It was the ultimate competitive edge. Gallagher, the founder and president of Park Place Funding in Laguna Hills, California, took a strategy that is typically used to take advantage of unsuspecting consumers and used it in such a way where his customers may regard him as the Robin Hood of mortgage brokers. Was it unscrupulous or pure genius? It depends who you ask.

Gallagher asked his customers to take a much higher interest rate than they could have received. He told them he’d pay them for doing so by sharing a chunk of his hefty premium and they could refinance right away. Yes, their monthly payments were a bit higher for a couple months, but the money Gallagher was giving them at closing more than made up for it. They could even write off the high interest on their taxes. This was a no-brainer for Park Place Funding customers and the best part was that they could keep doing it over and over, as long as they stayed outside of the lender’s restriction period (typically 3-4 months). And why wouldn’t they? Who doesn’t want extra money for fixing up their home, college tuition, a luxury vacation, cosmetic surgery…well, it is California after all.

For years, no one complained. Everybody was happy - including the lending institutions enjoying the high-premium profits and the high volume of business Gallagher sent to them. In fact, it’s safe to say the lenders loved Gallagher as much as his customers. Lenders make the most money with high interest loans. In exchange, they pay the broker a fat bounty for them.

Gallagher did the majority of these loans with National City Mortgage, a division of National City Corp. in Cleveland, Ohio because they offered the highest bounty – up to 5% of the loan amount. National City sold the loans to Freddie Mac. Then, Freddie Mac packaged the loans for investors. Here’s where Gallagher’s strategy turned sour.

One investor, in particular, thought he would get rich off of the sizable interest payments – for at least a couple years until these folks in Laguna wised up and secured the lower rate they deserved. Imagine his surprise when the underlying loans were paid off as soon as the ink was dry.

Matthew Cox was a real life mortgage broker that is now on the run from the FBI. Apparently, Mr. Cox wrote a 317 page novel entitled “The Associates” which details the fraud scheme in which he is alleged to have engaged. In fact, it appears Mr. Cox wrote the book before perpetrating the scheme and then ran it by friends and colleagues in the industry for input as to whether the fictional account was viable, and if his colleagues “Saw any holes?” The book contains fascinating parallels to Cox’s eventual conduct. But in the end will Mr. Cox and his girlfriend sail off on a cruise ship bound for a Caribbean Island, or will he be captured by the FBI using his own unpublished novel as the road map?

There was something odd about Gary L. Sullivan, the polite young businessman who moved into Columbia, S.C., last summer and bought a couple of nice homes in the northeast section of town. At one of his places, a $225,000, 3,000-square-foot home, the furnishings were bare-bones: a desk, a computer, a phone and a mattress on the floor. At the other, no one was ever around, but the outside lights stayed on day and night.

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