The sentencing Wednesday of a 44-year-old Fox Chapel woman to three years in federal prison for fraud and tax evasion came only after a courtroom debate about who set the stage for the global financial meltdown.
Did the brokers, appraisers, attorneys and others now going to prison for mortgage fraud trigger economic losses that rippled from Main Street to Wall Street? Or were they swept up in a runaway market endorsed by the banks they are now accused of defrauding?
Elleni Klimantis Berger, who ran mortgage broker All Credit Finance, will have three years to think about that, despite pleas from her family to U.S. District Judge Joy Flowers Conti that she be spared prison so she can care for her 6-year-old son.
Her husband, Randy Berger, who has also pleaded guilty to fraud, will serve an as-yet-undetermined sentence as soon as hers is over. Her sister, Vasilia Klimantis Berger, and her sister's estranged husband, Jay Berger, have also pleaded guilty to mortgage fraud-related charges, and await sentencing. Jay Berger and Randy Berger are unrelated, except through marriage.
Elleni Berger "stretched the rules where she worked," said Emanuel Klimantis, her brother. "The banks enticed it in a way" by loosening lending rules, he told Judge Conti.
Ms. Berger said that when subprime lending ballooned over the course of the last decade, with adjustable-rate mortgages and loose requirements, pressure built to bend the rules.
"I did not wake up one day and say, '[Fraud] is what I'm going to do,' " Ms. Berger said. "I woke up one day, and [the market was] subprime."
Many area brokers used unlicensed appraiser Kenneth C. Cowden, who inflated the values of hundreds of millions of dollars worth of homes. He got probation after cooperating with prosecutors.
Ms. Berger said she made "Ken rules" governing when her agents could and could not use Mr. Cowden, keeping him away from transactions involving borrowers with poor credit, or modest incomes. Later, she tried to get her associates to stop using Mr. Cowden, but then he gave her a baby shower gift, so she thought, "OK, it's not so bad, I guess," she said.
She said she only used Mr. Cowden on 5 percent to 10 percent of the loans she brokered.
A report submitted by the defense identified 57 foreclosures among the loans made by Ms. Berger's business.
Assistant U.S. Attorney Brendan Conway, who prosecutes mortgage fraud cases, said that report showed "at least 57 families who don't have the home that they once had, and they may have children as well."
He argued that the losses to banks and others from Ms. Berger's activity approached $2.5 million. Such losses, multiplied over the entire economy, cost many people their jobs in the recession, he said.
He said Ms. Berger earned an average of around $500,000 a year, reaching $846,000 in 2004. "Then she takes the extra step of ripping off the government," by underpaying her taxes to the tune of as much as $200,000, he said.
Ms. Berger said that was due to poor bookkeeping, and said she might take accounting courses in prison.
Judge Conti gave her a shorter term than the 46 to 57 months recommended by federal sentencing guidelines. Ms. Berger will be notified when to report to prison and after her term will face three years of federal supervision.
Rich Lord: firstname.lastname@example.org or 412-263-1542.