I was reading an article this morning on another case of mortgage fraud in southern California with a scam artist defrauding a family who was behind on their home payments out of 300 thousand dollars. Horrible situation but happens more and more these days.
But then I came across these quotes from attorney’s who deal with mortgage fraud. The gist is that mortgage fraud could be a key contributor to the subprime meltdown. Reading the mainstream media one would think that the problem stems from the mortgage companies, but these gentleman think that instead the combination of looser restrictions and “fraudsters” is the culprit.
Two attorneys specializing in mortgage fraud said as many as half of the “early-pay defaults” – in which borrowers start missing payments within a few months of getting a loan – are due to fraud, and early-pay defaults have been a major reason behind the recent earnings losses reported by subprime lenders.
“Mortgage fraud is a huge part of (the subprime meltdown),” said attorney James Brody, managing partner of the American Mortgage Law Group, based just north of San Francisco in Novato. “With the no-doc and limited-doc loans, it was easier for the fraudsters to take advantage of the system.”
As with most types of white-collar crime, however, law enforcement lacks the resources and staff to deal with all but the most significant cases, Brody said.
“It’s almost obscene how prevalent it is,” said Gregory Annigian, an Upland attorney representing a woman who says she was duped into acting as a straw buyer in one of the cases. “You have phony notaries. You have phony appraisers. They suck the equity out of (the home), and (the owner’s) in foreclosure.” via the OC Register
If you had to guess, would you think these guys are right that the subprime meltdown is directly related to widespread fraud and not borrowers that are getting squeezed by higher rates?
No related posts.
{ 3 comments… read them below or add one }
It's some of both, but it's the same in every single boom/bust story. Whenever there is widespread mania associated with a boom, inevitably the least sophisticated "investors" get in last.
But let's be realistic. There is no way fraud is the cause of this current problem. It's plain and simple economics. You borrow at an artificially low rate and when the rate resets, you're screwed. You can keep playing the ponzi scheme so long as the music keeps playing and values keep rising.
And let's not go letting mortgage lenders off the hook here. If anything, they were certainly complicit. A broker whose not associated with a bank can trick a borrower and can also falsify documents but the banks also did not care during the boom. They were happy to outsource the brokerage, let their standards drop, and sell off the risk to the securitized secondary market.
By the way, that article in the OC starts out with the following:
Teri Allen and her mother, Jacquie, thought Edward Seung Ok would rescue them from losing their Anaheim Hills home after they'd gotten behind on their house payments.
Instead, he transferred title to their house to a sham buyer, borrowed huge sums against it and pocketed the loan proceeds, the Allens would later allege in a fraud lawsuit.
They weren't victims of fraud until after they were already at risk of foreclosure…
CA Dave
Very true on the one example, but what caught my eye in the article was that these attorneys were seeing a much greater trend out there of fraud in the marketplace.
I could do 100 stories a day on individual cases of mortgage fraud, there are bloggers who do a great job of it, but in this case I was looking for the nugget in the story and seeing if there was anything to it.
Thanks for the comments. They were very well thought out!
Tom