Mortgage lender Harry Forster hoisted his teenage son so he could peer in the one window that wasn't boarded up.

"I don't see anything, Dad," the son said.

Alexander Acosta/aacosta@ajc.com (ENLARGE)

A view of the inside a home on Martin Luther King jr. Boulevard that Wiggins used in his scam.

DISSECTING MORTGAGE FRAUD What happens: Mortgage fraud perpetrators use false documents, straw buyers and dishonest appraisers to dupe lenders into believing houses they want to borrow against are worth much more than their real value. When the loans are not repaid, the houses often go into foreclosure. Its impact: Mortgage fraud has weakened the metro Atlanta housing market. It falsely inflated property values and taxes, then led to foreclosures that depress home values. Vacant foreclosed houses cause blight and breed crime. A record number of metro Atlanta houses are scheduled for foreclosure auction next month. RELATED • Our West End Newsletter: Video and section on mortgage fraud • Prosecutor works hard to stop the mortgage shenanigans THE ECONOMY Latest Headlines: Mexican Senate passes stricter credit rules  US, China promise $20 billion to finance trade  AT&T to cut 12,000 jobs, 4 percent of staff  China tells US to get economy in order  Cemex: World Bank unit to hear Venezuela dispute  • More Business news • Foreclosure news, tips • Search pending foreclosures • Find metro gas prices • Money-saving tips! Markets »

In disbelief, Forster, founder of the now-defunct Perimeter Mortgage Funding, had his son lift him up so he could see for himself what it looked like inside the intown Atlanta house.

"The house didn't even have dividing walls," he recalled. "I don't know how it stood up."

On that day more than five years ago, Forster got his first glimpse of the kind of mortgage fraud that eventually destroyed his thriving business and cost him his home and savings.

The fraud also was a blow to efforts to revitalize neighborhoods west and south of downtown.

"Mortgage fraud has turned about 20 percent of the homes in the community into empty shells," West End resident Brent Brewer said.

Forster has been subpoenaed to appear Tuesday morning in U.S. District Court in Atlanta for the sentencing of Kevin Wiggins. Federal prosecutors say the 40-year-old Ellenwood man operated a scheme from 2001 to 2004 that led to the demise of Perimeter Mortgage Funding and cost lenders $7 million.

After pleading guilty to one count of conspiracy and two counts of wire fraud in a 64-count indictment, Wiggins faces up to 15 years in prison, a $750,000 fine and will be ordered to repay the lenders.

Perimeter Mortgage Funding was a loan originator that sold its mortgages to bigger lenders and to Fannie Mae and Freddie Mac, the corporations now facing serious financial problems because of plunging investor confidence. The company collapsed in 2005 when it ran out of funds to reimburse buyers of the fraudulent loans.

Colonial Bank, JP Morgan Chase, Wachovia and Washington Mutual are some of the other institutions that were burned by Wiggins' activities, according to the indictment. Freddie Mac sent two investigators to question Wiggins in 2003, more than three years before he was indicted.

The government says Wiggins used phony documentation and "straw borrowers" — people paid to pose as homeowners — to obtain inflated loans for 88 distressed properties. The loans totaled more than $15 million.

Prosecutors say this is how the scheme worked: Wiggins struck agreements to buy the houses, then deeded them to the straw borrowers. Those borrowers secured loans using falsified information. The loan proceeds were then used to buy the houses and pay Wiggins and his accomplices. After a loan was approved, money was wired to a closing attorney, who disbursed the funds to one of Wiggins' several companies — two of which were named TWF for "the Wiggins family."

The straw borrowers were primarily Wiggins' relatives and friends, prosecutors say. Most of the loans were cash-out refinancings; the rest were home purchases.

Lenders were duped with false appraisals and fabrications about renovations and rental income, the government says.

A house on Smith Street in Atlanta, for example, that was bought for $24,000 received a $128,000 loan because of bogus information.

A $57,000 house on Martin Luther King Jr . Drive secured a $187,500 loan. Assuming that loan had a 75 percent loan-to-value ratio, the appraisal would have indicated the house was worth $250,000.

Perimeter Mortgage Funding was presented with photographs of Corian countertops and kitchen islands that purportedly were installed in the houses, and the costs for that work, Forster said.

"The pictures were just wonderful," he said.

Reality was not. One house had fire damage concealed by vinyl siding. Another looked OK from the street, but its back end had collapsed. "It was like Hollywood sets," Forster said.

The mortgages went unpaid and the lenders arranged to put the properties in foreclosure.

"I am certainly disappointed and sorrowful that this situation occurred," Wiggins said in a phone interview, then added, "I don't want my admission of my guilt — I don't want that to be segued into something more than what it is."

Wiggins said he employed residents, partially renovated houses and paid for security and street signs.

"My lofty vision was to make this area a livable, desired place to live," he said. "I got sloppy. I began to cut corners and manipulate the system. I adopted this fallacy that the end justified the means.

"I have been tagged as the person who has been responsible for mortgage fraud in the West End," he continued, but noted fraud in that area is much bigger than one person's activities.

A recent Fannie Mae report lists Atlanta as the No. 2 city for mortgage fraud, behind Minneapolis. In June, the Department of Justice announced that a nationwide crackdown dubbed "Operation Malicious Mortgage" included several metro Atlanta cases. Government prosecutors in the U.S. Northern District of Georgia won their biggest-ever mortgage fraud case last year, when Phillip Hill and nine co-defendants were convicted on 436 counts. Hill was sentenced to 28 years in prison.

Wiggins, a father of four, said he began buying and rehabilitating houses while serving in the Army in Columbus. After his discharge as a staff sergeant, he worked briefly as an accountant then went into full-time real estate investing in 1999.

He said he had planned to renovate and rent West End houses to students, then sell them as values increased.

"Most of these homes are in gross states of disrepair," Wiggins said. "Although our fraud has contributed to some negative consequences, we were able to change the face of that entire neighborhood by our actions. We were there every day."

Wiggins' sister, Lydia Wiggins Christopher, and appraiser Frank Astwood also have pleaded guilty and are scheduled to be sentenced Tuesday.

Christopher "assisted in recruiting and managing unqualified straw borrowers," the government says. Astwood drew up the false appraisals and was paid "at about double the rate for legitimate appraisals," according to the indictment.

Brewer, the West End resident, said mortgage fraud artificially boosts property taxes and assures houses sit empty as a blight on the neighborhood.

"This vacancy rate depresses property values, creates a variety of public safety issues and depletes the neighborhood of residents who could make a positive contribution to the development of the community," he said.

Brewer and neighbor Paulette Richards made a 27-minute video about their community's struggle with mortgage fraud called "When a House is not a Home."

Richards, who moved from New Orleans after Hurricane Katrina, had made videos of the African-American community there before the storm.

They've submitted their video and a petition to U.S. District Court Judge Jack Camp, requesting that Wiggins receive the maximum sentence, Richards said.

Forster now manages a few condominiums in Panama City Beach, Fla., which is a far cry from running a mortgage company that earned him $500,000 a year.

What seemed like a positive — high interest in intown development — actually provided fertile ground for fraud, he said.

"The flood of business came from the revitalization of downtown," Forster said. "I made more money in one month than I've made the last two years."