This would be terribly funny if it weren’t so God-damned tragic:

Mark Hanson, via Abelson:

“MORTGAGE GUARANTY INSURANCE CORP., familiarly known as MGIC, which also has taken more than its share of lumps from the housing collapse, is wrestling with Countrywide over a bunch of the latter’s bum mortgages it insured. At issue is whether those mortgages were mortally flawed from birth, something, alleges MGIC, that Countrywide had more than a little reason to be aware of.

In its complaint to the American Arbitration Association, MGIC makes no bones that it thinks Countrywide, eager to exploit the housing bubble, embarked on “a reckless strategy to attract new subprime and other high-risk business.” And the insurer goes on to cite a clutch of cases to prove its point. We found the narrative lively reading (and we’re grateful to Mark Hanson for bringing it to our attention).

There is, for example, the woman who bought a $600,000 house, claiming she worked as an account exec at a California investment firm, earned $13,494.03 (nice touch that three cents) a month, had a $45,000 bank account at Wells Fargo and, according to the insurance application, made a $30,000 down payment.

When MGIC nosed around, it discovered the investment firm she supposedly worked for didn’t exist, neither did the bank account, she hadn’t made a down payment and she actually earned $3,901.58 a month as a janitor at a medical facility.

In another instance, a $350,000 loan was extended by Countrywide to a fellow who wanted to buy a home valued at that amount and claimed he was a dairy foreman earning $10,5000 a month. Again, the snoops at MGIC discovered the guy was a milker at the dairy who earned $1,100 a month and signed the documents where he was told to — even though he couldn’t read English.

There’s plenty more of the same in the complaint by MGIC charging that Countrywide agents were complicit in various and sundry deceptions. Frankly, we found it all something of a hoot, though it’s not hard to see why MGIC isn’t laughing. But even comic tales typically embody a moral, and this one is no exception. Fraud played no small role in the great demolition of housing, but the principal perpetrators were never diligently pursued and, for the most part, went crying all the way to the bank. Moral hazard, anyone?

I believe mortgage fraud was endemic during the Credit bubble/Housing boom. My best guess was that half of all subprime mortgages, and probably 20% of all other mortgages where there was a mortgage broker involved . . .

UPDATE: April 3, 2010 8:22pm

I am surprised at some of the comments, especially when it comes to the blame portion. As I made clear in the book, there is lots of blame to go around — including a healthy portion to those people who bought more house than they could possibly afford.

However — AND THIS IS CRUCIAL — an individual mortgagee has a very different standard of care and legal fiduciary obligations than does a lender, bank and/or mortgage broker. The individual’s obligation is to pay their mortgae or forfeit the house. The bank, on the other hand, has very specific fiduciary obligations, laws it must follow, standards it is obligated to meet.

When a bank doesn’t ask for an Income or credit check, they are telling the borrower they we don’t care what your income is. What some people have foolishly termed “predatory borrowing” is in reality a poor excuse for what is nothing more than half arsed, incompetent banking.

Not All Milk and Honey
Barron’s April 5, 2010

Category: Credit, Legal, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

43 Responses to “Mortgage Fraud, Anyone?”

  1. perra says:

    I wonder how many people would be sentenced to jail term in connection with the events leading up to the financial crisis if one followed the letter of the law. I’m not from the US and am not familiar with your legal system, but I am surprised that not more people are behind bars.

  2. On that exact subject:

    U.S. Probes Foreclosure-Data Provider
    Lender Processing Services Unit Draws Inquiry Over the Steps That Led to Faulty Bank Paperwork

    The prosecutors are “reviewing the business processes” of the subsidiary of Lender Processing Services Inc., based in Jacksonville, Fla., according to the company’s annual securities filing released in February. People familiar with the matter say the probe is criminal in nature.

    Michelle Kersch, an LPS spokeswoman, said the subsidiary being investigated is Docx LLC. Docx processes and sometimes produces documents needed by banks to prove they own the mortgages. LPS’s annual report said that the processes under review have been “terminated,” and that the company has expressed its willingness to cooperate. Ms. Kersch declined to comment further on the probe…

    LPS was recently referenced in a bankruptcy case involving Sylvia Nuer, a Bronx, N.Y., homeowner who had filed for protection from creditors in 2008.

