                 FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT


UNITED STATES OF AMERICA,                  No. 12-50302
            Plaintiff-Appellee,
                                           D.C. No.
               v.                    5:11-cr-00090-VAP-1

PETER GREGORY MORRIS,
         Defendant-Appellant.               OPINION


      Appeal from the United States District Court
          for the Central District of California
      Virginia A. Phillips, District Judge, Presiding

                 Argued and Submitted
         January 8, 2014—Pasadena, California

                    Filed March 13, 2014

Before: Alex Kozinski, Chief Judge, and Stephen Reinhardt
          and Richard R. Clifton, Circuit Judges.

               Opinion by Judge Reinhardt
2                  UNITED STATES V. MORRIS

                           SUMMARY*


                          Criminal Law

    The panel affirmed a sentence in a mortgage fraud case in
which the defendant contended that the district court erred in
calculating the banks’ loss under the Sentencing Guidelines.

    The panel held that, in a mortgage fraud case, loss under
U.S.S.G. § 2B1.1(b) is calculated in two steps. The first step
is to calculate the greater of actual or intended loss, where
actual loss is the reasonably foreseeable pecuniary harm from
the fraud, which will almost always be the entire value of the
principal of the loan. The second step is to apply the “credits
against loss” provision and deduct from the initial measure of
loss any amount recovered or recoverable by the creditor
from the sale of the collateral, whether or not the value of the
collateral was foreseeable.


                            COUNSEL

Sean K. Kennedy, Federal Public Defender, and Michael
Tanaka (argued), Deputy Federal Public Defender, Los
Angeles, California, for Defendant-Appellant.

André Birotte Jr., United States Attorney, Antoine F. Raphael
and Joseph B. Widman (argued), Assistant United States
Attorneys, Riverside, California, for Plaintiff-Appellee.


  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                 UNITED STATES V. MORRIS                      3

                          OPINION

REINHARDT, Circuit Judge:

    In 2007, Peter Morris applied for three loans from three
financial institutions (Washington Mutual, Lehman Brothers,
and Bank of America) to purchase three properties, all located
at “Sonic Court” in Riverside, California. In the loan
applications, Morris claimed securities and assets that he did
not own, employment he did not have, and income he did not
earn. He falsely stated that he was unmarried, was in the
process of selling a different house, and was not obligated to
pay child support. He supplied the three banks with false
documents to substantiate these false statements. He also
withheld information—for example, he did not tell any of the
banks that he was applying for loans from the other two. All
three banks approved Morris’s loan applications, and Morris
purchased the three properties shortly afterward. When
Morris made only one mortgage payment, two of the three
banks foreclosed on their loans and sold the properties at a
loss. Morris sold the remaining property in a short sale, at a
loss to the third bank.

    In 2011, in connection with these fraudulently obtained
loans, Morris pleaded guilty to wire fraud, 18 U.S.C. § 1343,
and making a false statement on a loan application, 18 U.S.C.
§ 1014. The district court sentenced Morris to 63 months
imprisonment. In choosing this sentence, the district court
began with a Sentencing Guidelines range of 57 to 71
months, which reflected a 16-level increase to Morris’s base
offense level based on the district court’s calculation that the
banks had suffered a loss of $1,033,500. A lesser loss would
have resulted in a lower Guideline range. Morris appeals his
sentence.
4                UNITED STATES V. MORRIS

                               I.

     Morris contends that the district court erred in calculating
the banks’ loss under the Sentencing Guidelines. Morris’s
Guideline sentencing range was calculated using U.S.S.G.
§ 2B1.1, which applies to offenses involving fraud or deceit.
Under § 2B1.1, a defendant’s base offense level is increased
according to the amount of loss caused by the offense, where
the initial measure of “loss” is the greater of actual or
intended loss. U.S.S.G. § 2B1.1(b)(1); id. cmt. n.3(A).
Because Morris does not make any argument as to what he
“intended” the banks to lose, actual loss is the appropriate
initial measure here. “Actual loss” is “the reasonably
foreseeable pecuniary harm that resulted from the offense.”
Id. cmt. n.3(A)(i). “Reasonably foreseeable pecuniary harm”
means “pecuniary harm that the defendant knew or, under the
circumstances, reasonably should have known, was a
potential result of the offense.” Id. cmt. n.3(A)(iv). Relying
on this “reasonably foreseeable” language, Morris argues that
the district court should have calculated loss as the value of
the loans less the reasonably foreseeable value of the
properties at the time the loans were obtained. He contends
further that the reasonably foreseeable value at the time the
loans were obtained was considerably greater than the actual
value of the properties at the time they were sold because the
drastic housing market downturn of 2008–2009 was not
foreseeable.

