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The FBI Estimates That 80 Percent of All Mortgage Fraud Involves Collaboration or Collusion by Industry Insiders

The FBI Estimates That 80 Percent of All Mortgage Fraud Involves Collaboration or Collusion by Industry Insiders

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Published by: 83jjmack on Jan 21, 2012
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 “The FBI Estimates That 80 Percent Of All Mortgage Fraud InvolvesCollaboration Or Collusion By Industry Insiders”
Posted onDecember 13, 2011byWashingtonsBlog 
Fraud By The Big Banks – More Than Anything Done By The LittleGuy – Caused The Financial Crisis
The U.S. Treasury’s Office of Thrift Supervisionnotedlast year (page 7):The FBI estimates that 80 percent of all mortgage fraud involvescollaborationor collusion by industry insiders.This confirms what one of the country’s top fraud experts has said for years:thatit was fraud by the big banks – more than anything done by the littleguy – which caused the financial crisis:William K. Black – professor of economics and law, and the senior regulatorduring the S & L crisis –explainedlast month before to the Financial CrisisInquiry Commission why banks gave home loans to people who they knewcouldn’t repay. The whole piece is a must-read, but here are excerpts fromthe introduction:The data demonstrate conclusively that most liar’s loans were fraudulent,which means that there were millions of fraudulent mortgage loans becauseliar’s loans became common (Credit Suisse estimates that they represented49% of new originations by 2006). The data also demonstrate that evenminimal underwriting of the loan files was sufficient to detect theoverwhelming majority of such fraudulent liar’s loans. No honest, rationallender would make large numbers of liar’s loans. The epidemic of mortgagefraud was so large that it hyper-inflated the housing bubble, which allowedrefinancing to further extend the life of the bubble (and the depth of theultimate Great Recession.***In the cases where there have been even minimal investigations (NewCentury, Aurora/Lehman, Citi, WaMu, Countrywide, and IndyMac) seniorlender officials were aware that liar’s loans were typically fraudulent. Thelenders could not make an honest business out of selling overwhelminglyfraudulent mortgages.Liar’s loans were done for the usual reason – they optimized (fictional)short-term accounting income by creating a “sure thing” (Akerlof & Romer1993). A fraudulent lender optimizes short-term fictional accounting incomeand longer term (real) losses by following a four-part recipe:A. Extreme GrowthB. Making bad loans at a premium yieldC. Extreme leverageD. Grossly inadequate loss reservesNote that this same recipe maximizes fictional profits and real losses. Thisdestroys the lender, but it makes senior officers that control the lender
wealthy. This explains Akerlof & Romer’s title –
Looting: The Economic Underworld of Bankruptcy for Profit 
. The failure of the firm is not a failure of the fraud scheme. (Modern bailouts may even recapitalize the looted bankand leave the looters in charge of it.)The first two “ingredients” are related. Home lending is a mature, reasonablycompetitive industry. A lender cannot grow extremely rapidly by makinggood loans. If he tried, he’d have to cut his yield and his competitors wouldrespond. His income would decline. But he can guarantee the ability to growextremely rapidly by being indifferent to loan quality and charging weakercredit risks, or more naïve borrowers, a premium yield.In order to become indifferent to loan quality the officers controlling thelender must eviscerate its underwriting.***
There is no honest reason for a secured lender to seek or permit inflated appraisal values.
This is a sure marker of accounting control fraud – amarker that juries easily understand.In other words, banks made loans to borrowers who they knew couldn’treally repay because the heads of the banks could make huge bonusesbased on high volumes and fraudulent appraisals, and they didn’t care if their own companies later failed.In short, theylootedtheir companies and the economy as a whole.Professor Black brings us current to where we are today:History demonstrates that if the control frauds get away with their fraudsthey will strike again.By allowing the banks to use their political power to gimmick the accountingrules to permit them to hide their massive losses on liar’s loans we havemade it far harder to take effective administrative, civil, and criminalsanctions against the elite frauds that caused the Great Recession. Hidingthe losses also adopts the dishonest Japanese approach that crippleseconomic recovery and public integrity.Prosecuting the elites control frauds can be done successfully. Create a new “Top 100” priority list and appoint regulators that will make supporting theJustice Department a top agency priority. That’s how we obtained over 1000priority felony convictions of elite S&L criminals. No controlling officer of alarge, non-prime specialty lender has been convicted of running a controlfraud. Only one has even been indicted.
The FBI has written that any discussion of the crisis that ignores therole of mortgage fraud is “irresponsible.” 
But instead of prosecuting fraud, the government justcontinues to cover itup.
December 14th: National Day of Action Against the Use of the MilitaryWITHIN the United States The Indefinite Detention Bill DOES Apply to American Citizens on U.S. Soil
2010 Mortgage Fraud ReportYear in Review
August 2011
    D   i   r   e   c   t   o   r   a   t   e   o    f    I   n   t   e    l    l   i   g   e   n   c   e
    C   r   i   m   i   n   a    l     I   n   t   e    l    l   i   g   e   n   c   e     S   e   c   t   i   o   n
Prepared by
Financial CrimesIntelligence Unit

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