Blame the borrower? Not according to the FBI

[Ken]

http://seattlepi.nwsource.com/national/397690_fbiweb28.html

The banks want their fraud ignored and feel their “Minor Violations” should not effect their ability to now foreclose on those properties.

We can safely abandon the doctrine of the eighties, namely that the rich were not working because they had too little money, the poor because they had too much.

— John Kenneth Galbraith

Share This

[HMC Rich]

Good article Ken. Thanks

If some of you have time, in a semi-related side note about the banking industry and government involvement, that flame throwing liberal hater Mark Levin has an audio clip that should be listened to. He does not mince his words and will offend many on the left side of the political spectrum.

This is from September 2008. (Bush was still in office). Here is the link. It is an mp3 and it takes about 30 minutes to listen to.

[audio src="http://citadelcc.vo.llnwd.net/o29/network/Levin/MP3/ShowAudio/LEVINSEPT2008A.mp3" /]

You may not agree with the assessment but together with Ken’s article, you can look into the issues further and make some of your own judgements.

Share This

[JanS]

from another thread…

“Thomas Jefferson said in 1802:

‘I believe that banking institutions are more dangerous to our liberties than

standing armies. If the American people ever allow private banks to control

the issue of their currency, first by inflation, then by deflation, the banks and

corporations that will grow up around the banks will deprive the people of all

property until their children wake-up homeless on the continent their fathers

conquered.’

thanks to bsmomma for that…

I find it difficult to read, listen to, stories about the banking industry…cynical me doesn’t believe a word that comes from them these days…I think I will wait to click on your link, Rich. Being pissed at the banking system, and then listening to someone who will offend me because I’m left of center isn’t much my idea of fun….

Share This

[JanS]

got this from a friend this evening :

The Credit Crisis Visualized….worth the 11 minutes…

http://vimeo.com/3261363

Share This

[dhg]

Mark Levin would have you believe that the banks and savings and loans were FORCED to hand out loans to people who should not be getting them. That the liberals in power were doing this as a gift to the poor. This whack idea does not really explain how, when Republicans controlled Congress and the Presidency, banks would continue to hold their noses and pass out billion in loans. The fact that anyone would reach back to Carter and Clinton to blame the current crisis and completely ignore Bush, Tom Delay and the Republican Revolution shows a bias that is breathtaking. Mark Levin has nothing of interest to add to this discussion.

Share This

[Ken]

Let’s try reading someone who has a bit of sense rather than Mark Levin who “some say” has his own fact cherry picker extruding from his colon.

As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an “epidemic” of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds. When the person that controls a seemingly legitimate business or government agency uses it as a “weapon” to defraud we categorize it as a “control fraud” (“The Organization as ‘Weapon’ in White Collar Crime.” Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds’ “weapon of choice” is accounting. Control frauds cause greater financial losses than all other forms of property crime — combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a “criminogenic environment” (Big Money Crime. Calavita, Pontell & Tillman 1997.)

—-

The rating agencies never reviewed samples of loan files before giving AAA ratings to nonprime mortgage financial derivatives. The “AAA” rating is supposed to indicate that there is virtually no credit risk — the risk is equivalent to U.S. government bonds, which finance refers to as “risk-free.” We know that the rating agencies attained their lucrative profits because they gave AAA ratings to nonprime financial derivatives exposed to staggering default risk. A graph of their profits in this era rises like a stairway to heaven. We also know that turning a blind eye to the mortgage fraud epidemic was the only way the rating agencies could hope to attain those profits. If they had reviewed even small samples of nonprime loans they would have had only two choices: (1) rating them as toxic waste, which would have made it impossible to sell the nonprime financial derivatives or (2) documenting that they were committing, and aiding and abetting, accounting control fraud.

— William K. Black

Assoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle

http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html

Share This

[dhg]

Exactly! The banks weren’t holding their noses and claiming this was against their will. They were PUSHING loans out the door as fast as they could, then reselling the paper for a profit. Without regulation, Savings and Loans were turning into investment conduits. Without controls, banks were making big bucks with no risk. There is enough blame to go around. Speculators are part of the problem, to be sure, but they are not entirely to blame. What we need to do is return to the old days where Savings and Loans kept the paper. They scrutinized the loan before committing because they were the ones who would get screwed if it went bad.

