Hundreds Swept Up In Mortgage Fraud Arrests

[Doktor Avalanche]

Hundreds swept up in mortgage fraud arrests
Thursday June 19, 5:08 pm ET
By Lara Jakes Jordan and Alan Zibel, Associated Press Writer
FBI estimates $1B in losses from mortgage fraud schemes nationwide


WASHINGTON (AP) -- More than 400 real estate industry players have been indicted since March -- including dozens over the last two days -- in a Justice Department crackdown on incidents of mortgage fraud nationwide that stem from the country's housing crisis.
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The FBI put the losses to homeowners and other borrowers who were victims in the schemes at over $1 billion.

"Mortgage fraud poses a significant threat to our economy, to the stability of our nation's housing markets and to the peace of mind of millions of American homeowners," Deputy Attorney General Mark Filip said at an afternoon news conference.

Since March 1, 406 people have been arrested in the sting dubbed "Operation Malicious Mortgage" resulting from 144 cases across the country. Sixty people were arrested on Wednesday alone, including in Chicago, Miami, Houston and a dozen other regions policed by the FBI.

Law enforcement officials said their stepped-up focus on mortgage cases aims to combat problems that have grown out of the risky lending practices prevalent until the mortgage market collapse started last year. Officials have identified 10 "mortgage fraud hotspots" nationwide in California, Colorado, Texas, Minnesota, Michigan, Illinois, Ohio, New York, Georgia and Florida.

To people who have committed fraud or are contemplating doing so, FBI Director Robert Mueller said: "We will find you, you will be investigated and you will be prosecuted."

Those named in the cases include housing developers, mortgage lenders and brokers, lawyers, real estate agents and appraisers, said Sharon Ormsby, section chief in charge of financial crimes for the FBI.

In some cases, gang, drug and organized crime investigations have resulted in mortgage fraud cases because such schemes enable criminals to launder money, Ormsby said.

Mortgage foreclosure rescue scams, which promise to help struggling homeowners stave off foreclosure and keep their homes, also have become a major problem, officials said. Typically, unsuspecting owners sign over their homes and then find they are victims of fraud.

In separate arrests, two former Bear Stearns managers in New York were indicted Thursday, becoming the first executives to face criminal charges related to the collapse of the subprime mortgage market.

Across the country, reports of mortgage fraud have soared over the past year as the subprime mortgage market collapsed, and defaults and foreclosures soared.

Banks reported nearly 53,000 cases of suspected mortgage fraud last year, up from more than 37,000 a year earlier and about 10 times the level of reports in 2001 and 2002, according to the Treasury Department's Financial Crimes Enforcement Network.

In recent months, the FBI has been investigating more than 1,400 mortgage fraud cases and 19 companies -- including Bear Stearns -- tied to the subprime mortgage crisis.

Officials declined to say who might be the next corporate target, but Mueller said the investigations focus on accounting fraud, insider trading, and failure to disclose the value of mortgage-related securities and other investments.

Under review for potential fraud are: investment banks, hedge funds, credit rating agencies, brokerage houses and due diligence firms -- which evaluate loans packaged into investments.

Similar to the federal investigations of Enron Corp. and WorldCom Inc., the cases are complex and rely on intense scrutiny of documents, Mueller said.

[Judge Roy Bean]

What is really distressing about this is the myopic focus on the origination and production side of the equation.

Without the garbage disposal of sub-prime special servicers to rid the kitchen of the contaminated food (bogus loans), this restaurant franchise opportunity chain would have died long ago.

Special servicers were the only real throttle in dealing with allegedly 'troubled loans', and without the complicity of raters who kept telling the world they could spin thread into gold, the whole investment community would have closed down predatory lending - there wouldn't have been a market.

So why haven't servicers and their hand-maidens the rating firms been drawn into the maw?

[wserra]

Without the garbage disposal of sub-prime special servicers to rid the kitchen of the contaminated food (bogus loans), this restaurant franchise opportunity chain would have died long ago.

So, JRB, you just can't swallow the servicers' claims, even after stewing over them for a while? On examination, they fall like ripe fruit? You're just a meat and potatoes man. Perhaps one day, they'll have to eat their words.

I guess the whole thing just leaves a bad taste in your mouth.

[Imalawman]

What is really distressing about this is the myopic focus on the origination and production side of the equation.

