“I note that James Wells the CEO of SunTrust has complained that his bank has been adversely affected by such fraudulent loan applications and SunTrust would not be alone. Why these banks are not pressuring the Department of Justice to make at least a few high profile prosecutions of such cases ( The US Code allows for fines of $1 million and up to 30 years imprisonment) in much the same way the IRS makes a few high profile prosecutions each tax season.

By announcing a few aggressive prosecutions of such fraudulent loan applications the effect might be to stop some percentage of Alt-A borrowers….”

Of course Suntrust Bank was affected! And I will tell you why. Because Suntrust Mortgage was one of the biggest perpetrators in the Alt-A scam. The crap that they did to approve these loans was just plain scary! And not only did Suntrust Mortgage screw the debtor, they screwed the investor when they packaged these Alt-A loans and sold them to investors without proper disclosure. Suntrust is being sued for it now. And the LAST thing Suntrust wants is to have the justice department sniffing around!

Also, there’s a big difference between civil and criminal fraud. FBI and justice dept doesn’t get involved with civil, just as the FRB doesn’t get involved in criminal. If you claim the wrong one with the wrong group, don’t expect to get very far.

I would agree to some extent that the FBI didn’t do much with regard to the larger “fraud for housing” problem, but in some ways I consider “fraud for profit” to be more in the FBI’s purview, while the systemic lending standard problems with “fraud for housing” should really have been tackled by the SEC or the Federal Reserve.

So I tend to go a bit easier on the FBI in this whole mess… at least they put in a half-hearted effort, whereas the SEC and the Fed are clearly guilty of complete nonfeasance.

As for the civil case? Well, then, the bank’s attorney has the Herculean task of trying to argue before a judge (who has already received 90 new filings from that bank for foreclosures this week), “Your honor, my client was wronged and knew nothing about it.” With a straight face.

Good luck.

And as for bringing a fraud case against the bank – what are you going to get back if the judge imposes sanctions? TARP money?

Why is no one going to jail?

While technically illegal some of these companies still operate via the internet and I wonder why no US Attorney has subpoeaned the client lists of these companies and brought wholesale criminal charges against those who used such schemes to obtain bank loans.

I note that James Wells the CEO of SunTrust has complained that his bank has been adversely affected by such fraudulent loan applications and SunTrust would not be alone. Why these banks are not pressuring the Department of Justice to make at least a few high profile prosecutions of such cases ( The US Code allows for fines of $1 million and up to 30 years imprisonment) in much the same way the IRS makes a few high profile prosecutions each tax season.

By announcing a few aggressive prosecutions of such fraudulent loan applications the effect might be to stop some percentage of Alt-A borrowers from defaulting on their loans knowing they too could be prosecuted for having made a fraudulent loan application.

What is key about predatory lending (versus sub-prime or fraud) is that you could not look at the particulars of the issue and not realize that there were really really big problems with the system.

The predatory lending never really went away. But eventually the brokers became more interested in bringing the borrower into the scam so that they could pump up the volume: essentially making the bondholder the bagholder. Except that so long as prices went up, everyone would be fine.

The earliest versions I recall hearing about were in mobile home lending. But the mobile home market collapsed so that issue went away.

There were a number of big fraud cases going on early (prior to Alt-A showing up) on that involved organized groups of varying sizes. To varying degrees the banks were not that interested in publicizing them. The FBI occasionally got involved in them, but they were fairly exotic operations at that time and required a lot of work. It has always been hard to get law enforcement: FBI, local DA, local police, etc. to take on white collar crime because of the amount of work involved per case.

When you consider that that tiny industry had a combined market cap of approximately $17 billion back then and only 4 major players, you realize that it’s not a situation the audit group could possibly be equipped to handle (though they all tried very hard). A helping hand was needed, but the FBI was nowhere in the picture in ‘05 or ‘06.

One thing is true, the lender was the victim if it went undetected, but they simply didn’t care. The illegal flips using straw buyers and inflated appraisals, the seller funded down payments (sometimes concealed from the lender, the title company, or both), the gift fund down payment companies that the lender didn’t know was providing it (that’s a newer one), or the occasional seller with a fake ID selling a home he didn’t own. In all situations, it’s the title insurance company that must verify the homeowner, ensure the lender would be first in line for the lien, and then disburse the funds exactly as directed. The risk was only with one party that was too small to be able to do much about it.

The FBI dropped the ball. But to hell with it, it’s over. Time to sit back and watch the fireworks

This may be an exceptionally naive question, but who was holding the gun to the head of the mortgage originator? I guess I’ve never had someone fill in the blanks as to how the home ownership encouraged rhetorically and through regulations/laws forced the hand of banks. Unless you can show me how their hands were literally forced to sign the papers via this government actions, I’d still have to say the buck stops at the bankers’ desk – if they take profit, they also take loss.

Anyway, like I said, naive… someone point me in the right direction.

The biggest of the big frauds was committed by the members of congress and local housing authorities and non-profit housing organizations and the rest of the housing axis. many of these groups are well intentioned but fraud is fraud. Their fraud was (and still is) to convince Americans that everyone deserves a home and we will do everything including changing the laws and the lending guidelines and whatever else we have to do to put you in a nice house you can call your own. Because homeownership is the american dream, you know you arrived when you buy a home, ownership is the pinnacle and objective and even the ultimate purpose for existence. Ownership will give youy a stake in society, you will develop equity, its your main asset, retirement, blah bla bla.

Except that this nonsense led to a bubble with the fed getting in on the housing binge by keeping rates low to enable the american dream isn’t that laudable?

Anyone think the FBI will tackle all that fraud?

Unfortunately the same folks who pushed the agenda of homeownership for all have not backed off even one iota despite the crisis and the horrific consequences of their agenda. While the democrats are heavily involved in pushing the home ownership agenda for low income buyers, the republicans are just as guilty because all parties pushed the tax deduction for mortgage interest and no capital gains for sale of your residence etc.

So not only do the groups who drive the agenda need to be stopped but the notion of the primacy of home ownership needs to be rooted out of our culture. Otherwise all this destruction will re-occur (if the markets ever recover to allow it).

–Shase Ribelyon