    Diana Adams, a U.S. government lawyer who monitors bankruptcy courts, argued in a brief filed earlier this year in the Nuer case that an LPS employee signed a document that wrongly said J.P. Morgan Chase & Co. had owned Ms. Nuer’s loan.

    Documents related to the loan were “patently false or misleading,” according to Ms. Adams’s court papers. J.P. Morgan Chase, which has withdrawn its request to foreclose, declined to comment.

    I hope ny fraud estimates aren’t low . . .

  3. Marcus Aurelius says:

    BR: “This would be terribly funny if it weren’t so God-damned tragic”

    Moe: “Ya’ don’t say?”

    BR: “I believe mortgage fraud was endemic during the Credit bubble/Housing boom.”

    Larry: “Ya’ don’t say?”

    BR: “My best guess was that half of all subprime mortgages, and probably 20% of all other mortgages where there was a mortgage broker involved . . .”

    Moe: “Ya do say?”

    Curly” “Nyuck, nyuck, nyuck.”


    I knew of an illegal immigrant window washer who bought two of the most expensive condos in a twin-tower building one of my clients built at the height of the boom. He was treated like a man with substantial assets and high social status by the builder, the mortgage brokers, and the sales staff.

    Pre-construction, people would have knifed each other for one of these units. By the time it was built and ready for settlements (close to 3 years later), they were walking away from substantial deposits. I’d be surprised if Mr. Window-Washer is even in the US today.

    What struck me at the time was that none of these folks realized that they were sowing the seeds of their own future financial destruction (along with that of the rest of us).

    At the time, I questioned the viability of continuing down this path, but was called a “doom and gloomer.”

    Today, this publicly-traded company is barely hanging on by it’s fingernails, and no one has even looked into the massive fraud that took place.

    Tragic, indeed.

  4. r says:

    I wish the media and our legal system held individuals accountable. The woman who lied is at fault and anyone who signs a document THEY CAN’T READ is at fault. If someone suggests I hold up a bank, I am at fault for robbing the bank, not the one who suggested it.


    BR: Here’s a question for you: Who is more at fault: An illiterate who signs a doc, or the mortgage broker who directs the illiterate to sign here, and here, please initial here, and sign here?

  5. doug says:

    r, what if someone suggests you ‘take out a loan’, when they mean, ‘lets rob a bank’ and you don’t know the difference?

  6. When MGIC nosed around, it discovered the investment firm she supposedly worked for didn’t exist, neither did the bank account, she hadn’t made a down payment and she actually earned $3,901.58 a month as a janitor at a medical facility.

    You are absolutely correct. That is outrageous. Who pays a janitor $4000 a month? :shock: ….oh right, the health care industry. :roll:

    No wonder China is eating America’s lunch

  7. Dennis says:

    How the Common Man Sees It —

    You seemed to have missed the entire point of this post.

  8. The mortgage firms and the banks are the ones with the fiduciary obligations — not the borrowers. If you want to find fault, that is where your inquiry must begin.

    The borrowers who got in over their head bear personal responsibility — but that is very different than the obligation banks own to their shareholders and depositors (i.e., capital sources).

  9. rktbrkr says:

    Me, me , me I know the answer!

    BR: Here’s a question for you: Who is more at fault: An illiterate who signs a doc, or the mortgage broker who directs the illiterate to sign here, and here, please initial here, and sign here?

    The mortgage brokers,bankers, appraisers,rating agencies are all more at fault than the people who exaggerated and mis-stated their financial qualifications. I’d even say the regulators including the Fed , Alan Greenspan and Ben Bernanke were more at fault for turning a blind eye to this mess.

    Maybe there’s no interest in investigating this massive fraudulent scheme because it could get out of control and follow the money up the food chain .

  10. r says:

    “BR: Here’s a question for you: Who is more at fault: An illiterate who signs a doc, or the mortgage broker who directs the illiterate to sign here, and here, please initial here, and sign here?”

    The illiterate signed the document and received a $600,000 house (or whatever).
    The mortgage broker received ~$8,000 in commissions.

    The illiterate knew what he was doing. Notice the illiterate didn’t sign a document that forced him to pay $600,000 or give up his property. The fraud who received a $600,000 is at most fault.

    I’m so sad that our country has gotten to this point. Everyone is an innocent victim.

  11. catman says:

    r – Question is who got left holding the bag. That would be us. Almost everyone is an innocent victim.