Without the garbage disposal of sub-prime special servicers to rid the kitchen of the contaminated food (bogus loans), this restaurant franchise opportunity chain would have died long ago.

Special servicers were the only real throttle in dealing with allegedly 'troubled loans', and without the complicity of raters who kept telling the world they could spin thread into gold, the whole investment community would have closed down predatory lending - there wouldn't have been a market.

So why haven't servicers and their hand-maidens the rating firms been drawn into the maw?

What exactly are you talking about? I'm not familiar with the term "servicers".

[wserra]

What's the penalty 'round here for bad punnery?

One year of free access. For the second offense: two years of free access.

[Ned Netterville]

The primary culprits in the sub-prime meltdown and the gaming of mortgagees have been the federal government (congress and the last two administrations) and the Federal Reserve Bank. The government (exec and leg) has spent almost two decades doing everything in and beyond its combined powers but within its bag of tricks to make home ownership affordable for everyone by subsidizing first-time and low-income housing prospects, and pushing Fanny Mae and Freddie Mac to ease their lending standards. Beginning in 2001, the Fed aggressively reduced interest rates and expanded the supply of money and credit, ostensibly to keep the crash in the dot-com and telecom markets from spreading to other markets, and subsequently to finance the wars iin Afghanistan and Iraq. Last summer (2007), with Fanny and Freddie showing distinct signs of financial troubles as a result of those companies purchases of sub-prime loans, and a bit more than the usual government-run business malfeasance, a conflicted congress began calling Fanny and Freddie onto the carpet for their loose-lending practices, and ordered these their delinquent step children to tighten up their standards. Then, when the housing market began to collapse last fall and winter, congress reversed itself and urged the Fann-Fred housing twins to buy more mortgages, only with a little more care. The reason so many scam artists migrated to the mortgage market in recent years is because that is where government policies made the pickin and pluckin easiest--although some of the louts did divert temporarily from scamming for Fanny and Freddie to scamming for FEMA bucks during the Katrina-relief boondoggle, where they didn't even have to reach up to pluck the pigeons; FEMA floated the money right up to their doorsteps. Now congress and the administration and especially the political candidates are feverishly seeking scapegoats to cover their tracks. ("Wicked speculators done it.") With the nation in a financial sticky wicket, everyone looks to the Fed to solve the problem, and the only thing the Fed knows how to do is to inflate, so we get more of the same.

I just paid $10.50 for a gallon for milk (Jersey cows, neither pasteurized nor homogenized-umm good!) and even the cheapest factory moo-juice around this neck of the woods is over $4.00, not to mention that the price of my grits are going through the roof. (I hear gasoline is getting expensive too, but since my pedicab doesn't use the stuff, I can't say how high.) What happened in Zimbabwe in recent years is happening here, only just a little slower. So I can't help but wonder why my good Quatloosian friends and valiant guardians against frauds and swindles waste their time and energies pursuing penny-ante swindlers while the government and the Fed misappropriate citizens wealth to the tune of trillions?

[Ned Netterville]

For anyone who may want a graphic (literally) view of what is the Fed has been doing to the money supply, the Ludwig von Mises Institute provides some good charts: http://mises.org/markets.asp

[Nikki]

The primary culprits in the sub-prime meltdown and the gaming of mortgagees have been the federal government (congress and the last two administrations) and the Federal Reserve Bank.

Completely ignoring the people who took out loans they couldn't afford, the brokers and salesmen who convinced people they COULD afford loans beyond their means, and the money industry participants who grossly overrated the viability of these risky loans.

Ned seems to have significantly opened his mouth to make room for a major foot insertion.

Neddie: wasn't the entire mortgage industry happening in the PRIVATE SECTOR? Despite your attempt to spin everything back onto the central fiscal policy and Freddie's and Fannie's actions, you are overlooking one simple fact: The government doesn't issue any mortgages.

Zero. Not One. Nada. Zilch. The government didn't issue a single no-doc mortgage. The government didn't ignore the poor credit risks and issue them mortgages anyhow.

All the government did was buy up (and resell) large packages of mortgages from the original issuers based on the allegation by the issuer as to the credit risk of the notes. The government dooesn't have the ability to validate the facts behind the paper it's buying.

