Prosecute the Mortgage Sharks

You may better understand the problems with the mortgage-processing system by looking at CashFlow Strategies, formerly called Financial Independence Group, which was run by Georgia-based businessman Frederick C. Lee Jr. This case highlights how state- and nationally regulated financial institutions can fail to verify that borrowers are working with licensed loan officers.

Lee has been banned from arranging loans in Maryland and Georgia because neither he nor his companies were licensed for such activity. And yet, in violation of those orders, people working for Lee have continued to arrange mortgage loans that for many borrowers are inappropriate, according to sources and company documents. Equally disturbing is that these borrowers are paying fees on these loans that many consumer advocacy groups would call predatory.

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With Lee's history of regulatory run-ins, one would think financial institutions would avoid doing business with him. And yet Lee has continued to do business with banks and licensed mortgage brokers who fail to detect questionable actions by him and the people working for his companies.

Last year, Wachovia, the fourth-largest U.S. bank, funded 196 loans totaling about $54.2 million that Lee brought to the financial institution, according to an e-mail sent to Lee by Scott Davenport, a former national account executive with Wachovia.

"With the majority of the volume conducted in the 3rd and 4th quarter of last year, you easily would have been No. 1 with a full year of volume," Davenport wrote to Lee in the e-mail, its veracity confirmed by Wachovia. "Let's keep up the great work and push for a great 2008."

Davenport sent the e-mail several months after The Washington Post and other publications reported that cease-and-desist orders had been issued against Lee in Maryland and Georgia for originating loans without a license.

Soon after I inquired about Wachovia's business transactions with Lee, Davenport was fired. Wachovia confirmed that Davenport was terminated but declined to comment why.