  12. flipspiceland says:

    It’s an easy question to answer who is more at fault in the R.E. fiasco:

    If I decide to sell my house, and take back the mortgage, then subsequently sell it to an unemployed newspaper ‘journalist’, who has no collateral, no income, and no prospects I would have to take all the blame for the ensuing default.

    The only thing different about my situation and those scoundrels who did it, is that the US Secretary of Treasury Hank and Timmay and other government entitties intervened to save the asses of the bankers who bought and paid for congress using the people’s money.

  13. jason in charlotte says:

    $50K/year is pretty nice scratch for janitorial services!

  14. R:
    Are you really that out to lunch? If the bank, or mortgage company, were doing their job, the illiterate should have never been able to get a loan in the first place. Certainly not for $600,000.

  15. “In the handling of money and when one acts as a corporate or individual trustee, there is a fiduciary responsibility owed to the principal party. It is defined as a relationship imposed by law where someone has voluntarily agreed to act in the capacity of a “caretaker” of another’s rights, assets and/or well being. The fiduciary owes an obligation to carry out the responsibilities with the utmost degree of “good faith, honesty, integrity, loyalty and undivided service of the beneficiaries interest.” The good faith has been interpreted to impose an obligation to act reasonably in order to avoid negligent handling of the beneficiary’s interests as well the duty not to favor ANYONE ELSE’S INTEREST (INCLUDING THE TRUSTEES OWN INTEREST) over that of the beneficiary. Further, if the agent should find him/herself in a position of conflicting interests, the agent must disclose the dual agency (acting for two parties at the same time) or risk being accused of constructive fraud in regards to both or either principals.

    The principal is sound but has limited exposure to the fields of financial planning, real estate, securities or life insurance since it is rarely taught in any pre-licensing courses nor as part of continuing education courses as well. Even ethics codes from major organizations have avoided the fiduciary issue since membership did not want to commit to the apparent extra legal exposure.

    FIDUCIARY: In real estate, securities and, I submit, in insurance as well, your agent owes you a fiduciary obligation in performing their duties for you. The duties include:

    1. Utmost Care- The agent is bound to the higher standard of a professional in the field which extends the standard of duty to investigate within the means of the profession, to ensure the maximum protection and information be provided the principal.
    2. Integrity- Defined as the soundness of moral principle and character. It means the agent must act with fidelity and honesty
    3. “Honesty and Duty of Full Disclosure” of all material facts, either known, within the knowledge of or reasonably discoverable by the agent which could influence in any way the principal’s decisions, actions or willingness to enter into a transaction
    4. Loyalty- An obligation to refrain from acquiring any interest adverse to that of a principal without full and complete disclosure of all material facts and obtaining the principal’s informed consent. This precludes the agent from personally benefitting from secret profits, competing with the principal or obtaining an advantage from the agency for personal benefit of any kind.
    5. Duty of Good Faith- includes total truthfulness, absolute integrity and total fidelity to the principal’s interest. The duty of good faith prohibits any advantage over the principal obtained by the slightest misrepresentation, concealment, threat or adverse pressure of any kind…”

  16. Nosocomial infections (pronounced, nos-uh-KOH-mee-uhl), are infections which are a result of treatment in a hospital or a healthcare service unit. Infections are considered nosocomial if they first appear 48 hours or more after hospital admission or within 30 days after discharge.[citation needed] Nosocomial comes from the Greek word nosokomeion (νοσοκομείον) meaning hospital (nosos = disease, komeo = to take care of). This type of infection is also known as a hospital-acquired infection (or more generically healthcare-associated infection).

    In the United States, the Centers for Disease Control and Prevention estimates that roughly 1.7 million hospital-associated infections, from all types of bacteria combined, cause or contribute to 99,000 deaths each year.[1] In Europe, where hospital surveys have been conducted, the category of Gram-negative infections are estimated to account for two-thirds of the 25,000 deaths each year. Nosocomial infections can cause severe pneumonia and infections of the urinary tract, bloodstream and other parts of the body. Many types are difficult to attack with antibiotics and antibiotic resistance is spreading to Gram-negative bacteria which can infect people outside the hospital.[1]

    Nosocomial infections are commonly transmitted when hospital officials become complacent and do not practice correct hygiene regularly. Also, increased use of outpatient treatment means that people who are hospitalized are more ill and have more weakened immune systems than may have been true in the past. Moreover, some medical procedures bypass the body’s natural protective barriers. Since medical staff move from patient to patient, the staff themselves serve as a means for spreading pathogen.

