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The Financial Times is running a story that sounds so too-good-to-be-true that I wouldn’t believe it if it came from a less reputable source. [you have to register to read the website]
The Federal Bureau of Investigation is preparing a nationwide crackdown on mortgage fraud, the latest in a series of efforts to curb lending practices that contributed to the housing meltdown, according to people familiar with the matter.
The FBI is preparing to arrest hundreds of people across the US as early as next week for offences including encouraging borrowers to falsify income on mortgage applications, misleading home owners about foreclosure rescue programmes, and inflating home appraisals, said two people with knowledge of the operation.
I had heard that the new US Attorney in Southern District of New York had started an initiative to do something about the mortgage crisis, but not heard the details. I did know, and reported to you, that the bankruptcy judges in both the Southern and Eastern Districts of New York had not only correctly figured out what was going on, but had arranged for seminars and CLE classes to alert both state court judges and practicing lawyers about what to look for. There is a lot of interaction between the federal judiciary and the US Attorney’s Offices and it is not unheard of for judges to directly refer cases for possible criminal prosecution.
So, I have long expected something to happen in New York. What is news to me, is that the FBI has evidently opened 23 local mortgage fraud task forces around the country. This is really good news because the mortgage securitization process has meant that the documents and personnel involved in a screwed up mortgage are themselves spread out all over the country. So, your foreclosure in Phoenix may involve a servicer in Florida and signatures from people claiming to be in California.
The other thing I like is that the FBI –and therefore presumably the US Attorney’s—have made the connection that the inflated appraisals and liars’ loans pushed by the lenders created the housing bubble and put people into homes that they thought they could afford, but really couldn’t. After all, why would a bank lend you money if the bank thought it wouldn’t get it back?
Such misstatements and omissions helped to fuel the housing bubble by allowing brokers, banks and other lenders to issue loans to borrowers with unverified income and low credit scores.
Many of these borrowers could not afford the loans and once the housing market started to deflate they stopped making interest and principal payments. More recently, mortgage fraud has involved foreclosure schemes in which financial firms collect a fee for falsely promising to help borrowers stay in their homes.
Yes, yes, yes!
Sorry, I went all Harry Met Sally deli scene there for a minute. The Mainstream Media, and the FBI(?) have caught on that the banks haven’t and aren’t doing mortgage modifications in good faith, be still my beating heart.
Maybe I am overreacting, we’ll find out when arrests start happening and indictments are released, but in the meantime, I’m smiling.
[Earlier posts in this series and related links at FDL's Foreclosure Fraud Resources]
34 Comments
Part of the good news is that the FBI has put some people on white collar crime. In the aftermath of 9/11, every agent I knew was put on terrorism, and it wasn’t until 2006 that I began to see some white collar crime work; even then, it had to be millions and pretty much open and shut, because there were so few agents.
Cynthia, you have been doing a Great Job of reporting on these issues. Thank you again.
A few years ago, when the market was at its height, I consolidated an adjustable rate mortgage on a commercial property (that I was unable to refinance despite a high credit score) with my home mortgage. I used a lender that was suggested through my bank. I had to provide more documents than I had ever previously had to show, including all of my leases, bank accounts and tax returns.
The lender was a bit of a scam, but the mortgage did go through, and I am not dissatisfied. However, the company that did the appraisal of my home for this deal really did a big reach in their evaluation of the house. I needed them to appraise it around $175k, and they said $300. It was shocking really. The guy who I dealt with (all of this over the phone) told me I had the highest credit score (821) of anyone he had worked with. I thought that was a compliment. . .now I know better, they were working with people who had bad credit scores.
When I later tried to get the final (not draft) closing docs (for my taxes), none were able to be produced. The company (associated with WaMu I think) has disappeared.
I am an experienced borrower. I consider myself lucky that I did not fall into some kind of Alice in Wonderland hell hole. If I ever fail to make my payment, I know that’s where I will find myself. No Doubt.
All of our Government wouldn’t know fraud if it bit them in the ass.
We are still trusting our Government to hold people accountable for their actions. After seeing them let almost all the crooks get, get out of jail free cards.
We watched the high tech bubble burst, the mortgage bubble burst, the banking bubble burst, the oil bubble, bubble over, and our Government boil over, and no-one was held accountable.
Now we are fools enough to actually think anyone will be held accountable here.
transparait June 12th, 2010 at 11:37 am said
Oh, I thought this post was about something else entirely: arrests of people for not paying their bills. It’s happening, and it sometimes results in indefinite detention:
In AMERICA.
Shameful, shameful, shameful.
I’d say, “I want my country back,” but I think it is so far gone, it’s not coming back.
dakine01 June 12th, 2010 at 11:38 am said
This sounds to good to be true now can we investigate links between the people getting arrested and the funders of ACORN Pimp. Can we look at them giving to Jon McCain’s campaign for President and Jon’s sudden attack on ACORN out of nowhere during the Presidential campaign?
