“An 80/20 loan isn’t fraud in and of itself...did you think something else went on?”
The fraud was in using the second mortgage to avoid mortgage insurance. By the mid 1990s primary insurers were requiring buyers to have 20% equity in the property to avoid mortgage insurance. That meant YOU put in $1 for every $5 they lent you — not that you borrowed an additional dollar for every one they lent. Doing that might or might not have been outright fraud in 1999, but it was on the shady side. Deep in the shade.
That’s not fraud at all. I’ve been originating mortgages since 2001. As long as the first mortgage lender knows about it and their guidelines allow it, a 20% second mortgage is perfectly legitimate as a way around mortgage insurance. The interest rate on the second mortgage is higher as a function of higher risk.