Prosecutors Going after Fraudulent Mortgage Borrowers 17 comments
Tom Brown
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From Inside Mortgage Finance:
While lenders are coming under increased pressure to help borrowers avoid foreclosure, the U.S. Attorney in San Francisco has launched an effort to pursue fraud cases against subprime borrowers who lied on their loan application.
“In my way of thinking, it didn’t make any sense for us to excuse any one component of the group that was involved in this phenomenon,” said U.S. Attorney Joseph Russoniello. “So while we obviously have an interest in the predatory lending practices, we’re also finding from our investigators that significant numbers of borrowers submitted falsified applications for a mortgage.” [Emph. added]
Good for Russoniello. The media likes to portray the typical defaulted subprime borrower as some poor soul who’s feeding her kids Kal-Kan sandwiches and burning the furniture to heat the house, but the reality is more complex.
In fact, an awful lot of defaulted borrowers are old-fashioned con artists. They lied to lenders about their incomes. They lied about their assets. They lied about whether they intended to live in the properties. They gamed their credit scores. And as soon as home prices turned down, they abandoned their properties without a second thought.
It was fraud, pure and simple. And not a small-scale one, either. To give you a sense of the size of the problem, early defaults on loans originated in 2007 already topped 11% by February of this year. Inside Mortgage Finance reports the U.S. Attorney in San Francisco expects to bring cases against anywhere from 8,000 to 11,000 subprime and Alt-A borrowers.
These people should be indicted. And yet somehow, consumer protection types think the borrowers should get a pass. “Fraud is not good,” admits the associate director of the California Reinvesment Coalition, according to IMF, “but, in the larger context of things, is this really where the resources should be spent and is this really going to get us to the solution to the big problems we’re facing?”
He’s got to be kidding. There’s simply no difference between a broker or appraiser who lies to lender to get a loan approved, and a borrower who does the same thing. Besides, fraudulent speculators are one group of borrowers who, if pursued aggressively enough, might actually be a source of material recoveries. (Just because they walked away from their loans doesn’t mean they don’t have assets elsewhere.)
Just about everyone in the mortgage lending process, from the investment banks, to the brokers and appraisers, to the lenders themselves, have taken a beating in the media ever since the housing bubble popped. Everyone, that is, except the borrowers, who for some reason seem to get portrayed as wide-eyed, innocent victims. Nuts to that. In a lot of cases, the home buyers were the low-downdest actors of all. The U.S. Attorney is right to go after the worst of the lot.
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This article has 17 comments:
Do we really think that all the illegals that got free houses won't be getting more expensive taxpayer prisons?
the lenders did not do due diligence in entering into the loan agreements. and that, my friends begs the bigger question - is it not obvious that the lenders must have encouraged the borrowers to lie?
> jack
By the way, credit reporting systems do not have income data and income and occupancy were the primary items lied about on applications. A "stated income" loan originated by the guidelines established by the lenders did not permit the loan officer to verify the information. If you verified the income, according to the program guidelines, the loan was not eligible for stated income processing. These rules were almost completely ignored but they were still the rules.
On Nov 13 04:54 AM The hand wrote:
> with todays credit verification systems, i personally fail to understand
> why the lending agencies even ask for more than a ss number. when
> the lender has this kind of power, i do not see legally how you can
> hold the borrower accountable.
>
> the lenders did not do due diligence in entering into the loan agreements.
> and that, my friends begs the bigger question - is it not obvious
> that the lenders must have encouraged the borrowers to lie?
>
>
>
But as another poster said - let's be sure to get the Jimmy Caynes and the Dick Fulds and the John Macks who underwrote all of this crap, right along with the John Doe speculators and the creeps issuing the phony appraisals, OK ?
I've seen several credible sources that state the industry is the instigator. The FBI, plus the lawyer who has the mortgagefraudblog.com site, to name just two. Add another, the IRS, which called many of the now banned down payment assistance programs a scam. FBI found years back that the industry was doing 80% of the fraud. The FBI also warned of this exact economic mess but the agency was given no resources to attack the growing problem when there was time to prevent damage.
Aside from that, some of the "buyers" are just wannabe investors, and some are crooks, (straw buyers). Straw buyers being recruited by, again, industry insiders many of the time. These are not buyers who intend to live in the house. Years ago such speculators and crooks were accused of inflating prices so people could not afford a home, and nothing was done. Why? Because it was "only" consumers getting hurt.
I do agree that some buyers who live in the houses were greedy, foolish, and at times lied to get the loan. I don't believe in going soft on buyers who did these things.
But some buyers were victims of mortgage fraud. They were certainly as much a victim if not more so than the banks now whining for a bailout. Where were these industry professionals experts when they should've been doing their due diligence? They were looking the other way, thinking of that big fat commission, and expecting to stick someone else down the food chain with the bill. Though more of this view is creeping into mainstream media, it's not near enough. The CBS's, ABC's, NBC's MSNBC's and Fox's etc's reporters still are ignoring the truth about this; that the real estate and finance industry lobbied its way into immunity for a giant fraud they perpetrated against this country, and they are not being held accountable. Blaming home buyers is a diversionary tactic as home buyers were duped, defrauded, scammed, whatever, much more than they were sophisticated criminals like industry insiders were.
Perhaps the media focuses on the little people, the liar loans and fool speculators, because that pleases the industry advertisers more. I have seen some real sacks of crap shown as an example of buyers hurt by the housing 'crisis.' Why doesn't the media show more of the actual victims of fraud, those are people who deserved the govt's help years ago when they reported the fraud and were told to just "get a lawyer." Why doesn't the govt now tell these crybaby builders, banks, etc, to just "get a lawyer?"
Make sure all the line items on the loan app are verified, or else.
Man: "Yeah!"
OK, take this bag across the street and drop it behind the tree.
(Man takes bag across street, drops bag behind tree)
Cops come from behind other trees, arrest man.
Man: "What are you arresting me for?"
www.homepricetrend.com
I sure hope that FBI and other LE can get all/most of those corrupt lenders and put them away for a nice rest. The entire lending process was permeated with crooks: the originators, the appraisors, the underwriters, maybe even some of the title companies.
I'm convinced that somehow, the CRA (Community Reinvestment Act) exerted some influence or coersion onto the lenders to originate loans to folks who didn't qualify. Sort of a "don't ask.. don't tell" when they submit their loan app.