The free (albeit controlled by the International Zionist-Illuminati-Masons-Vatican Conspiracy) banking market, outside of any government control and intervention (exactly the way you like it) built the house of cards all by itself.

How's that shoe taste?

[Judge Roy Bean]

Ned speaks of what he doesn't really know when he tries to blame the money system for the evils of the sub-prime fiasco.

Fannie and Freddie didn't and don't do sub-prime loans. In fact the phrase "non-conforming loan" (aka sub-prime) is the their definition of loans they won't do. The sub-prime industry had little to do with banks and thus wasn't regulated by the FDIC nor the Federal Reserve.

The die was cast by those in Washington who championed industry self-regulation and refused to even admit there was such a thing as predatory lending.

[Ned Netterville]

Nikki, baby, you'd make a poor cobbler. If you're going to deal in shoes, you have to attend to both the heel AND the sole. (Not the soul. I'll take care of that.) And if you are going to engage in rhetorical combat, you're going to have to learn to read ALL of what your adversary writes. As most people can see, my reply began by pointing to the 'primary" culprits. I certainly didn't exonerate those secondary culprits mention by you or in the intial news story. I did, or at least now do, however, exonerate, both from the mortgage-market debacle and the "gas crisis," so called, the one villian mentioned most often lately by pols and pundits--those "greedy speculators," as several senators in hearings described 'em. Anyone who knows anything about markets knows that the invaluable contribution of speculators to markets and market prices is to add liquidity to the former and reduce the volatility of the latter. That's good--not bad. (If you don't understand this assertion, I will elucidate for you, but initially I'm going to credit you with at least some rudimentary knowledge of markets and economics.)

So, Nikki, let me help you with an exercise in remedial reading. The initial AP story that the good Doktor posted said that "The FBI put the losses to homeowners and other borrowers who were victims in the schemes at over $1 billion." If you will go to the charts on the website I provided, or, if you prefer, dig the money supply figures up yourself from Fed-published statistics, you will be able to see that the nation's total money supply has increased from $782 billion in 1980 to about $5.3 trillion today!!! Virtually all of that nearly seven-fold increase can be attributed to the Federal Reserve's inflationary (mis)management of the nation's money supply. Now, you should be aware of the fact that another way of referring to such "monetary inflation" is to call it "currency devaluation," for that is what happens when an economy's money supply increases without an corresponding increase in the economy's production of goods and services. (No, this economy's production has not increased by anything approaching seven fold since 1980. GNP, ajusted for inflation, has increased about 2.5 times during that period, as one of the charts I referred you to indicates.) In the same time period, the value of the dollars has declined (been depreciated by the Fed), from 100 in the base-year 1980 to a mere--but not precisely determinable--fraction of that today. (For everything you ever wanted to know about inflation, try this website:http://inflationdata.com/)

Now, Nikki, I suspect you may be thinking that if one's annual income has appreciated in lock-step with the Fed's depreciation of the currency since 1980, then one has not been hurt. Unfortunately, most people's incomes have not kept up with the Fed''s devaluation. And even those whose incomes may have kept apace of inflation, their higher income in devalued dollars pushes these folks into higher tax brackets, so that after taxes their income has not kept pace but has declined. Oh, and by the way, the inflation-induced increase in the federal government's revenue from the progressive income tax, which is caused by the Fed's inflationary action, is the one and only conspiracy that I have ever recognized. And it is a conspiracy of economic ignorance on the part of the American people--people like you who would not allow their government to employ inflation to surreptitiously rob them if only they knew what was happening to them and how they were being mulct. Of course there are numerous other deleterious affects caused by the Fed's watering down of the value of the nation's currency, but I will an elaboration of those until you become more advanced in your comprehension of the economic science. Oh yeah, I forgot to point out that for those Americans with only dollar-denominated, fixed incomes, the loss in the value of the dollar due to the Fed's (mis)management of the money supply has been truly catastrophic. The total loss to Americans as a whole from the Fed's deceptive inflation since only 1980 would be measured in trillions of dollars, while the FBI (and some of you Quatloosians) concerns itself (yourselves) with trifling, penny-ante scams that only involve a lousy billion.

Oh, yeah, and here's some advice: If you ever come to your senses and realize what the Fed is doing to you through its inflationary practice, you may want to put some of your resources into a currency or place that is safe from depreciation by thieving governments.

