Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, July 19, 1990 TAG: 9007190617
SECTION: VIRGINIA PAGE: B-5 EDITION: EVENING
SOURCE: Associated Press
DATELINE: RICHMOND LENGTH: Medium
Freedlander, 63, pleaded guilty Wednesday to two counts of mail fraud and one of bank fraud for what federal prosecutors said was a scheme that netted $200 million.
She is to be sentenced Oct. 23 by U.S. District Judge Richard L. Williams.
Freedlander agreed to cooperate in an investigation focused on Freedlander Inc. the Mortgage People. The company was run by other family members, principally her oldest son, Eric, who was its president and chief executive officer.
U.S. Attorney Henry E. Hudson said that although he could not confirm Eric Freedlander is under investigation, he said the company was. Eric Freedlander now sells kitchen equipment in Burbank, Calif.
It is unlikely the criminal prosecution will win back any lost money, said Stanley K. Joynes, a lawyer who represents about a dozen investors.
"No one has ever suggested credibly that the Freedlanders secreted away vast sums of money," Joyner said. "The feeling has been all along that (the company was) just a house of cards that collapsed."
Freedlander and her husband, Ruben, founded the Richmond-based company in the 1960s, and its size was greatly increased by Eric Freedlander. By 1986, the company was doing business through 88 offices in 33 states. The government said the company originated and sold 37,000 loans totaling $675 million.
The company issued fixed-rate loans using second mortgages as security. It also sold these loans as mortgage-backed securities to institutions, such as the Federal National Mortgage Association, Fannie Mae, and to private investors. And it would also handle for a fee the administration of these loans for the secondary investors.
At the time the company went bankrupt, about 500 people had invested $20 million. Fannie Mae alone purchased $215 million in loans.
According to Hudson, the Freedlander "scheme, which probably began in the 1960s, was to hide the non-performing nature of many of the loans which it sold to encourage investors to continue to purchase the loans."
The company would guarantee the mortgage-backed loans to investors so investors had three sources of payments: the Freedlanders, the borrowers and the equity in the borrower's residence.
The government alleges that when a borrower missed a payment, Freedlander made the payment to the investor and did not disclose the delinquency. If a borrower was seriously delinquent, Freedlander foreclosed on the property without telling the investor.
After foreclosure, the company would pay off the investor and tell the investor that there had been a loan payoff, but not disclose the foreclosure.
Hudson said private investors were defrauded when the company would sell them loans that were delinquent. In other cases, the company would not disclose that a borrower was not paying the loan back or that, in some instances, the security interest had been used.
by CNB