The Get-Rich Pitch, Then the Letdown
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Watching my grandmother, Big Mama, struggle to make ends meet, I’ve come to understand the desire that many people have in finding a way to build wealth. Unfortunately, people sometimes become mesmerized by smooth operators who promise to help them reach their financial dreams. In some cases, these operators use religion to entice people into their schemes. In others, they use a community or professional connection. And then sometimes, they use race. Frederick C. Lee Jr., founder of Financial Independence Group, markets himself as a self-made black man trying to help other blacks make it rich. However, he has only enriched some top lieutenants while using a network of associates to feed a mortgage-loan scheme that has recently run afoul of regulators in two states, according to former salespeople. Since I began investigating and writing columns on his operations two months ago, Lee and Financial Independence Group have been ordered to stop all mortgage-related activity in Maryland. He had already been ordered to stop originating loans in Georgia. My reports have prompted a dozen former associates to come forward with their stories. They provide an inside look into how Lee has fashioned his mortgage brokering scheme. It’s a tale of suspect business activities, multiple company names and false relationships with other financial institutions. Former associates say Lee promised them vast wealth. To reach their goals, they mainly focus on getting fellow blacks to refinance into a specific type of mortgage laden with exorbitant fees. These former salespeople, who paid $100 to join the company, said they wound up disillusioned by Lee and disappointed at their own blindness — and in some cases at their own greed. Neither Lee nor his attorney would respond to telephone calls or e-mails requesting comment for this column. The men and women I interviewed said they didn’t at first question Lee and his behavior because they were transfixed by the potential prosperity he offered them. They said they believed that Lee wanted to help blacks achieve financial security. Now they feel deceived. During recruitment presentations, prospects are pumped up with stories of how others have made lots of money. Top performers are rewarded in front of the audience. Financial Independence Group’s Web site, which has been taken down since my columns began appearing, boasted that top salespeople received luxury cars — Range Rovers and Jaguars — and expensive Breitling and Tag Heuer watches. Former associates said they realized soon that the road to riches meant getting as many borrowers as possible to agree to refinance into high-fee mortgages. During a Financial Independence Group presentation, I was told I could earn $500 if two homeowners I referred closed on loans through the company. All I needed to do was provide the referrals. Although not commenting specifically about what I heard at the presentation or on Financial Independence Group, Brian Sullivan, a spokesman for the Department of Housing and Urban Development, said that the payment of referral fees for mortgages is prohibited under the federal Real Estate Settlement Procedures Act. “RESPA is clear that giving or receiving anything of value in exchange for the referral of business is against the law,” Sullivan said. In their quest for borrowers, Lee’s troops are deployed into black communities to sell a particular type of mortgage that some real estate experts say is inappropriate for most people. These salespeople — many of whom have little if any experience as loan originators — are sent out to meet borrowers in their homes to conduct what they call kitchen table presentations. The product they tout is a payment option, adjustable-rate mortgage. It allows homeowners to choose the kind of payment to make each month — either a minimum payment, principal and interest, or interest-only. With a minimum payment, a borrower could face “negative amortization,” which means that the unpaid interest is added to the mortgage balance. With negative amortization you end up owing more on your mortgage than you originally borrowed. That’s a bad position to be in if you need to sell or refinance because you could end up owing more than the home is worth. |