Five people were arrested by the FBI yesterday in connection with an alleged foreclosure bailout scheme that took hundreds of thousands of dollars from local lenders and residents and cost some their homes.

Bobby W. Wood, owner of Asian Pacific Funding; Stephen Balino, owner of New Horizons Financial; Welton Kalani, owner of Accel Mortgage LLC; Carlton Yim, co-owner of Walter P. Yim and Associates; and Audra Palomares, a processor with Accel Mortgage LLC, are accused of multiple counts of mail fraud, wire fraud, money laundering, and making false statements on a loan application.

All five pleaded not guilty.

To date, more than 17 people have been charged with conspiracy, mail fraud and making false statements on loan applications in an 18-month ongoing investigation into mortgage fraud in Hawai'i.

"The FBI hopes that ... (yesterday's) arrests will send a message through the mortgage industry that the days of playing fast and loose with the truth are finally over," said Tom Simon, FBI special agent.

Agents arrested Yim in the parking lot of a church on Ke'eaumoku Street. The others were arrested at their homes.

'A REAL HONEST GUY'

Yim's father and employer, Walter P. Yim, said his son had "nothing to do with anything."

"That's not Carlton. They can't prove that because he never did that. He's my son and my salesman. He had nothing to do with anything," Walter Yim said. "Everything he's been doing has been wonderful. He doesn't have one crooked bone in his body. The guy doesn't know how to cheat."

Teddy Kajiwara, a broker with New Horizons Financial, worked for Balino for 13 years and said yesterday's arrest shocked him. Kajiwara said Balino helped get rid of another employee, Antonio Alcantara Jr., who was arrested by the FBI on suspicion of mortgage fraud in May 2008.

"He's not like that, you know, he's like a real honest guy," Kajiwara said. "If anything, he's the one that wants to make sure we're compliant."

'SHAM' SALES

According to court documents, those arrested promised to help struggling homeowners stave off foreclosure if the homeowners agreed to a "sham" sale.

They allegedly told the owners they could remain in their homes and that their title would be returned to them after a set period of time. The scheme involved offering "straw purchasers" $12,000 to $15,000 per transaction to act as new title holders. But the proceeds were allegedly funneled into fake escrow accounts and the new loan would go into default. The amount of the new loan was more than the old loan and the properties went into foreclosure, according to court documents.

An indictment, unsealed yesterday, outlined six purportedly fraudulent loans totaling $1,916,980, with an undisclosed amount allegedly siphoned off and distributed among Wood, Balino, Kalani, Yim and Palomares.

On Jan. 5, 2007, Kalani allegedly deposited a $92,000 check purportedly obtained in the conspiracy into his personal account; and on March 23, 2007, Wood allegedly deposited $78,001 into his account.

"The federal government is devoting more resources to investigating and prosecuting these (types of) cases," said assistant U.S. attorney Clare E. Connors, who is prosecuting the case.

Wood and Balino are scheduled for a detention hearing today. Yim, Palomares and Balino have been released on a $50,000 bond.

Their trial is set for June 23 at 9 a.m. before U.S. District Judge Susan Oki Mollway. Mollway, however, may recuse herself because Balino processed the loan for her condominium last year, according to Balino's company, New Horizons Financial.

STRAW BUYERS

The accused manipulated their friends and business associates into aiding in the completion of fraudulent real estate transactions "for the purpose of pulling out equity," according to the court documents. Kalani, Wood and others sought out troubled homeowners and offered aid, while Kalani and Wood also recruited buyers for the homes, according to the allegations.

The straw buyers agreed to sign documents, prepared by Wood, Balino and others that "contained materially false supporting documentation" claiming the straw buyers would occupy the homes. The loan applications also allegedly contained false information prepared by Palomares, Yim and others regarding the straw buyer's sources of income, bank accounts and rental situations.

According to the court documents, in December 2006 Wood allegedly met with the owner of a house at 98-1953 Ho'ala St. in 'Aiea and offered to help if the owner authorized Wood to deal with the lending institution. Kalani is accused of identifying a straw buyer, and on Dec. 12, 2006, Yim signed a deposit receipt offer and acceptance on behalf of the straw buyer, according to court documents. Six days later, Yim allegedly signed a false request for verification of rent or mortgage and on Dec. 22, 2006, Balino signed two loan applications related to the Ho'ala Street property that allegedly misrepresented that the straw buyer would live in the house.

As a result of the purportedly fraudulent applications, the accused obtained $620,053 from Fremont Investment and Loan, the court documents contend.

On Feb. 26, 2007, Wood signed two loan applications on behalf of another purported straw buyer for the same house. On March 9, 2007, Palomares notarized the documents and on March 21, 2007, National City Mortgage sent two wire transfers to escrow accounts totaling $714,564, according to court documents.

The prosecution contends that on Jan. 30, 2007, Kalani and others met with a family at 95-226 Waipono Place in Mililani to offer help avoiding foreclosure, using the same scheme and fraudulently obtaining a $555,364 loan.