Recent reports reveal a surprising amount of criminal activity in the mortgage business. This is particularly true in states whose names end in the letter A, such as Florida and Nevada. Two particular forms of illegal behavior are the licensing of mortgage brokers with criminal records and homebuilders' use of bribes -- or 'incentives' -- to encourage people to buy over-priced houses without disclosing them to lenders as required by law. Think I'm kidding?
DSNews reports that last week, Florida's mortgage commissioner resigned after it was revealed that he granted mortgage brokerage licenses to people with criminal records. Specifically, DSNews wrote that Don Saxon, who had been Chairman of the Office of Financial Regulation (OFR) had "allowed more than 10,000 people with criminal histories – including bank robbers, racketeers, defrauders, embezzlers, identity thieves, and tax evaders, among others – to work in Florida's mortgage lending industry between 2000 and 2007. These convicted felons had expropriated more than $85 million from lenders and homeowners during that time."
Meanwhile, things were not much more legal in Nevada. That's where the Wall Street Journal reports that the Las Vegas, NV branch of home builder Centex (NYSE: CTX) paid off the credit cards and mortgages of potential borrowers to entice people to buy homes priced from $350,000 to $550,000. The FBI is investigating allegations that Centex did not always disclose these 'incentives' to lenders as required by law.
I suspect that this is just the tip of the iceberg. It makes you wonder whether the government regulators who were supposed to be preventing this behavior were also getting a piece of the action.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
8-19-2008 @ 3:21PM
william lindblad said...
I figured that you might get around to this one, but it's exaggerated and belongs on the supermarket check out line. This story is extremely one sided.
It is also a commentary on "our" times, which is blame someone else. I have no doubt that there people employed in the mortgage industry that had criminal records, however these were not the people that brokered the deals, nor were they the ones that made the lending decisions. Our "new speak" contains "liar loans", "ninja loans", SIV's and MBS to name a few. This type of financing has been around for ages and it is really not new, just the terms are. No qualify/No documentations fit the "liar" and balloon notes fit the "Ninja". SIV's do not have wheels and MBS is not a new braking system. Worse, everytime I open into this area the advertising is still telling me I can get a mortgage with 100% financing and no qualify. It would appear that there remain some lenders that have yet to get the message, what's more, "flip this house" is still on TV.
As far as broker commissions, fees, kick backs and inflated prices? Absolute. From 2002-06 prices in some areas increased as much as 175%.
I have called this a "gold rush", for it was a frenzy of greed and speculation fed by "house flipping" with a concept of the continual price increase. This was somewhere between insane and asinine, but without anyone stepping in to regulate?
If there is to be blame than let it fall where it belongs. The people that had regulatory power over this entire area sit in Congress - the House and Senate finance committees.
They sat, the Fed sat and I hope all get hemorrhoids to join the rest of a bleeding public.
8-19-2008 @ 3:32PM
william lindblad said...
I think that I should add:
Most of those that are crying "foul" were well aware of the risk. Case in point. There was a recent post of an 82 year old in Cal doing just this. I find it hard to believe that he was a first timer. I think that if one check his real estate transactions you would find a wise old badger. I have had numerous properties since I was 21. Some winners, some losers, but I am not crying over my mistakes as I know who to blame.