    Hospitals have sanitation protocol regarding uniforms, equipment sterilization, washing, and other preventative measures. Thorough hand washing and/or use of alcohol rubs by all medical personnel before and after each patient contact is one of the most effective ways to combat nosocomial infections[2]. More careful use of anti-microbial agents, such as antibiotics, is also considered vital.[3]

    Despite sanitation protocol, patients cannot be entirely isolated from infectious agents. Furthermore, patients are often prescribed antibiotics and other anti-microbial drugs to help treat illness; this may increase the selection pressure for the emergence of resistant strains.

  17. davepez says:

    “… The woman who lied is at fault and anyone who signs a document THEY CAN’T READ is at fault. If someone suggests I hold up a bank, I am at fault for robbing the bank, not the one who suggested it.”

    This is overly simple. This fraud can’t be perpetuated by one person. There are at least two people inside the mortgage company that needed to sign off on the loan, the real estate salesperson and broker that represents them, the notary. In any real estate transaction, any of these persons could have stopped these fraudulent transactions from going through, but everyone wanted to get paid.

    The bank robbers weren’t the buyers, but the cartel of real estate professionals that push these transactions through. These are all trained and licensed persons that knew EXACTLY what they were doing.

  18. comet52 says:

    Who’s at fault, the liar loan originators or the liars who took the loans? Hmm, such a dilemma.

    One reason that long con artists historically get away with their scams is, the victims won’t often run to the police and yell “crook!” because they themselves are involved in the crime. It is sort of a bedrock principle of the bunko game.

    The problem when one angrily presumes that it’s all the borrower’s fault for lying is, it takes two to tango in a con game, and the con artists aka lenders ought to be prosecuted and not paid handsomely.
    While we can blame the victims for being morally weak and agree they deserve the hurt they’ve obtained, we can’t simultaneously pretend the con artists were guilt-free. Blame the stupid, dishonest, under or un-educated borrowers, while the con men get gold stars for their proficiency?

    If one is going to condemn the ethics of the borrowers, one must be ethicially consistent and condemn the con artists as well. Further, since they got rich running scams while most borrowers ended up broken, it behooves us as a society to pursue them and extract justice, rather then cheer their proficiency as ripoff artists, which seems to be what some in this thread are hinting at when they prefer to blame the borrowers exclusively and pretend all was well in liar loan land.

  19. thetanman says:

    At a party, maybe a year before the trouble started, there was a guy that worked for Country Wide. He was drunk , and was bragging about how much money he was making. I asked him about the mortgages he was making all this money off of and he slurred “they are pure shit! They’ll all go bad!”.

  20. changja says:

    WTF. Why do I spend so much of my time working when I can be a freaking janitor and make $50k?!

    No wonder US labor has no competitive advantages.

  21. d4winds says:

    White collar crime pays; in fact, it pays extremely well & carries no punishment worthy of mention. Mortgage origination fraud is but an example.

  22. @dennis

    No, I got the point. I was just bringing out something that folks might have glossed over.

    I was also going to say that with 4K a month the woman should have showed humility and bought something she could afford. Credit collectors may be hounding her now and her credit could possibly be ruined because she signed on the bottom line of the con game.

    As for the direction of these threads:

    In the realm of common sense the onus for the responsibility for the money usually first and to a greater degree falls on the one giving it out. When you are handing out money, you need to be extra careful because a good portion of the time the person sitting on the other side of the desk is going to cheat you out of it if they can find a way to do it. If they can’t cheat you they will try to give you the minimum the law requires (or less) in trade.

    The chances of this happening rise in direct proportion to the size of the pile of cash and whether or not the person has just heard from their cousin Vinny(or Greenspan) about the ‘deal’ you just handed out last or have been handing out all along

  23. Dow says:

    I’m puzzled why a bunch of you are beating up on the borrowers. They don’t get to keep the houses. They lose them and have their credit destroyed. Meanwhile, up the food chain….

    The real estate agents, mortgage brokers, mortgage companies, and security traders, and then more brokers and traders slicing and dicing got commissions and fees for pushing this kind of garbage mortgage through the pipe line. They should cough up their gains just like the buyer had to give up their house.

