A “good thing” or “opportunity for crooks”?

From the Wall Street Journal

Town’s Residents Say They Were┬áTargets of Big Mortgage Fraud
By JAMES R. HAGERTY and MICHAEL HUDSON

Federal and state authorities are investigating allegations of an elaborate mortgage fraud involving about 100 people living in or near this small factory town who say they unwittingly took out loans to buy houses at inflated prices in Indiana.

The borrowers, who include truck drivers, factory workers, a pastor and a hair stylist, say they were duped by acquaintances into signing stacks of documents and didn’t know they were applying for loans. Instead, they thought they were joining a risk-free “investment group.”

Now, many of the loans are in default, the borrowers’ credit ratings are in ruins, and lenders are pursuing the organizers of the purported investment group in court. Companies stuck with the defaulting loans include Countrywide Financial Corp., the nation’s largest home lender, and Argent Mortgage Co., another big lender.

A lawsuit filed by Countrywide accuses the organizers of acquiring homes and then fraudulently selling them for a quick profit to the Virginia borrowers. Representatives of the borrowers put the total value of loans involved at about $80 million, which would make it one of the largest mortgage-fraud cases ever.

Mortgage fraud, involving loans obtained by providing false information, has mushroomed in recent years as lenders have pushed for speedier loan approvals in an effort to remain competitive and milk maximum profits from the now-fading housing boom. The Federal Bureau of Investigation reported that mortgage fraud led to losses of $1 billion in 2005, up from $429 million a year earlier. Some of the fraud that slipped through during the boom is only now starting to surface.

Part of the problem, say critics inside and outside the industry, is that — in their haste to earn commissions and fees — loan officers and brokers are asking fewer probing questions. “We aren’t asking questions, and we aren’t verifying like we used to,” says Bob Simpson, president of Investors Mortgage Asset Recovery Co., Irvine, Calif., which helps lenders recover losses from fraud. “For legitimate, honest consumers, that’s a good thing,” but it creates opportunities for crooks, Mr. Simpson says.

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7 Responses to A “good thing” or “opportunity for crooks”?

  1. DebtVulture says:

    Looks like in some cases these people bought a house for $40K and sold it shortly thereafter for $100K. Nice due diligence by the banks. Forget the fact that some of these people owned multiple homes on modest salaries and located in other states, where was the simple appraisal? I fear so much more of this (fraudulent lending) is going to come out over the next couple of years.

  2. vb4203 says:

    There are crooks everywhere!

    Check the following report –
    http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/02/8387409/index.htm?postversion=2006092805

    ‘The slowdown was particularly acute in what’s been one of the nation’s hottest markets, Arizona. While prices rose 24% for the 12-month period, they climbed just 2.9% in the “most recent quarter”. ‘

    If you look carefully enough (small print of course!!), you will notice that thier “MOST RECENT QUARTER” ended “06/2006” and therefore the data they are reffering to is almost 3 months old!!!!

  3. James Bednar says:

    I fear so much more of this (fraudulent lending) is going to come out over the next couple of years.

    I agree, it’s very likely that we’re going to see much more of this. The finger pointing is likely to be incredible. The appraisers, the lenders, the stated income borrowers…

    jb

  4. Jaywalk says:

    Why do people sign papers they haven’t read?Common sense ain’t too common…

  5. patient homebuyer says:

    they sign those papers becuase real estate only goes up!

    i say bring the pain for these greedy types who
    thought a purchase of a home was an instant lottery ticket

    screw them

  6. patient homebuyer says:

    that is why i am voting PIRRO for ag lets get some integrity back

  7. njresident286 says:

    JB –

    I think one of the biggest fraudsters out there are the appraisers. I think that they are the pivot point to this whole thing. I know the banks should have been more stringent on the lending, and maybe the realtors should have reigned in the sellers, but they were all going off the comps which are provided by the appraisers.

    With out the shady appraisers who basically just meet whatever number they are told, I do not think this could have spiraled out of control so fast

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