The Vultures Circle

A lot of stories about mortgage fraud are coming out this week. The incredulous tone of the articles would be funny if it were tongue-in-cheek. But, the fact that they are serious about it makes me shake my head. Is anyone surprised that applicants lied on their loan applications? Is it really a shock that mortgage brokers encouraged them to do it?

The housing market was a sure thing, and everyone wanted in on the action. So people lied a little on their applications. It wouldn't matter. In a few months, the appreciation on the properties would more than make that lie a reality. So, it wasn't really lying. It was more like pre-stating the facts... Enron style corporate accounting for the everyman.

Only, the market tanked, and all of a sudden people started losing money. Smiling faces turned into pointing fingers. And blame had to be assessed. So who would be left holding the bag?

Well, you know the saying. Sh*t rolls down hill. So, it's more than likely that the lenders will sue the mortgage brokers, the mortgage brokers will sue the borrowers, and the borrowers will sue... no one because they will be too broke to afford it.

Well, that's maybe not entirely true. One angle that I expect to hear much more about in the coming months is appraisal fraud. When I lived in Hawaii, I frequently heard mortgage brokers talking about how 'their guy' could 'make it appraise.' You hear a lot of sniffling about adjustable rate mortgages, but inflated appraisals are responsible for a lot of the problem as well.

Unfortunately, if people dont even read the terms of their loan carefully enough to understand them, do you really think they will request a copy of the appraisal? Probably not.

The point being, expect to hear more and more stories of fraud and litigation as this bubble continues to burst. The lawyers and the crooks are the vultures of our times, and when they start circling, you can bet it's not a sign of good things to come.