Thursday, June 19, 2008

Arrests, Criminal Charges: Subprime Debacle & Mortgage Fraud


The FBI announced Thursday that it had arrested about 400 real estate industry players since March — including dozens over the last two days — in its crackdown on incidents of mortgage fraud that have contributed to the country's housing crisis, credit crunch, and global economic instability.

Read about two Bear Stearns hedge fund execs here, and hundreds of other arrests here.

5 comments:

Dave Phillips said...

Mortgage fraud is a real problem and is often an inocent mistake in an effort to help a buyer or seller. For instance, a seller and buyer may come to terms on a contract and then the buyer decides a little extra money to fix up the property would be nice. The seller agrees to a higher sales price and will rebate the extra cash to the buyer after closing. The bank does not know about the deal and bam, you have mortgage fraud. If a REALTOR or mortgage banker knew about the false, undisclosed deal, they are guilty of mortgage fraud even though the buyer and seller had an agreement.

Montpellier said...

Dave Writes:

If a REALTOR...knew about the false, undisclosed deal, they are guilty of mortgage fraud even though the buyer and seller had an agreement.

So I guess we can all anticipate lots of vigorous enforcement from the CAAR Ethics Committee? Relax - nobody's holding their breath...

I am impressed that you can 'type' that with a 'straight face' (or tone at least), but then, that's what you're well-paid to do.

You have got to be kidding about getting up on this moral high-horse...there are REALTORS in this town currently advertising cash-back at closing bonuses now:

http://www.buyerrebateoffer.com/

(it will be interesting to see how long that link remains up)

I'm not a lawyer, so I won't opine that this violates the letter of the law, but I'd bet most lenders would frown upon REALTOR-to-buyer 'kickbacks' and mis-representations of closing costs. The only difference in this case from you example, of course, is that it's the REALTOR perpetrating the kickback, not the nefarious seller. Even if this passes a strict legal review, it certainly doesn't pass the smell test.

Of course, it's a big, big shocker to find that no lawyer is involved (an organization with a real code of ethics like the VA Bar would not tolerate this), and that the imploding bubble lender Countrywide are involved.

Of course, I wonder what percentage of CAAR/MLS membership dues a mega-firm like Keller-Williams represents? I'm sure we'll see you right up front pursuing this distasteful, if not illegal, practice.

On the other hand, I have to hand it to the REALTOR - commissions - the wasteful fat - are definitely the right place to start cutting RE purchase costs.

By Golly Dave, You're Right! It's great to have comments - the feedback and discourse are just wonderful!

brooklyn bob said...

LOL montpellier--you're as funny/snarky as the bubble bloggers!

Dave Phillips said...

Wow! I think I can now claim to be the first person to be flamed on this blog. Combine that with the fact I wrote the first comment and I'm probably headed for the Bubble Blog hall of fame.

Montpellier, I will not engage in a digital dual with you, but I did need to correct one statements. You said,
"I'm not a lawyer, so I won't opine that this violates the letter of the law, but I'd bet most lenders would frown upon REALTOR-to-buyer 'kickbacks' and mis-representations of closing costs."

I'm not a lawyer either, but I play one on TV from time to time. The difference in mortgage fraud and a REALTOR rebating a portion of their commission is 1)the lender knows that the fee is there and 2)can decide if it is reasonable. A $50K commission on a $100K home would be something that would catch the lender's eye. In the example I used above, the lender had no idea the "extra" money was built into the loan. This may seem like a fine line, but it all comes down to the lender having informed consent of what they are lending.

Montpellier said...

Well, Dave, not to get into a 'digital duel' but...

1) you're not making a correction of a statement of fact - you are making a competing argument...that's a 'duel'. Are you saying that I've misrepresented something factual?

and

2) the "size" of the fraud is irrelevant - I'm sure $2k is enough to make this a felony. The webpage example suggests a kickback of $2.4k.

It seems to me that you are arguing either:

- the lender agrees that 3% compensation to the agent is 'fair' and it's none of the lender's business what the agent does with his commission after that.

- the amount involved in the fraud is so small that it shouldn't count - only big fraud counts.

This is *only* different if the Lender is aware in advance of closing - ie, that this 'rebate' is disclosed in the closing documents - that the REALTOR is kicking back some of their commission in cash to the borrower.

If the loan in question is a purchase-money only mortgage, and the borrower is getting some cash back, then that's fraud. Plain and simple.

That you even try to weasel on this argument pretty much shows the good faith nature/value of REALTOR(tm) Ethics - brand recognition is everything! I suppose sleazy is a part of the 'Brand'.