to be made to the CA real estate industry in 2013?
Besides higher commissions?!?! I believe that more transparency in the buying process makes everything better.

Q5. What is the best advice you have for readers?
Now is the time to buy. If you miss this window, you’ll be kicking yourself for years. One thing I try to tell everybody I talk to is, if you can afford the down payment, buying is actually cheaper than renting right now.