Quoted as being far worse in scope than the Savings and Loan crisis of the 1980’s, the FBI is dealing with a flood of mortgage fraud cases of unprecedented scope.
The picture below is from the FBI’s web site – which show an actual property used in a Mortgage Fraud Scheme. No wonder the problem is what it is today…
An Associated Press report stated the following:
FBI Director Robert Mueller says there has been a “tremendous surge” in mortgage fraud investigations, and he expects it to keep growing.
At a Senate hearing Wednesday, Mueller estimated that the FBI has 1,300 investigations underway, 19 of them involving sub-prime lending practices by U.S. financial institutions.
That’s up from three months ago, when FBI officials said they were investigating 14 companies for possible fraud or insider trading violations.
Mueller says the number of inquiries has increased to a level that required shifting agents from other projects onto mortgage fraud.
The New York Times reported that losses from fraud are surging. “It’s looking like a record-breaking year already,” said Stephen Kodak, a spokesman for the FBI. Kodak said that in first half of the 2008 fiscal year, which ended last month, the FBI received nearly 30,000 “suspicious activity reports.” The 2007 fiscal year ended with 46,000 reports and 260 convictions.
The biggest surge in federal law enforcement activity has focused on “fraud for profit” schemes, in which mortgage insiders – appraisers, real estate agents, loan officers, and lawyers – often work in teams. They falsely inflate a home’s value, get a huge mortgage to buy it (usually using false identities), split the profits, and then disappear.
In an article for GC California Magazine, author David Bayless stated, “To put this situation into historical perspective, the savings-and-loan crisis of the late 1980s and early 1990s ultimately cost an estimated $160 billion and affected more than 1,600 U.S. banks insured by the Federal Deposit Insurance Corp. It was one of the worst financial scandals in history. But the S&L crisis, while costly, was limited to only a section of U.S. financial institutions. In contrast, the breadth and the depth of the subprime mortgage crisis will likely far exceed that of the S&L crisis. Standard & Poor’s has estimated that losses from securities linked to subprime mortgages will exceed $265 billion as financial institutions worldwide write down the value of their holdings. And the breadth and depth of regulatory investigations and private litigation, as discussed in this column, is unprecedented.”
Bayless stated further, “The current wave of government investigations and litigation surrounding the subprime crisis will not be short-lived. Companies should brace themselves and prepare for a prolonged wave of attacks and actively seek legal advice. More lawsuits can be expected, particularly against deep-pocket underwriters and financial institutions (and their officers and directors) involved in the securitization of subprime loans. More regulatory and criminal investigations are guaranteed. Many laws firms have set up subprime task forces or have coordinated their internal expertise in various practice areas to address issues affecting clients caught up in the crisis.”
Along with these reports, CNN reports today (April 22, 2008 full report here) that among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac.
Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor’s recently placed an estimated price tag on this worst case scenario — $420 billion to $1.1 trillion of taxpayer’s money.
This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980’s and early 1990’s. That cost taxpayers about $250 billion in today’s dollars.
As a speaker on business ethics and mortgage fraud, I hate to say, but this is just the tip of the iceberg of what is moving our way. Sadly, few voices were heard when it came to the ethics ramifications of making loans to people who obviously could not afford to pay for their purchase. Years before, no one would have considered making such a loan. Yet, as the market flourished the tide of easy money and greed took hold. Today, we are beginning to see the first phase of the dramatic cost of the choices made.
In every presentation I state boldly: Every choice has a consequence! The unfortunate cost here will affect many people in ways they never considered. It is easy to talk about the obvious, but the less obvious secondary costs will be staggering.
Here are some of todays headlines and links to the stories. If this won’t get your attention, I don’t know what will. And this is just the beginning.
With headlines like these – we can only assume that from every indicator possible, we might be in for a long ride. Perhaps, the reason I see inquiries for ethics presentations increase is due to the realization that we need something to get us back on the right track.
Business Ethics and Mortgage Fraud speaker – Chuck Gallagher – signing off…