  24. Mannwich says:

    @r: You are a freaking moron. Either that or you are a very dishonest person, or both. Happy Easter.

  25. @changja

    Being a janitor is work. If you don’t think so then do some hypothesizing on what your world would look like if no one cleaned it for the rest of us.

    Whether or not it’s worth 50K is a health care debate for another day


    You need one on Due Diligence. Is that not a responsibility of the lender as well?

  26. Mannwich says:

    @thetanman: I believe it, which is why this is all so very tragic. Those grifters have just moved onto the next scam. Not only have they not been punished for their criminality, but they’ve been REWARDED. I’m sure many are now figuring out a way to game the system in some other con. It’s a slippery slope that we’re on turning the other way endorsing fraud and criminality in our culture. Pretty soon whole communities are destroyed and everyone looks dumfounded as to why this happened. Connect the dots, moron. Just because you don’t know or can’t see the people you’re screwing, doesn’t mean it’s not happening.

  27. Mannwich says:

    Sign of the times when a thread like this delves into making fun of janitorial work. They perform a far more necessary service to our communities than many of the far higher paid jobs on Scam Street, I mean, Wall Street.

  28. @Dow

    The real estate agents, mortgage brokers, mortgage companies, and security traders, and then more brokers and traders slicing and dicing got commissions and fees for pushing this kind of garbage mortgage through the pipe line.

    Because some of these folks are one and the same

  29. @Manny

    I believe it, which is why this is all so very tragic. Those grifters have just moved onto the next scam.

    Could you imagine if all that brain power that spent so much time stealing in America were put to the task of inventing something or creating new medicines? This world would be a much better place :(

  30. r says:

    A mtg broker goes door to door to dairy farmers and asks not to speak to the dairy farmer but to the non-English speaking milker who lives on the farm as a farmhand for $12,000 a year? Really? The broker then drives the farmhand downtown in his milking overalls to show him nice new $350,000 townhouses being built. Really? The salesperson has the broker complete the sales contract for the farmhand and asks the farmhand to sign the document because he wants his autograph for being such a world class milker (in the farmhand’s natural language). Really? [Good thing the mtg broker is bilingual]. The salesperson sees this as perfectly normal, really?

    Two weeks later, the broker drives the farmhand to the sales center to pick out granite countertops, fixtures and cabinets for the townhouse. Really?

    Six weeks later, the broker drives the farmhand to the new townhouse for inspection. The broker, farmhand and inspector climb through every nook and cranny of the townhouse and at the end of the session the mtg broker again asks the farmhand for his autograph (because he has gotten even better at milking), really?

    The mtg broker arranges a closing lawyer for the farmhand, really? The next week, the broker drives the farmhand to closing where the farmhand signs his autograph dozens of times on the truth in lending form, loan docs, escrow docs, resigns the loan application information, etc etc ., even though he doesn’t speak a word of English. Really? The closing atty finds this perfectly normal and could get dis-barred for doing this. Really?

    The farmer helps the farmhand pack up all of his possessions from the barn loft and helps him move into his brand new $350,000 townhouse and finds this perfectly normal…..Really?

  31. @r

    You seem to forget that during the madness everybody thought that $350,000 house was going to be worth $500,000 in two years time. If you are expecting an illiterate farm hand to believe that line of reasoning less than a mortgage finance company then have I got a deal for you.

    You see, I am not releasing the farmhand from his guilt, but the CEO of a mortgage finance company and even the broker is paid a little more than an illiterate farmhand to know these things. Especially if they are handing out the money in the first place!

    When you are getting huge commissions and stock options in the deal or deals and the guy that just walked through the door is the last guy in town I can see how you might look the other way though

  32. Mannwich says:

    The folks who hold the purse strings hold a FAR HIGHER degree of fiduciary responsibility to do the proper due diligence, namely on whether or not these borrowers are telling the truth. If they had tried even a little bit they would have found out that much of this was a scam, but many knowingly took part because they were making money and handing the steaming turd sandwich to someone else along the Daisy Chain. Nobody’s truly innocent here but the people who hold the fiduciary responsibily have a much a greater responsibility to do the due diligence here. The fact that we’re even wasting our energy debating this tells me a lot about the intellectual capacities (or lack there of) of many in this country. Sad state of affairs.