[Ned Netterville]

As for the price of your grits and milk, they are affected by the price of corn, which has had a nasty spike in price because of hand-wringing jack-a**es who thought ethanol would be the magic panacea to curing America's energy woes.

By relying on ethanol, and trying to be "green," people without brain one MAY have deluded themselves into thinking they are doing good, when in reality they are f*cking over poor people who rely on corn-based products as a staple of their diet.

Ask the poor people of Mexico how corn that used to go into tortilla production (and is now going to ethanol) has really jacked up the price of tortillas and raped their wallets.

And for the record, not everybody was sucked into the sub-prime mess. Lots of investment companies avoided the loan investment packages because, as one corporate executive put it, "We could not make sense of it and if we can't make sense of it, we don't buy it."

Capt., I don't think I've ever been more in agreement with you, (My God, what did I just say?) although as regards my milk, the cows graze on improved, organic pasture and only receive a non-GM. non-antibiotic, etc. etc. bit of grain during hand milking--mostly to induce their fullest cooperation in the milking process, I believe.

What you failed to mention is the fact that it is only when congress and the president implement the brainless one's proposals that their stupid ideas grow real and damaging legs.

[Ned Netterville]

Ned speaks of what he doesn't really know when he tries to blame the money system for the evils of the sub-prime fiasco.

Fannie and Freddie didn't and don't do sub-prime loans. In fact the phrase "non-conforming loan" (aka sub-prime) is the their definition of loans they won't do. The sub-prime industry had little to do with banks and thus wasn't regulated by the FDIC nor the Federal Reserve.

The die was cast by those in Washington who championed industry self-regulation and refused to even admit there was such a thing as predatory lending.

I stand corrected. I should have said the housing-market meltdown, and I forgot to include the gubmint's FHA mortgage-insurance business and its insuring of mortgage's that ought not be made, along with congress's and the administration pushing Freddie and Fanny to expand their portfolios of loans, which they did and which in combination with the Fed's action of "easing credit" by reducing interest rates to historically low levels contributed mightily to the housing bubble that is now deflating so rapidly. Fanny and Freddie's loan portfolios are comprised of mortgages they purchase at par from banks. Many of these loans were and are "sub-prime" in fact if not by legal definition. With the Fed pushing liquidity into the market, banks made loans on the basis of highly inflated--because of the Fed's easy money policies--home values. Credit worthy buyers who were happy to pay the price and were financially capable of meeting their monthly payments, have walked away from homes and mortgages when the values of those homes melted (returned to more realistic levels) or when one of two wage earners lost a job. Many of these de facto sub-prime loans were and are today sold by banks to Fanny and Freddy. Need proof? Watch what happens to Freddie and Fanny's earings this year and in the future, or look at what has happened to the prices of their common-stock shares.

The biggest reason the FHA lost so much money ($4.6 billion last year) was a scam called the "downpayment assistance program." Under this program, builders or mortgage originators make a loan to low-income homebuyers, and then arrange for a third party to pay the downpayment, so the loan qualifies for FHA insurance. This means borrowers have no skin in the game, and in many cases have negative equity because the value of the homes are often inflated.

Borrowers could bet on the upside of the market at no cost to them. And thanks to the 100% FHA insurance against default, lenders were guaranteed full repayment whether or not the loan is ever repaid. Until recently, lenders even got a tax write-off for their "charitable contribution." Everyone won – except the taxpayer. Now even the FHA finally agrees that this program invites widespread fraud and wants to end it. But Barney Frank, who heads the House Financial Services Committee, is insisting that it continue.

One lesson from the debacle is what happens with low or zero downpayment FHA loans: They go bust. The Government Accountability Office finds that default rates are about three times higher than on conventional loans. So why in the world is Congress promoting a new FHA bill to lower downpayments to 3% and in some cases even to zero?

http://online.wsj.com/article/SB1214002 ... lenews_wsj

Judge, the problem isn't that the government didn't adequately regulate; the problem is that when government regulates, those who are regulated soon enough learn how to either fool or own the regulators. There is only one effective regulator of commerce, and that is unfettered competition. As you know, even judges can be bought when the stakes are high enough.

[Nikki]

Neddie:

Please explain to the uninformed of us how unfettered competition between mortgage issuers, mortgage resellers, and slice-and-dice investment banks had absolutely nothing to do with the ballooning of sub-prime mortgages.

