Mortgage Fraud

A direct consequence of the bailout-of-the-big and the attempt by the Federal government to keep the housing bubble propped up is the growth in mortgage fraud. Two news stories today – http://www.forexyard.com/en/news/SPECIAL-REPORT-Flipping-flopping-and-booming-mortgage-fraud-2010-08-17T110245Z

http://abcnews.go.com/Business/wireStory?id=11416870

This will continue and only get worse. The solution to the housing bubble was to let banks/lenders/creditors run thru the bankruptcy process to actually resolve debt burdens and force write offs. And as a side effect, force mortgage lending back to local lenders/underwriters who would be on the hook for loans. Course that would have also meant that housing prices would have plunged even more (perhaps another 20%) in order to settle at a true market-clearing price.

We chose instead to prop prices up, socialize the debts, and ensure that only big “national” types of financing would be rapidly bailed out of their mess. The result is that fraudsters can now be certain that lenders/underwriters/appraisers/securitizers/etc are only judging loans on the basis of what appears on a computer screen since truly local knowledgeable competition has been buried. And the taxpayer is now the “deep pocket” who is defrauded.

Expect nothing to change. And don’t believe any “comps” prices for any housing. Long-term, the housing bubble will be well and truly popped when house prices fall to levels where cash buyers appear. Preferably not the same cash buyers who are busy accumulating cash via mortgage and other financial fraud — but I no longer believe the US is, at core, an honest place. Fraud pays. Honesty doesn’t. All the money that one has in a bank (times 30 because of leverage) merely funds this sort of fraud.

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