The Structural Causes of Mortgage Fraud

University of Georgia Law School ^ | August 2010 | James Charles Smith

[Chunga85]

James Charles Smith University of Georgia Law School

Syracuse Law Review, Vol. 60 UGA Legal Studies Research Paper No. 10-14

Abstract:

Mortgage fraud, often a violation of federal and state criminal statutes, covers a number of different types of behavior, all of which have the common denominator of conduct that has the intent or effect of impairing the value of residential mortgage loans.

Mortgage fraud has become prevalent over the past decade and shows no signs of diminishing despite the collapse of domestic housing markets during the past two years. This paper analyzes the complex relationships between prime mortgage loan markets, subprime markets, and various types of mortgage fraud.

This paper concludes that the root causes of mortgage fraud are associated with the core institutional and structural components of mortgage markets, which cut across all types of residential mortgage products. The organizing principle is the historical evolution from proximity to distance within the mortgage market, which is explored along three axes. First, geographical distance between lenders and borrowers has replaced geographical proximity.

The mortgage market is national, with local lending institutions no longer making a significant proportion of the loans that are originated. Second, transactional distance has replaced transactional proximity. Lenders and borrowers have little direct contact; instead intermediaries such as mortgage brokers, appraisers, insurers, and closing officers, separate the principals. Third, financial distance has replaced financial proximity. Previously both borrowers and lenders had significant financial interests in the mortgage loan transaction. The borrower had equity in the property, and the lender held the loan in its portfolio.

Presently many borrowers have no equity (or negative equity) (due to fraud) in their homes, and due to the securitization of loans through the secondary mortgage market, few originating lenders retain a stake in the loans they create.

[Chunga85]

The full paper can be read HERE

[Steely Tom]

The Structural Causes of Mortagage Fraud

"I needed some damn money."

How 'bout that one, Professor Einstein?

[VRWC For Truth]

The author is an idiot. Stupid gov’t rules forced the creation of the sub-prime market. The sub-prime market became a loss leader when housing prices quite naturally fell ... because SUPRISE, it's a MARKET! Since local revenue depends on real estate TAXES, it too now suffers. There is pressure to inflate the value of real estate because ALL gov’t local, state, and federal ARE HOOKED on tax revenue to SUPPORT THEIR OWN EXISTANCE aka PARASITES. Just vote every incumbent out and go Galt. Starve the beast. A big bloated bureaucracy at the local, state, and federal levels is THE PROBLEM. The market is the INDICATOR of the problem.

[Painesright]

Yes, mortgage fraud is rampant, but it doesn’t hold a candle to the real causes of this crisis:

1. Lax underwriting guidelines across ALL loan types.
2. Artificially low interest rates.
3. A guaranteed buyer (Fannie/Freddie)for a procuct (mortgages).
4. A tax code that favors one asset class over all others.

Mix those 4 thing together and you get a real estate bubble of epic proportions.

We increased residential mortgage debt from $5.1 trillion to $11 trillion in 8 short years from 2000 – 2008.

Again, we increased our national residential mortgage debt BY 6 trillion dollars, at a time when the market was over-priced.

It took us 100’s of years to get to 5.1 trillion. It took us 8 years to more than double that number to 11 trillion!

The question is, how much did we overspend? 2 trillion? 3 trillion? More??

There were approximately $1 trillion subprime loans done (no one thinks we have stopped doing subprime loans do they?... let’s see, subprime went away and FHA went from 2% market share to 40% market share... hmmmmmm?)

There were approximately $1 trillion of Alt-A loans done.

That leaves approximately $9 trillion of supposedly “prime” loans. If 16% of those default (which is what one of the charts predicts), then that would be $1.4 trillion in defaulted PRIME (wink, wink) loans.

Subprime has a higher default rate, but prime losses will be much, much larger dollar-wise. Size matters.

That is what people do not seem to grasp yet; the enormity of the issue. There is no way to pin the problem on one specific type of loan. Doing that grossly understates the scope of the problem.

Prime loans (which were actually what I call faux-prime because the majority of prime loans done during that time did not remotely fit the traditional definition of a prime loan), Alt-A loans, Subprime loans… doesn’t matter.