Please explain how the invisible hand failed to relegate the massive profit potential of the sub-prime market into a moral wastebasket.

You can't have it both ways, Ned. Either the free market gets to run and create whatever abuses it wishes or the government regulates the market to prevent the abuses.

[Ned Netterville]

Nikki, with the possible exception of some very local markets in a few remote places, or perhaps some esoteric market of which I am unaware, I doubt that a truly free market exists anywhere in the world, because, you see, the tentacles of the omnipotent state reach almost everywhere to touch, tax, distort and rob markets of any claim to being free. A truly free market would erect no barriers to either buyers of sellers. Those entities to which you refer and the markets they serve are all regulated or subsidized directly or indirectly in one way or another by the state.

However, to address the specific case of the sub-prime debacle: In the first place, the phenomenon of sub-prime mortgage loans only came about because of the near three-decade-long rise in housing prices, which can NOW safely be attributed far more to monetary inflation--by the Fed--than to any increase in the intrinsic value of homes. As long as the price of a home was certain to increase--as the vast majority of Americans came to believe over the last 30 years, sub-prime lending with its higher returns was a lot smarter way to go than sure-fire lending to grade-A borrowers at minimal rates. Even if the sub-prime borrower defaulted, the increased value of the property would make the lender whole, so why settle for lending to credit-worthy customers at miserly interest rates. It was that initial distortion of the market by the Fed's inflationary monetary policy that caused the housing boom and bust. The crooks who took advantage of the situation were responding like sharks to bloody chum, but the Fed was feeding them.

Btw, Nikki, I do sincerely hope you take some time to look at those charts on the Von Mises website. The Fed's ability to "manage" the economy's financial problems is very limited, and it is entirely dependent on people's faith in its ability to get the economy through this "crisis." If that faith is shaken or disappears, the nation's economy could suffer a severe jolt.

[Nikki]

Ned:

I bought my house nine years ago.

Within the first two years, (based on the builder's price for the same home) it had gone up 20%. Today, it is up approximately 115%.

Somehow, I don't think that was premised solely on inflation or anticipated inflation.

Conveniently, you are ignoring the decades-long pent-up demand for home ownership. You are ignoring the population increase (baby boomers' children) which also put a significant demand pressure on the housing market.

Conveniently, you also ignore the impact (rampant mortgage-issuing abuse) impact of a free-market system on the banking and mortgage industry.

But, as usual, you always conveniently ignore any facts which do not fit into your carefully crafted and predetermined world view.

[Ned Netterville]

Nikki, Not! I am not ignoring those factors. I recognize them as contributing, but hardly sufficient to account for the percentage increases you have experienced in your own home's value. I am currently visiting in Telluride, Colorado, where every piece of real estate seems to command a price ten times higher than in places I am used to, and according to several of the locals the 30-year-long upward march has not abated during the recent fall in housing elsewhere. The factors you point to would seem to have little to do with the astonishing appreciation in housing prices in a place like this. However, regarding the increase and subsequent decline in housing values, you keep ignoring the fact that I have not attributed it entirely to the Fed's monetary inflation. My point is, and has been, that it is the primary factor. Furthermore, until I dropped it into the mix, it had been completely ignored in this discussion.

Finally, Nikki, your use of the term "free market" in relation to mortgage and banking industries is ludicrous. In fact the banking industry in this nation is so thoroughly regulated, controlled and subsidized by government that the word "free" and banking ought never be used in the same sentence, paragraph or 10,000 word essay.

[Judge Roy Bean]

...
Finally, Nikki, your use of the term "free market" in relation to mortgage and banking industries is ludicrous. In fact the banking industry in this nation is so thoroughly regulated, controlled and subsidized by government that the word "free" and banking ought never be used in the same sentence, paragraph or 10,000 word essay.

You're again confusing 'banking' with mortgage lending, especially sub-prime lending.

Countrywide, Ameriquest, New Century, et al were only quasi-regulated through a combination of injunctive relief and class-action settlements.

'Regulation' when the penalties are infinitesimally small isn't regulation - like some of the employees of these lenders and the servicers have said, it's just a guideline you have to learn to work around.

[Paul]

"They're more like guidelines, anyway!"