When a lender is issuing mortgages to be competitive with their fellow banks, common sense can take a holiday. Over the past several years the proliferation of no doc or “liar loans” showed that the wheels came off the mortgage lending wagon. All common sense, reasoning and rationale thought was thrown out the window. At what point does negligence become criminal?

Q: Can any imagine lending money to someone today, basing the decision to give hundreds of thousands of dollars to a borrower who doesn’t need to prove their income and take very little effort to understand the value of the asset being used as collateral? Oh yeah, and then securitize those mortgages to legions of unwitting investors (with full disclosure, of course)?

A: Never in a million years, or less than a year ago, whichever comes first.

It looks like the FBI is getting involved. They have formed a task force to investigate whether lenders turned a blind eye to inflated income figures. It would seem fairly simple to cross check mortgages and stated income paid for taxes. The IRS and the FBI may very well be working together a lot in the near future.

>The Federal Bureau of Investigation and the criminal division of the Internal Revenue Service have formed a task force to examine mortgages that were made with little or no proof of the earnings or assets of borrowers, a government official who had been briefed on the matter said Sunday.

>The task force, which was established in January, stepped up its investigation in recent weeks as the financial industry disclosed billions of dollars in additional write-downs from bad mortgage investments. The latest inquiry is broader and deeper than a separate F.B.I. investigation of mortgage lenders that is also under way.

>While the new task force is focusing on the role of mortgage lenders and brokers in low- or no-documentation loans, it is also examining how the loans were bundled into securities.

>”This is a look at the mortgage industry across the board, and it has gotten a lot more momentum in recent weeks because of the banks’ earnings shortfalls,” the official said.

Speaking of turning a blind eye: Sure, Jonathan Miller Can Value Your Home, But Can He Cook?


2 Comments

  1. UrbanDigs May 6, 2008 at 9:39 am

    Jonathan Flay?

  2. Chris Atkins May 6, 2008 at 2:24 pm

    your question is incorrect….

    “Can anyone imagine lending money to someone today, basing the decision to give hundreds of thousands of dollars to a borrower who doesn’t need to prove their income and take very little effort to understand the value of the asset”….

    Banks do not LEND money. This nutty idea people have that a bank hands over hundreds of thousands of dollars of it’s own money is ridiculous if you stop and consider it…

    This is how it works in a nutshell…Before any approved borrower signs on the dotted line, the money they are “borrowing” didn’t exist. It is CREATED for you to use because of your good credit. They enter the digits into a newly created account and voila, you now have your hundreds of thousands of dollars to spend on a new house.

    The catch is, now YOU are liable for servicing the debt per your agreement with the lender. So, out of nothing money is created and then you the “borrower” pay back ALL this money plus interest. Pretty good deal for the bankers, eh?

    Don’t believe me, just do a little research and you’ll quickly discover that is exactly how “money” comes into existence in this country.

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