ANY loan done during that time frame was a bad loan because the value of the underlying asset was distorted/inflated.

To throw salt in the wound, the harsh reality is that millions of the jobs that were created during that time were temporary, because they existed only as long as the real estate bubble existed (really, it was an asset bubble of almost ALL asset types).

That bubble has burst and it’s a long way down back to earth.

The pain must come.

Jobs, jobs, jobs (non-government, preferably export-creating jobs) are the only pain reliever!!

The anti-business attitude in Washington has got to stop.

Jobs are the only thing that can save us, if anything can.

[Chunga85]

I hope those jobs come soon.

Woman Tasered in Foreclosure Standoff SWAT Team! That's great stuff! According to the Gwinnet Court's Website the "lenders" involved are Citibank and Umb Bank. This I'm sure is worth a few chuckles.

[LomanBill]

[To throw salt in the wound, the harsh reality is that millions of the jobs that were created during that time were temporary, because they existed only as long as the real estate bubble existed (really, it was an asset bubble of almost ALL asset types).]

"The Federal Bureau of Investigation (FBI) defines mortgage fraud as “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.”

Many of those "jobs" also evidently relied upon a poorly calibrated moral compass and eyesight which facilitated "intentional misstatement, misrepresentation, or omission". 

 

"Everybody cheats - that's what you have to do to survive" - that was the attitude observed and conveyed to me by a UCI Physics professor I served on a jury with back in 2004.  He was frustrated and astounded by the level and sophistication of cheating he saw taking place in his classes.

 

No big surprise, then, to observe the same "Everybody cheats - that's what you have to do to survive" attitude among the "progressives" within the mortgage industry....

 

 

The proliferation of mortgage fraud must be seen within the context of the general decline in society's moral framework - and until THAT trend is reversed, I see no reason to believe the systemic corruption of our economic, governmental, and other institutions won't continue.

 

A Republic is a system, of governance characterized by the Rule of Law; and when the Law fails - the Republic fails.

 

Unless you just want an evolutionary repeat of the systemic corruption observed previously, the first "jobs, jobs, jobs" to be created should be related to Law enforcement - investigative, judiciary, and PUNITIVE.

 

It's called FRAUD for a reason.   PUNISH IT.    Because if the Republic does not - then Nature inevitably will.   

 

Got Due Penalty?

[Neidermeyer]

That articles good for a few chuckles ... I just hope some people start scratching their heads over the “necessity” for foreclosure mills to forge all those documents in support of their actions ... couldn’t be because the notes are lacking a legal enforcement mechanism is it?? no fraud at all when the trusts and all the supporting aparatus was created and sold.. ( cough.. ) http://floridaindependent.com/5763/mccollums-office-announces-investigation-of-foreclosure-mills

[Neidermeyer]

The proliferation of mortgage fraud must be seen within the context of the general decline in society’s moral framework - and until THAT trend is reversed, I see no reason to believe the systemic corruption of our economic, governmental, and other institutions won’t continue.
******************************************************
It’s funny that in your reply you posted a photo of an IT slaves cube... The US worker has been sold out by inflation and gov’t policies undermining wealth creation for at least 30 years and probably longer... ask anyone that works IT and is surrounded by wage suppressing H1-b types or used to manufacture nearly anything here in the USA ... The average wage today is lower than it was (inflation adjusted) in the 1970’s.

In other words the “do whatever it takes” mentality has been formed over generations.. don’t expect it to reverse anytime soon.

[LomanBill]

Where's AIG and the derivative insurance element of the fraud?

 

That was a significant factor in manufacturing greater "Transactional distance".

Fannie Mae and Freddie Mac are issuers for most conforming mortgages. Investment banks primarily issue securities backed by subprime mortgages and other non-conforming mortgages.94Notably, investment banks that issue mortgage-backed securities do not sample loans or properties to verify the facts; they merely accept the paper offered to them by originators.95

Investors thought the non-conforming A$$Paper they were buying was "insured"... but in the end, it wasn't - except by tax payers who got left holding the "bail-out" bag.