  33. willid3 says:

    r, if one is in the business of making loans, one should be required to be diligent, otherwise they are really stupid since they can’t be in business long, unless of course they really aren’t in the business of making loans but in the business of selling said loans to any one who would buy them, after certifying that the loans were good, knowing that they hadn’t done their due diligence that is required to ensure that to be the case. in this day in age, any lender can find out how much you make, where you work, by asking for documents (tax form etc) and running a credit report. skipping these steps just indicates you are incompetent or stupid, or this is just a con job to sell bum mortgages

  34. Bala says:

    While I wasn’t directly involved with this section of the Mortgage Market, I did hear of a few instances were brokers / agents created false asset statements and 1040s (with a little help from photoshop) to submit to Countrywide. To my knowledge they (along with a few others) were the most aggressive when it came to “Stated Income/Stated Asset” borrowers.

    I can’ tell you how many times I was on the phone with a bank lending rep. discussing if the loan would meet their guidelines. The reps response was always; “Just submit the file Stated ? Can’t you make it work?”.

  35. dh2212 says:

    Who pays a janitor $4k/mth?

    Same people who pay a CEO $60M+ a year, plus options etc.

    At least the janitor didn’t blow up the economy making those “big bucks”….

  36. cognos says:

    Agree with the guy who lamented — “everyone is innocent”.

    Lets go with the opposite — “everyone SHARES responsibility”.

    1. The signer / buyer who WANTED to lever into the upside on a big home.
    2. The mortgage broker who directly did the lie and may have even lied to his boss
    3. The mortgage brokerage firm that widely persued fraudulent deals or even just bad deals and sent lies on up the chain.
    4. The regulators and govt officials for not having some consumer protections in place (falls on the voters and the taxpayers and congress/senate and especially republicans / “deregulators”)
    5. The banks up the chain… who took this fraudulent stuff without asking and packaged it.

    6. The ratings agencies and mortgage insurer who also — did not ask, did not want to know
    7. The investment buyers of this product who have $B in research at their disposal — despite THAT, they did ZERO research and just bought the product. Insurance companies, pension firms, banks, etc.

    Uh, is that it?

    Maybe also — 8. The general citizen / speculators who BELIEVE real estate would not go down, and bought into the bubble.

    Howabout — Equal blame all around?

  37. hue says:

    as a former mortgage broker (and journalist before that) these examples between MGIC and Countrywide does not make sense. and there is a paper trail to trace back the fraud.

    Abelson doesn’t say what kind of loan this was. Not all stated income loans are the same. Was it stated income and stated assets (SISA) or SIVA, stated income and verified assets?

    the first example sounds like a 95 LTV with $30,000 down. how can there be no down money later? no title company would allow the loan to close without the down payment. and without the down payment, the loan would have been 100% financing, and it probably would not have been underwritten at 100%.
    that loan would not have closed.

    And generally when the LTV (loan to value) goes above 80%, the lender or broker would break the loan into a first and second. The first at 80 and second at 15. With this loan amount, I believe it would have been a jumbo, and no mortgage insurance required (i have not been in the business since 2005, and i recalled that only Fannie and Freddie mortgages required mortgage insurance, and only when the loan was above 80LTV. subprime and jumbos (even a-paper jumbos, meaning the borrower had excellent credit, but the loan amount was above Fannie and Freddie guidelines) did not require mortgage insurance.

    i suspect (but don’t know for sure) that this example was a loan that MGIC had underwritten for Cwide. MGIC and other mortgage insurance companies often helped underwrite loans, using their own contract underwriters for lenders like Cwide to get the mortgage insurance business. as a mortgage broker, i could submit a loan to Cwide or Flagstar at the lender’s sites, then a MGIC or Radiant underwriter would work on the loan.

    it’s not easy to commit fraud as people now think the bubble. there is a paper trail for everything. let’s say i’m the originator on that first loan, the $600K loan, and i encouraged the borrower to fudge her numbers. she fills out the 1003, or loan application (there is no insurance application per the story), then if it was a stated income loan, where the borrower states her income, then my processor still has to call her employer, talk to someone at the company (usually HR) to verify the borrower has worked there for 2 years, verify her position even if you don’t verify the income. neither me nor my processor want to lie about the info because our names and signature are inside the loan documents. and generally you can’t state the income for any amount of money. if the person says he’s a diary foreman, then you go to a website like to see if a diary foreman can make $10,000 a month or $120,000 a year. an underwriter would certainly do so before approving the loan. so nobody from the loan office, the processor or underwriter (and the HR person at the borrower’s employer) would be willing to pass along the fraud because your signatures, phone numbers are on all of this stuff.