Can we look at these people and any connections to Right Wing reporters who all started to blame the housing collapse on ACORN, and the government supposedly forcing the banks to lend to poor people?
Can we get recent numbers on the total number of foreclosures and the number that went through ACORN and get a percentage? Also how many high priced home loans have foreclosed vs home loans that went to poor people over all?
I find it much more likely that they’ll be arresting the lendees as opposed to the lenders.
Damm if thats the case this is a waste of time.
Judging by the Obama administration’s complete surrender to whatever bankers want so far, don’t you find it unlikely that lenders are going to be prosecuted? I think this is just a back door to re-instituting debtors prison. Calling it “fraud” instead of bad planning or circumstances beyond one’s control is just the way to do it. I’d love to be wrong here BTW.
That’s not what the Financial Times is reporting. I guess we’ll find out next week some time
Is this part of a push to punish walkaways?
http://www.nakedcapitalism.com/2010/06/pr-push-against-strategic-defaulters-underway-is-there-a-debtors-prison-in-your-future.html
Because we need to repeatedly demand that ALL of the big banks be tossed in the clink because these all walked away from bad debt.
No.
From the description in the FT piece, this is aimed at the middlemen in the lending operation, not the borrowers. For example, if a loan originator either falsified documents or induced/misled borrowers into misstating information on their application. Once the loan is granted, they immediately sell the mortgage to a third party, thus passing all the risk off to someone else.
I’m with Cynthia — this is a very good development for going after the fraudsters that pumped up the bubble.
Well, that’s good news, plus we need to be very vocal that the middlemen and the big bank bosses KNEW EXACTLY what was going on.
Maybe we can put a guy like Bill Black in charge of this and start going after the banksters.
I hope so, but I do suspect the borrowers are also at risk for signing off on financial statements they knew to be false or exaggerated.
The ones I’d really like to see busted are the big fish that created or allowed the practice not the small fish that executed it or the suckers that went along.
That’s *if* the borrowers knew that what they were signing was false.
The loan origination scams could potentially produce sizable money, so I wouldn’t call them small fish. The fees for each loan they originate are their bread and butter, so there is great incentive for them to do whatever they could to make the loans happen. As long as they could get their upfront fee and then turn around and sell the loan, they make money — lots of it.
Some borrowers may indeed have known they were misstating things, but I think it is far likelier that more borrowers were misled. “No, you don’t need to report X” says the friendly loan person. “On our special application, you only need to report Y.”
By “small fish” I meant individual brokers or agents following a practice created or approved by someone further up the corporate ladder: that’s the person I want to see busted.
I’m sure there are plenty of both types of borrower. The former type is definitely at risk for their willing participation although I don’t want to see them in trouble because I regard them more as victims of entrapment than deliberate fraudsters. A judge might take a different view, though.
The latter type is innocent, IMO, but how good a defense is “Your Honor, the friendly loan officer told me it would be okay”?
Another group to target is sellers of liar loans to secondary markets (thanks, Bobster33) and people who put AAA ratings on bundles of crap.
A-yep.
I wonder if the government is finally starting to feeling the heat.
Maybe throw a few small timers to the wolves and hope it is enough.
If someone tells You. Hey! I can get You in a nice house to live in instead of a rat infested tenament, people are supposed to say, OH NO! I can’t afford that. Or I might loose my job or have My income cut.
We have been listening to the Republicans for way to long blaming the people who were sold the loans.
The Government through Acorn advising people, and a host of Brokers practically handed out loans on houses to anyone who wanted one. They gave out the loans, and handed big salaries to all involved, but never came up with any kind of [Mortgage insurance] for the people taking the loans. So they were saying, “can’t pay You lose.”
We say that they can’t pay, and we all lose. Had the Government insured the loans they gave, and kept the people in the houses they put them in, the Banks would not have needed to be bailed out in the way we did it.
Yes the Government would have paid the same, but millions of people wouldn’t have been thrown out of their houses, and the banks would not have had to foreclose. No! Our government took the easy way out by bailing out the Banks to make up for their mistakes at our expense.
The way they did it cost us in more ways than what they gave to the Banks. It kept the Real Estate Market from rebounding by flooding the market with low cost foreclosed homes. This means new homes weren’t started, property values were held down, and neighborhoods were ruined. They confirmed the trillions in loses to the Ameican people, condemded us to years of slow to no growth in property values.
A bad decision by our Government, compounded by hords of more bad decisions by our Government, has put us in the position we are in, and condemed us to not being able to get out of it anytime soon.
Yet we are trusting and looking to our Government to fix the problems they created.
3 things: 1. I’ll believe it when I see it. 2. What is the statute of limitations (3 yrs)??? This would mean that the criminals had to operating on or after June 2007 3. Who is the target? (borrowers. brokers, lenders, sellers of liar loans to secondary markets, etc.)
