Mortgage Crisis Update

I know I’ve been doing a lot of “Update” posts lately, but it’s not my fault; stories break when they break, and I blog about them when I feel there’s something worth sharing with my readers. Or, you know, when I’m outraged, feel the need to express my opinions about the larger field of business to someone, am in the mood for pontificating on about some subject or other, or when I’m really bored. In this case, however, I’d be trying to find ways of telling as many people as possible about this subject even if I didn’t have a blog…

According to a story released today by the Associated Press, Federal authorities have indicted over 400 real estate industry personnel since March in a nation-wide crackdown on mortgage fraud, including dozens of them in the past two days. Leaving aside the political and law enforcement chest-thumping, the story goes that 406 people have been arrested in connection with 144 cases of mortgage fraud across the country. The total dollar amount of property involved in the case was initially put at over $1 billion, but this will probably rise as the investigations continue. It’s a good start, but considering that there were over 53,000 cases of suspected mortgage fraud reported last year (up from 37,000 the previous year), it still sounds like the tip of the iceberg to me…

Mortgage fraud is a category of crime that takes in a lot of ground, from forging a buyer’s credentials to inflating appraisals to misrepresenting the nature of the purchase (e.g. claiming that the buyer intends to live there when actually they’re just trying to flip the property and make a fast buck). In some cases the financial institutions involved have also been culpable, but for the most part these are situations where real estate developers, loan officers, sales people and the like making money by whatever means necessary and putting the screws to their employers as much as to the buyers/sellers and the American people in general. In a few cases, there’s even actual insider trading involved…

Apparently there were two Bear Stearns fund managers who were participating in this sort of fraud, and one of them had gone so far as to move his own investments out of funds and companies that are now threatened by the losses from all of the bad real estate deals, which means that he’s being charged with insider trading as well as wire fraud and securities fraud. No one really knows how many other cases of this exist, but it seems improbable that this was the only example of a fund manager making money off of fraudulent transactions, and then using the damage caused by the fraud to make more money off the stricken companies…

I don’t have a drop of sympathy for any of the idiots being caught up in this sweep; I hope the Feds refuse to send them to any of the nice, white-collar prisons and instead send them somewhere where they can meet some of the people who have been hurt by the mortgage crisis. And I don’t have much sympathy for the wildcat speculators, either; you wanted to make a huge killing in real estate without investing time, effort or money of your own; you deserve whatever financial consequences you suffer, and legal charges for fraud into the bargain. But most of those people will just declare bankruptcy and walk away unscathed, and it’s unlikely that any of the white-collar criminals being arrested in the Federal sweep will be punished (significantly) either…

Meanwhile, all of the innocent people who saw the last real estate boom as a chance to finally own their own home are going to remain completely screwed. The real estate market is going into the tank, loans are going to be much harder to come by, and the damaged caused by the artificially inflated prices (and the people who broke their finances as well as their hearts trying to pay them) will take decades to fix.

It’s days like this one that I sort of wish I had gone into law enforcement after all…