Apr
08
what were the management decisions involved in mortgage fraud?
By
mortgage fraud, its long term effects in the sub-prime markets and the subsequent prosecutions
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2 Comments
November 20th, 2009 at 1:46 pm
The management decisions in setting up a system that was then defrauded or in some intentional way to defraud?
In either way the short answer is because they wanted to make lots of money. I can elaborate but I need to know which way I should try to explain.
Edit: Ah! How they are trying to deal with the issue no matter how we got to ‘this unknown billions of dollars special place we are at.’ If I am still not understanding and nobody else has answered let me know by elaborating further and I will try again.
Right now, if you mean real estate lending, they are desperately trying to stop the hemmorage. The money going out as additional lending is disappearing as loans and instead sitting in the vault – to balace against the debt of existing loans in default or that are beginning to fall behind on payments. They are both required by law to have a percentage of it to cover any bad debt to begin with and now are ‘hedging’ their bets some – since nobody knows where or when the end of the slide twoard the D word will be. Management decisions are being more and more based almost entirely on staying solvent.
IE If the bank fails what else really matters? Let’s keep that from happening first.
If I need to elaborate or go in a different direction entirely let me know.:)
November 22nd, 2009 at 2:03 am
Many of the management decisions that have led to prosecutions involve managers either turning their heads when they knew things were not being done properly, or they were misrepresenting something in order to increase profit margins.
For example, certain lenders would pressure appraisers to increase home values to make loans work, and someone would end up in over their heads in a home w/no value. Another example would be a mortgage loan officer doing 3 loans in 1 week for one borrower, and telling each lender the 3 different properties were all primary residences in order to obtain favorable rates…since none of the 3 loans would report on the credit report the lender would see, they’d all approve the loan, and a borrower would have investment properties at the same rate most people were getting their primary homes. Another (very popular) example would be something as simple as a borrower stating their income on their application higher than what they actually made in order to qualify for a loan, or sending in a fake W-2 showing a higher income.
We’re seeing the long term effects right now. Homeowners are in over their heads, foreclosures are at an all time high, banks and investors are terrified to lend money to even good borrowers for fear something will go wrong. Loan programs are dried up, so once many adjustable rate mortgages adjust upwards, people cannot refinance into an affordable loan (which was generally the plan w/adjustable rate mortgages), and they’re foreclosing. This has rippled throughout the economy, as mortgage professionals/bankers could no longer afford to buy new cars, new homes etc, so manufacturing slowed down, the unemployment rate has risen ,and the economy has faltered. There is no more sub-prime mortgage market, as those lenders all have gone under or have been bought out.
No one knows where the prosecutions will end, but as more lenders do more research they’re finding more and more people at fault, so Im guessing a lot of people will take the fall eventually….even people I know are under FBI investigation, and some are completely innocent.