Predatory borrowing--fraudulent applications

Michele Malkin:

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I don't want to hear Republicans recycling the Blame Predatory Lenders rhetoric of Hillary Clinton, John Edwards and Jesse Jackson. Enough with the victim card. Borrowers are not all saints. There's nothing compassionate about taking money from prudent, frugal families and using it to aid their reckless neighbors and co-workers who moved into McMansions they couldn't afford or went crazy tapping their home equity and now find themselves underwater.

Economist Tyler Cowen points out the problem of predatory borrowing -- something you never hear politicians spotlight. He notes, "As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications," according to research on more than three million loans done by BasePoint Analytics. "Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn't seem to matter."

Message to Washington: Stop treating every defaulting borrower like Mother Teresa.

At last week's Fox News debate in New Hampshire, the He Men of the GOP field went all mealy-mouthed when asked about the signs of recession. Mitt Romney asserted our need to "stop the housing crisis." Does he mean the government should insulate borrowers and lenders from culpability? Continue to artificially prop up housing prices? If so, why? If not, then what?

Last month, Mike Huckabee told an NPR reporter unequivocally that it "is not the purpose of government to prop people up from every poor decision they make." Amen, Rev. Huckabee. But at the New Hampshire debate, he sheepishly avoided tough pronouncements and instead voiced support for President Bush's Hillarycare-Lite housing bailout approach since it "didn't involve tax dollars." Yet.

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How does one get away with providing false information on a loan application for a house? Lenders used to require such tings as employer verification and income tax filings to verify income. If the borrower was self employed he had to bring in his check register and other evidence to show income. I had to do this on a refinancing to lower the interest rate on a house I had been paying regularly on for over five years, For first time buyers this would seem to be even more important.

One of the most important statistics in this piece is this one, "As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications." The loan approval process that permits this much fraud is terribly broken if that is the case and this fraud is having a devastating effect on the investment banking business. It is not the fraudulent buyers who deserve sympathy for this mess.