    as far as as the $45K at wells fargo, if it’s verified assets then there would be a bank statement among the loan documents. if it’s stated assets, then no bank statement. and for stated assets, you don’t put in the bank info.

    so for that $600,000 loan to close, the mortgage originator, the title company, the borrower and some fraudulent HR person would have been involved in the scam. that’s possible, not probable.

  38. r says:

    How the Common Man Sees It Says:

    “You seem to forget that during the madness everybody thought that $350,000 house was going to be worth $500,000 in two years time.”

    No, I didn’t forget. The point of my parable is to point out – the article tried to make the reader believe that the mtg broker and the bankers totally duped this non-English speaking milker into a $350,000 townhouse that he couldn’t afford. I, like you, believe he thought he was buying an asset that he expected to increase in value. He probably planned to flip it a couple years later for a profit and knew he couldn’t afford to pay the 30 years of payments on his $1100 a month salary. He also knew that he had to inflate his employment position and his salary in order to qualify for the loan. He wasn’t duped. He was just as greedy as the broker helping him lie on the loan application. They both committed fraud.

    I’m so surprised at the reactions of Barry and most others in this post that only (and all) bankers are greedy and that no mortgage applicants commit fraud and no mortgage applicants are greedy. [Here's a riddle. What if the non-English speaking milker in the article were a non non-English speaking banker applying for the mortgage? Who would you hold responsible? ]

    Everyone who buys a stock on margin expects the value to go up. If the value drops and they get a margin call, no one blames the greedy stock clearing house for duping the stock investor. Why a change in accountability if the investment asset happens to be a house?

    If I had a say in how the world ran –
    - The fraudulent home buyer would lose his home after not making payments, and move into a home he can afford. This would stay on his credit record for at least 15 years.
    - The fraudulent mtg broker would lose his broker license and pay a stiff financial penalty.
    - The parties that packaged the mtgs and sold them as AAA would pay a stiff financial penalty for fraud.
    - The rating agencies that rated them as AAA would no longer be in business. Surely someone else could do a better job.
    - Those who purchased the MBS would be left with worthless paper.

    Unfortunately, the Fed and our govt rewarded all of the parties above.

    I feel mostly sad for my kids. They will pay the consequences of the Fed buying up over a trillion $ of worthless MBS. They will bear the brunt of this and they didn’t get the granite counter tops, big screen TVs, lavish vacations, new SUVs when lying on a mtg application. Our kids are the true innocent victims.

  39. troubled times says:

    It was the “American Dream” and our “leaders” pointed to it as a example of our great system……..and a reason for thier reelection. Man are we stupid

  40. ToNYC says:

    After reading a bit of this turgid drama, full of sound and fury, I’m reminded of that iconic Native American who had a spot on TV with a tear in his eye….now I see it turning into a smile as in the other mask of the symbol of Drama.

  41. The fraudulent home buyer would lose his home after not making payments, and move into a home he can afford. This would stay on his credit record for at least 15 years.

    That opens up a whole other can of worms. If the guy has bad credit for 15 years then the banking system loses a ‘customer’ that they can no longer sell debt to. That is definitely not what the banking system wants. They want the lifeblood of the economy to flow to them in the form of interest payments. Until that incentive is greatly curtailed this confidence game will continue

  42. MortgageBanker since 87 says:

    Are you serious? You lose all credibility in your posting.
    Would you like a lesson in mortgage banking?
    Sounds like you listened to the morons, I mean,
    the Account Executives that showed you how to submit a loan.
    Where would you like me to start?
    Explaining mortgage insurance requirements, delegated MI approval,
    or fraud in many forms (employment, income, assets, occupancy).
    I hope you are my competition. I will continue to enjoy success.
    Best of luck.
    PS – Radian is a MI firm, Radiant is not a provider of MI.

  43. flenerman says:

    I thought your posting dated April 4 regarding the Barrons article dated April 5 was rather curious but your update dated April 3 left no doubt—one of us has stumbled into a worm-hole.