    The difficulty with Morris’s argument is that the
Sentencing Guidelines explicitly dictate how to measure loss
in mortgage fraud cases that involve collateral. In such cases,
the “credits against loss” provision mandates that the initial
measure of loss (actual or intended loss) be reduced by “the
amount the victim has recovered at the time of sentencing
                     UNITED STATES V. MORRIS                                5

from disposition of the collateral” or, if the collateral has not
been disposed of at that time, the fair market value of the
collateral as of the date of conviction. Id. cmt. n.3(E)(ii)–(iii).
Morris’s proposal for calculating loss conflicts with this
provision.

     We adopt the two-step approach first articulated by the
Eastern District of Virginia, and subsequently adopted by the
Second, Sixth, and Tenth Circuits. In calculating loss in
mortgage fraud cases, these Circuits hold that the first step is
to calculate the greater of actual or intended loss, where
actual loss is the reasonably foreseeable pecuniary harm from
the fraud. This amount will almost always be the entire value
of the principal of the loan, as it is reasonably foreseeable to
an unqualified borrower that the entire amount of a
fraudulently obtained loan may be lost. The second step is to
apply the “credits against loss” provision and deduct from the
initial measure of loss any amount recovered or recoverable
by the creditor from the sale of the collateral. This second
calculation is made without any consideration of reasonable
foreseeability. See United States v. Crowe, 735 F.3d 1229,
1236–41 (10th Cir. 2013); United States v. Wendlandt,
714 F.3d 388, 393–94 (6th Cir. 2013); United States v. Turk,
626 F.3d 743, 748–51 (2d Cir. 2010); United States v.
Mallory, 709 F. Supp. 2d 455, 457–60 (E.D. Va. 2010),
aff’d., 461 Fed. Appx. 352, 361 (4th Cir. 2012)
(unpublished).1 The resulting amount is the final loss amount.

  1
   In so holding, we join the Second Circuit in rejecting the only case to
the contrary, United States v. Parish, 565 F.3d 528, 535 (8th Cir. 2009).
We agree with the Second Circuit that the Eighth Circuit’s reasoning in
Parish is contrary to the plain language of the Sentencing Guidelines
because “it conflates the initial calculation of loss (where foreseeability is
a consideration) with the credits against loss available at sentencing
(where it is not).” Turk, 626 F.3d at 751.
6                UNITED STATES V. MORRIS

Such an approach is not only dictated by the plain language
of the Guidelines and their accompanying commentary, but
also “necessary to ensure that defendants who fraudulently
induce financial institutions to assume the risk of lending to
an unqualified borrower are responsible for the natural
consequences of their fraudulent conduct,” no more, no less.
Mallory, 709 F. Supp. 2d at 459; see also Turk, 626 F.3d at
750 (“To accept [the defendant’s] argument would be to
encourage would-be fraudsters to roll the dice on the chips of
others, assuming all of the upside benefit and little of the
downside risk.”).

                              II.

     In conclusion, we hold that, in a mortgage fraud case, loss
under U.S.S.G. § 2B1.1(b) is calculated in two steps. The first
step—calculating actual or intended loss—allows for a
reasonable foreseeability analysis, although the actual loss
generally consists of the entire principal of the fraudulently
obtained loan. The second step—crediting against the actual
or intended loss the value of any collateral recovered or
recoverable—does not permit a foreseeability analysis.
Rather, the value of the collateral is credited against the
amount of the loss calculated at the first step, whether or not
the value of the collateral was foreseeable. Because the
district court followed this rule in calculating the loss
attributable to Morris as $1,033,500, we affirm his sentence.

    AFFIRMED.