And further, all the sub prime lenders have probably flown the coop by now. Funny thing about the mortgage business, in good times mortgage companies pop up on every corner, like title companies and real estate offices, bad times..gee where did they all go. Yes, it will be interesting to see who the FBI is going after, doubt it will be the banks and wall street whose appetites just couldn’t be satisfied.
It would be nice to see your experiences in a diary here, teaching us the right way the industry could/should operate.
Thank you and I would love to but when I was in the business we prided ourselves on doing a good job and dishonesty was not tolerated. I only know what was happening in my corner of the country and more specifically the company I worked for. We had to go by the guidelines that FHA, VA, and FNMA gave us. We could not lie and cheat or we would be held responsible. That all went out the window and I wouldn’t even know where to begin. I do know that the ‘new rules’ began in the nineties. We called it ‘creative financing’, I had no idea how creative it was to become. The ARM program was my first red alert..I hated them then and would never, ever suggest to a homebuyer that they get into an ARM. That was when the economy was somewhat good but I could still see the writing on the wall. When credit scores were introduced the slide started big time, credit scores made no sense then and they don’t make any sense now. I often wonder it they were created just for this market…to create a new class of borrowers to abuse for the shareholders on wall street. This obscene fascination with credit scores is just that..obscene. Yet, it is how this country is run and one can’t play the game without your credit score. We are all victims of this scam. Credit scores work amazingly well to divide people into what, some 8 catagories and with your life tied to this magic number..well..what can I say.
While the real criminals walk off with bags full of “Stimulus Money”.
Can you hear the people sing?
Book Salon up at the Mothership with Rita Cosby’s Quiet Hero: Secrets from My Father’s Past hosted by Dennis Showalter
All the big fish have lawyers that will tie the cases up forever, then pay a nominal fine. Maybe a half a percent of what they made with the fraud. That’s how it works with the SEC. Who’s the FBI going to spend their time on, someone who can’t afford a lawyer or Chris Dodd’s buddy, the Original Orange Man Angelo Mozilo?
http://abcnews.go.com/Business/Economy/story?id=7758580&page=1
Thanks for your coverage of this.
I really hope they are arresting the Big Bankers for this. I will never forget reading about this — JPMorgan Chase “Zippy’s Cheats and Tricks”
http://www.calculatedriskblog.com/2008/03/zippy-cheats-tricks.html
“The document recommends three “handy steps” to loan approval:
Do not break out a borrower’s compensation by income, commissions, bonus and tips, as is typically done in a loan application. Instead, lump all compensation as the applicant’s base income.
If your borrower is getting some or all of a down payment from someone else, don’t disclose anything about it. “Remove any mention of gift funds,” the document states, even though most mortgage applications specifically require borrowers to disclose such gifts.
If all else fails, the document states, simply inflate the applicant’s income. “Inch it up $500 to see if you can get the findings you want,” the document says. “Do the same for assets.”
“Inflate the applicant’s income” – that is complete Fraud by the Lender – and many need to go to Jail for this kind of Fraud.
Yup, that will work since it is all fed into a computer and the computer doesn’t know any different. I worked on one of the first computer programs being devised for the mortgage business. We all knew it wasn’t going to work because each loan was unique but gee, they made it work…go figure…the computer will believe anything and since you don’t need to document it, even better.
Well, Cynthia, since you are the only one that I’ve seen harping on these issues, you’ll have to forgive me if I choose to give you all the credit for the fact that something might get done about them. You rock, girl. ;-)
That’s all great. But once again, I feel I have to make this point clear. It’s not just that they helped homeowners buys houses they could not afford. They also have plain old accounting fraud in these loans. Payments that were not applied properly. Escrow accounts where they applied payments to fees and penalties instead of taxes. TILA and RESPA violations that caused people to end up foreclosed upon. (For instance GMAC (formerly homecomings) was routinely stopping all communications once you were in foreclosure. They would transfer all your calls, (system would read the number you called from or require the account number or social BEFORE you could be connected) then they would pass you to a voice mail). You could not work out a payment plan or receive info on your pay off. The schemes were too many to recount!!!
See this article in the New York Times. http://www.nytimes.com/2010/06/13/business/13gret.htmlMy loan was with Homecomings but this is precisely the kind of stuff they did to me. Property inspection fees, bogus lawyers fees, they charged me to cash my checks electronically without notice. When the bankruptcy judge told them to remove 5000 in fees because they sued me for non payment (proved each payment to the judge) they just added the fees to the end of my loan. .htmlI just talked to my lawyer and have paid 9800.00$ and should be current on my bankruptcy. However my lawyer and I have found that they just added the fees to the end of the loan. This has been going on all along. All kinds of innocent people lost their homes to this stuff. It’s part of why Obama had such a mess. These people LOST THEIR HOMES!!! to illegal behaviors and fee collections while we sat around talking about how they shouldn’t have bought the house.