Mortgage fraud is on the rise and that’s a trend which should thrill no one.
According to Experian, “a total of 39 in every 10,000 mortgage applications were identified as fraudulent between April and June 2012, up from 32 in during the same period in 2011.”
First, the Experian figures confirm that mortgage fraud is not wildly out of control. If it is true that 39 of every 10,000 mortgage applications involve some element of fraud then the attempted fraud rate is less than one half of 1 percent.
Second, we don’t know how many of the bogus loan applications actually went on to become full-fledged mortgage commitments. Lenders are supposed to underwrite every loan they originate to prevent such frauds.
Third, we don’t know how many of the applications became fraudulent because of lender alterations.
Fourth, what the Experian report doesn’t show and can’t show is the number of fraudulent applications which were undetected and did go through the system.
Real Mortgage Fraud
No one should be in favor of loan fraud but isn’t lender fraud also an issue?
For instance: How many people have gone to jail for designing, selling and packaging mortgages with hidden terms that guaranteed massive default rates and flooded the U.S. with foreclosures, short sales and REOs? And how many people are facing criminal charges for rigging the LIBOR rate — a fraud that impacted millions of borrowers as well as massive numbers of mortgage investors? Aren’t these bigger issues than small timers in small numbers trying to cheat the system so they can get an extra bedroom?
Artificially-bloated worries about mortgage fraud by loan applicants misdirects the financial and criminal policies we ought to pursue.
As the FBI explains, it “continues to address corporate fraud cases — specifically involving subprime lending institutions, brokerage houses, home-building firms, hedge funds, and financial institutions — as a result of the financial crisis partly caused by the collapse of the subprime mortgage market in the fall of 2007. As a result of the current financial crisis, trillions of dollars in shareholder value were lost, several prominent companies went out of business, several prominent banks failed, and the federal government provided over a trillion dollars in relief to keep other companies from failing.”
Corporate fraud should be defined to include LIBOR rigging and the knowing sale of inherently defective financial products. These are crimes too. Just ask the insurance companies, pension funds and state governments that lost money — and the people who lost their houses.