Predatory borrowing--bank robbery with a ball point pen

NY Times:

The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said.

Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department. In 2002, banks filed 5,623 reports.

“I don’t think any law enforcement agency can keep up with mortgage fraud, because it’s such a growth industry,” said Chuck Cross, vice president of mortgage regulatory policy for the conference of state bank supervisors, an organization of regulators and bankers. “There’s too many cases, not enough agents.”

Mortgage fraud covers crimes like false statements on mortgage applications and elaborate “flipping” schemes that involve multiple properties and corrupt appraisers, title companies and straw buyers.

In one common flipping plot, someone buys a house, has it appraised for more than its true value and sells it to a straw buyer for the inflated price, pocketing the difference. The straw buyer lets the house fall into foreclosure, leaving the bank with the loss.

The cases coming into view reflect the recent boom in mortgages with limited borrower documentation and lax scrutiny.

Law enforcement agencies say they are overwhelmed, especially because investigating and prosecuting fraud can be complex and time consuming. The officials say career criminals and organized-crime rings have increasingly turned from other crimes to mortgage fraud because it offers lower risks and high profits.

“I could hire a dozen investigators and a dozen prosecutors and only scratch the surface,” said David McLaughlin, a senior assistant attorney general in Georgia who coordinates prosecutions of mortgage fraud.

Losses involving federally insured banks totaled $813 million in the 2007 fiscal year, more than double the $293 million lost in the 2002 fiscal year.

These figures most likely represent “the tip of the iceberg,” said the Mortgage Bankers Association, an industry group, because they do not cover mortgage brokers, who arrange more than half of new mortgages. The industry estimates the total loss this year at $4 billion.

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Fraud is especially common with subprime mortgages, the high-price loans for borrowers with poor credit. Lenders and investigators trace part of the foreclosure crisis to mortgage fraud.

...

“But law enforcement is just absolutely overwhelmed,” said Corey Carlisle, senior director for government affairs for the Mortgage Bankers Association, which has lobbied for more money to fight fraud. “Lenders say they have to market their cases to law enforcement,” meaning showing extraordinarily high sums or multiple criminals.

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This is the subprime foreclosure racket that has been floating under the congressional radar. Politicians have been focusing on so called predatory lending and overlooking the obvious problem of predator borrowing. While resources have been directed toward helping home owners who are facing foreclosure, not enough focus has been brought to the con men who are using these mortgages in a ball point pen conspiracy to rob financial institutions. I think they still do not have a handle on how big this may be and what percentage of the losses incurred by investment bankers is related to it.

I have been posting on this issue for weeks. It is good to see some mainstream resources being focused on the problem.

Prosecutors need to simplify the cases. There is a tendency, especially on the federal level to turn these types of fraud into what I used to call "Death Star" cases that are so massive they sometimes fall of their own weight. The lawyer working the case needs to pick three fraud counts that the defendant is unquestionably guilty of and restrict his indictment to those three. The rest of the fraud will come in with the case anyway and the jury will convict because they recognize that you understated the case against the bad guys.