Sunday, July 27, 2008
Fraud, Greed and Special Interests in the Mortgage Crisis Cost Everybody
(Actual photo of an an allegedly remodeled condo courtesy of the FBI)
If you think the factors that enabled the mortgage crisis have been fixed, think again.
An example of this might be the Tennessee minister (Reverend Steve Young)-- awaiting sentencing after pleading guilty to mail and wire fraud to commit mortgage fraud -- who was recently rearrested to protect the general public. While out on bond, Reverend Young was using the identities of members of his parish to obtain more fraudulent mortgages, according to an article I came across in commercialappeal.com.
Apparently, members of his parish turned Reverend Young in after discovering the mortgages when reviewing their credit reports. Of course, it is considered wise to review your credit report on a regular basis after already being exposed to identity theft.
With the current mortgage crisis going on the story of Reverend Young is just one of many examples of fraud, greed and corporate bailouts in the mortgage crisis. In April, the FBI released the 2007 Mortgage Fraud Report. The report refers to this type of fraud as a low risk, high yield enterprise. Maybe we wouldn't see so much mortgage fraud if it weren't so low risk and extremely profitable?
According to the report, the victims of mortgage fraud are many. They include the people living in the neighborhoods where the fraud occurred, borrowers, and the mortgage industry, itself. For instance, when properties are sold at artificially inflated prices, property taxes increase. After the bubble bursts and the fraud becomes apparent, sellers have a difficult time selling their homes because they owe more than what the house is worth. This leads to foreclosures and can cause neighborhoods to deteriorate, which tends to lower all the property values in the area.
With the release of the 2007 report, the FBI announced Operation Malicious Mortgage, which to date has netted an impressive amount of arrests. The latest in this ongoing operation are rumors that the FBI is investigating a major lender, IndyMac for mortgage fraud. Despite the arrests, a lot of people are still suffering after getting caught in up one of the schemes that contributed to where we are at today.
One of the better publications covering mortgage fraud is the Mortgage Fraud Blog. It has up-to-date information on Operation Malicious Mortgage and on the subject in general.
One might think now that we are well on our way into the mortgage crisis, fraud related to mortgages would be going down. Sadly, this isn't the case and the story of a minister released on bond after being convicted for mortgage fraud -- then rearrested for the same thing bears out this contention.
Another, even sadder twist are the desperate homeowners being taken in by scammers promising to rescue them from their current situation. Besides greed, fear is a often used method to snare victims in fraudulent schemes. In May, the Comptroller of the Currency Administrator of National Banks (Treasury Department) issued a warning on this subject. Some of the scams include what are known as lease-back or repurchase scams, refinance fraud and bankruptcy schemes. Quite often, these schemes are nothing more than a means to steal whatever equity the person being foreclosed on has in the property, leaving them with nothing.
Bringing the mortgage crisis down to a more human level is the HousingPANIC blog. The blog is a wealth of information from the consumer point of view and keeps track of high-profile types recently arrested for mortgage fraud.
Thus far, in what has been termed the mortgage crisis, we've seen the banking industry get bailed out (at taxpayer's expense), a lot of people getting arrested, but so far very little help for the people getting foreclosed.
I've seen this being rationalized as it's their own fault because they knew they were getting in over their heads. While this is true -- especially in the case of the big players in the mess -- many of the smaller players were being wooed, coerced and simply taken advantage of. To me at least, this bears consideration.
Finally, it appears that some help for the little people losing their shirts is on the way and the Senate finally got it together and passed a bill. The bill is expected to be signed by President Bush with "reservations." In reality this bill (H.R. 3221) extends a lifeline to Freddie Mac and Fannie Mae by allowing people being foreclosed on to convert to government loans. Freddie Mac and Fannie Mae have about $5 trillion in mortgages, which accounts for about half the outstanding loans in the United States.
Interestingly enough, it is being reported by the AP, that Senator Jim DeMint, R-South Carolina was banned by the Democratic leadership from calling for a vote to stop the companies benefiting from this from making political donations or lobbying for this bill. Apparently, although facing bankruptcy, these companies have enough money to spend on lobbyists and political contributions? In fact, Freddie Mac and Fannie Mae spent about $3.5 million in the first quarter of this year on lobbyists.
While I'm glad about half of the little people are finally getting some help, I have to question at what cost? The sad truth is that we (taxpayers) will pay for this and as usual, special interests and not the interests of the public seem to have too much influence in the decision process.
Another question yet to be answered is what happened to all the money these large corporations made during the housing boom? It appears the profits I'm referring to are made private, while the costs incurred from deceptive business dealings become public? To me, this is another example of how special interests can spin political outcomes in their own favor.
Of course, the even sadder truth is that the economy can't suffer too many more large employers posting large losses or going under. When this happens a lot of the little people working for them become unemployment statistics. This is probably the sad reality of the situation. There is little doubt, we need to fix the problem, but are we going about it in the most just manner?
I've often wondered how much better off we would all be if special interests (lobbyists) were banned, altogether? Given all the polls -- clearly showing a lack of confidence in our leaders -- watching special interests consistently receive preferential treatment is probably one of the reasons why. Perhaps, we would have more confidence in them, if we felt they were representing us in consideration for all the taxes we are being asked to pay.