 

 

[Neidermeyer]

AIG was used ,, the real key was GS, Lehman , Morgan Stanley et al getting the ratings agencies to play ball ,,, when they got that key part nailed down they went crazy throwing money at anybody.

[Chunga85]

ALL the players were aware of that fact. "Unjust Enrichment"? All your homes are belong to us! Fraudulent Docs Galore Just pull out the "Too Big to Fail" card and everything will work out just fine.

[LomanBill]

[ask anyone that works IT and is surrounded by wage suppressing H1-b types]

 

The IT Slave cube was mine, at Argent Mortgage.

 

And you're right - H1-b types were in abundant use there.

 

Not their country that was being raped....

 

Here's my recollection of a conversation while I was being trained to take over maintenance of the Argent(Ameriquest) wire-transfer system:

 

Me: So what you're saying is, even though the terms of the attorney's general agreement manufactures the facade of separation between Ameriquest and Argent - at the funds transfer level, they ARE STILL one and the same - with the transactions taking place on the same hardware servers and software.

 

H1B Type:  Yeah, but nobody knows that.  Ha ha ha.

 

Ha ha ha?

 

That was in June 2007; when Ameriquest was in the process of merging itself into Argent so the Ameriquest management could ride the Argent dingy into Citigroup.

 

That was when I'd seen enough, pushed the eject button...

 

Proud Pirates of the American Dream.

 

....and got the hell out of there. 

 

 

It is incumbent upon the honorable craftsman to be aware

of whether or not his services are being used

as a means to accomplish evil ends -

and to act accordingly.

 

 

[LomanBill]

>>the real key was GS,

 

Complete document here.

[LomanBill]

>>ALL the players were aware of that fact

Evidently so. The entire system was methodically gamed.

Nonetheless, it’s notable the AIG / securitized instrument insurance angle is conspicuously missing from the paper.

Search for “insur” only has two results - both related to title insurance. No reference to AIG at all.

[LomanBill]

>>getting the ratings agencies to play ball

Argent Mortgage falsified thousands of FICO scores on loan applications.

They bought the source code for, and deliberately altered, the Empower LOS (Loan Origination Software) implementation they were using - including the FICO related EMPOWER data-entry screen, on which FICO score is normally Read-only.

So the FICO presented for a loan in a securizited instrument, being evaluated by the ratings agencies, was not necessarily an actual FICO produced by one of the 3 credit-scoring agencies.

FICO was, supposedly, the only valid number on a “Liar Loan” that could be used to predict the credit-worthiness of the lying borrower.

[bullwinkleVoice -ON]
Hey Rocky, watch me pull a FICO score out of my...
[bullwinkleVoice -OFF]

Garbage in, Garbage out - ratings agencies aren’t immune to that that rule.

[LomanBill]

>>"I needed some damn money."

 

Needed, or wanted?

 

Best Rats and Rinos money could buy...

 

 

 

Follow The Money


Dawn Arnall was the wife of Roland Arnall - the "Godfather of Subprime"

[Chunga85]

Credit Rating Agencies Fending Off Lawsuits from Subprime Meltdown

[Chunga85]

Dumb bell homeowners just failed to read their loan docs, including the Pooling and Servicing Agreement, Trust Prospectus, REMIC, etc.

[LomanBill]

>>go Galt.

 

Corporatism IS Collectivism IS Communism

 

Corporations are merely cooperative tools; and many have become tools in the hands of progressives - with the natural work product from such an association being...

"Fascism should more properly be called corporatism because it is the merger of state and corporate power."

-- Benito Mussolini

[Neidermeyer]

They bought the source code for, and deliberately altered, the Empower LOS (Loan Origination Software) implementation they were using - including the FICO related EMPOWER data-entry screen, on which FICO score is normally Read-only.
*****************************************************
That’s news to me... HMMMMM.... Up til now it has all been blamed on the originators faking data for income and such as far as I have heard.. Can you please goto http://mattweidnerlaw.com/blog/contact/ and give him your info ,, your info will be greatly appreciated.