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The scope of mortgage fraud
BasePoint Analytics LLC, a recognized fraud analytics and consulting firm, analyzed over 3 million loans originated between 1997 and 2006 (the majority being 2005-2006 vintage), including 16,000 examples of non-performing loans that had evidence of fraudulent misrepresentation in the original applications. Their research found that as much as 70% of early payment default loans contained fraud misrepresentations on the application.
That is from a Fitch Ratings report (summary here, with an eventual link to buy it), the rest makes for very gory reading as well. Thanks to a loyal MR reader for the copy of this report.
Posted by Tyler Cowen on December 18, 2007 at 05:17 PM in Data Source | Permalink
Comments
Mortgage loan fraud represents a growing percentage of total depository institution SARs. In 1997, reports of mortgage loan fraud comprised 2.12 percent of total depository institution SAR filings. In 2005, reports of mortgage loan fraud had increased to 4.94 percent of total depository institution filings.
FWIW, I think fraud provided the bubble's last gasp, and compounded it, without being the broader "cause" of it.
Posted by: odograph at Dec 18, 2007 6:05:43 PM
70%, right?
Posted by: Steven at Dec 18, 2007 6:25:47 PM
I don't think that mortgage fraud of the sort you describe can be blamed entirely upon the borrowers. I would suspect that a number of stupid/unscrupulous mortgage brokers would tell their clients, "oh just say your income is $x, it will be fine" Of course the borrower should take full responsibility for fraud because its their signature on the line saying "everything here is true" but I don't think the blame lies entirely with them, even if the responsibility must.
Posted by: Sameer Parekh at Dec 18, 2007 8:14:24 PM
In the media portrayals of all this, the borrowers are innocent victims and the mortgage originators/brokers are the villains.
In my book, it should read like the mortgage originators/brokers are the senior partners in crime, the borrowers are the junior partners in crime, and the investors in mortgage-backed securities are the victims.
In my book, a stated-income or ninja loan is pretty suspect as fraud or near-fraud from both borrowers and brokers.
Posted by: Mike D at Dec 18, 2007 10:04:22 PM
RealEstateJournal.com (part of the Wall Street Journal family) ran a fascinating story recently about an alleged mortgage fraud ring in California that involved unwitting Brazilian immigrants:
A lawsuit filed [...] in California superior court alleges that a network of real-estate agents, loan officers and mortgage brokers targeted "vulnerable immigrants," falsified financial records, forged documents and misled the home buyers about the real costs of their mortgages.
One of the defendants was the eighth-best producer for Re/Max in California in March 2006. Well worth reading in full.
"Barely three weeks after moving into the house, the couple decided to abandon it and left without making any payments."
It would seem that the immigrants involved didn't get much benefit out of it, and risked deportation by filing a complaint.
Posted by: Anonymous at Dec 19, 2007 12:01:55 AM
RealEstateJournal.com (part of the Wall Street Journal family) ran a fascinating story recently about an alleged mortgage fraud ring in California that involved unwitting Brazilian immigrants:
A lawsuit filed [...] in California superior court alleges that a network of real-estate agents, loan officers and mortgage brokers targeted "vulnerable immigrants," falsified financial records, forged documents and misled the home buyers about the real costs of their mortgages.
One of the defendants was the eighth-best producer for Re/Max in California in March 2006. Well worth reading in full.
"Barely three weeks after moving into the house, the couple decided to abandon it and left without making any payments."
It would seem that the immigrants involved didn't get much benefit out of it, and risked deportation by filing a complaint.
Posted by: at Dec 19, 2007 12:03:15 AM
For an expanded view, see link
Posted by: Buce at Dec 19, 2007 12:16:15 AM
The next interesting question to ask is, is that unusual. What proportion of *Non*-underperforming loan applications were also "fraudulent"? Is it not possible that fudging just a little on a loan application is just as common as fudging a little on your taxes?
I wonder how many otherwise perfectly well behaved borrowers didn't stretch the truth just a little on their application for a slightly better rate, or just in case, or just to overcome some of the inherent inefficiencies of the credit bureau and bank lending processes.
Posted by: Thomas Purves at Dec 19, 2007 10:52:14 AM
The abstract has this lovely quote:
'In the absence of effective underwriting, products such as 'no money down' and 'stated income' mortgages appear to have become vehicles for misrepresentation or fraud by participants throughout the origination process,' said Fitch Managing Director Diane Pendley.
REALLY? Who would have thought?
Posted by: SJE at Dec 19, 2007 5:25:27 PM
From the summary, a statement of the bleeding obvious:
'In the absence of effective underwriting, products such as 'no money down' and 'stated income' mortgages appear to have become vehicles for misrepresentation or fraud by participants throughout the origination process,' said Fitch Managing Director Diane Pendley.
REALLY? Who would have thought?
Posted by: SJE at Dec 19, 2007 6:04:40 PM
Are the comments that show up twice the more important ones? ;)
At the end of a bubble, pushing things forward figuring there's a greater fool farther down the chain who will buy it. Not much surprise there.
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