The government recently announced it has started a high-level task force to prevent mortgage fraud.
This sounds great, but is mortgage fraud really a big worry?
The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), the Consumer Financial Protection Bureau (CFPB), and the U.S. Department of the Treasury have created a joint task force to combat scams targeting homeowners seeking federal loan modifications.
To protect the nation from the mortgage fraud peril CFPB has issued a consumer fraud alert.
However, figures from the Federal Bureau of Investigations (FBI) show mortgage fraud is a declining problem. The FBI says that in fiscal 2010 mortgage fraud involved loans worth more than $10 billion. That sounds awfully impressive until you realize that estimated fraud in 2006 was well above $25 billion. In other words, fraud is down about 60 percent.
It gets more interesting if you look at the so-called suspicious activity reports or SARS. The FBI says that in fiscal 2010, there were more than 70,000 suspicious mortgage reports with losses amounting to as much as $3.4 billion.
The problem is that these numbers are a distraction. They don’t get us the whole story.
It’s in nobody’s interest to encourage mortgage fraud, but an estimated $3.4 billion in mortgage fraud is a rounding error in the context of the mortgage system — a system which originated mortgages worth $1.6 trillion in 2010.
Much more important, the FBI report does not use the term “predatory” lending. This happens for a very simple reason: The FBI is not allowed to pursue predatory lenders because predatory lending is not a federal crime.
It’s curious that mortgage fraud is a crime. What happens with the numerous foreclosure affidavits that were allegedly forged? Is that perjury? How many lawyers have gone to jail for lying to judges because foreclosure affidavits were signed without verifying sworn claims? How many attorneys have lost their licenses?
According to the Huffington Post last month, “The Nevada attorney general has indicted two mid-level staffers at a mortgage document company, Lender Processing Services, on a whopping 606 counts of felony and gross misdemeanor for directing employees to forge signatures and falsely notarize documents used to illegally foreclose on Nevada homeowners.”
We know that huge numbers of borrowers have overpaid for their loans because they were steered toward loans that were more expensive than necessary. The Wall Street Journal, on December 3, 2007, in “Subprime Debacle Traps Even Very Credit-Worthy,” reported that in 2006, 61 percent of all subprime borrowers actually qualified for VA, FHA and conventional financing.
Is being overcharged for a loan an example of predatory lending? Should that be considered a form of mortgage fraud?
Maybe what we really need is a task force that asks “Why aren’t predatory loans considered a federal crime?”
I look forward to that news release.