Share This

[Ken]

Quotes from the report Black is referring to in the article above. Link to fascinating article which covers a lot of territory…

http://www.fbi.gov/publications/financial/fcs_report2007/financial_crime_2007.htm

The quotes are taken from about half way down the page.

Mortgage Fraud

I. General Overview

The potential impact of mortgage fraud on financial institutions and the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. Investors may lose faith and require higher returns from mortgage backed securities. This may result in higher interest rates and fees paid by borrowers and limit the amount of investment funds available for mortgage loans.

The increased reliance by both financial institutions and non-financial institution lenders on third-party brokers has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved.

—

A significant portion of the mortgage industry is void of any mandatory fraud reporting. In addition, as initial mortgage products are repackaged and sold on secondary markets, the sale of the mortgages in many cases conceal or distort the fraud, causing it not to be reported. Therefore, the true level of mortgage fraud is largely unknown. However, based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing. For example, SARs [Suspicious Activity Reports] in Fiscal Year 2005 were over 35,000; Fiscal Year 2006 were over 46,000; and the 1st Quarter of Fiscal Year 2007 were 14,916, which extrapolates to 60,000 SARs.

The FBI investigates mortgage fraud in two distinct areas: fraud for profit and fraud for housing. Fraud for profit is sometimes referred to as “Industry Insider Fraud,” and the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties. Based on existing investigations and mortgage fraud reporting, 80 percent of all reported fraud losses involve collaboration or collusion by industry insiders. Fraud for housing represents illegal actions perpetrated solely by the borrower. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan.

The defrauding of mortgage lenders should not be compared to predatory lending practices that primarily affect borrowers. Predatory lending typically effects senior citizens, lower income, and challenged credit borrowers. Predatory lending forces borrowers to pay exorbitant loan origination/settlement fees, subprime or higher interest rates, and in some cases, unreasonable service fees. These practices often result in the borrower defaulting on his mortgage payment and undergoing foreclosure or forced refinancing.

Although there are many mortgage fraud schemes, the FBI is focusing its efforts on those perpetrated by industry insiders. The FBI is engaged with the mortgage industry primarily in identifying fraud trends and educating the public. Some of the current rising mortgage fraud trends include: equity skimming, property flipping, and mortgage related identity theft. Equity skimming is a tried and true method of committing mortgage fraud. Today’s common equity skimming schemes involve the use of corporate shell companies, corporate identity theft, and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors. Property flipping is nothing new; however, once again law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers, shell companies, along with industry insiders, to conceal their methods and override lender controls.

Quotes pulled by

http://www.dailykos.com/user/uid:44734

user “Into the Woods”

Share This

[HMC Rich]

JanS, the crisis of credit link was outstanding. Not listening to the Levin link was probably wise on your part.

DHG, not only did the Bush presidency (and Reagan and Bush Senior) not stop it, it was magnified under Clinton and the Republican Congress. Bush II did not have a super majority of the houses to override the upcoming problem in 2003. Our democratic and republican representatives never got it right. Now, if you are going to solely blame Republicans, then we do not need to speak any further. Also, some of those institutions were not FORCED to take those loans but I bet some were strongly encouraged.

And yes, the institutions involved in this certainly took advantage of the situation, and for awhile many of us and them benefitted in the short term. Until this happened I could not understand why my home values were skyrocketing. Now we have a better idea.

Ken, what type of ointment do you suggest for Levin Expulsion Colon Cancer? I approve of what the FBI is doing. Who wouldn’t. Thanks for the information. Those numbers are disturbing. I have said before and I will say it again. I like the free market but I do not trust corporate america to their own devices. I have always felt some regulation is needed to protect us. It must be the CORRECT type of regulation and maybe in one thousand years or so we can figure it out. Too bad so many are in dire straights.

Honestly many of us, but not all, saw so much good in 401k’s, our homes equity, and other investments. Too bad it turned out to be a straw man. I dropped the ball in a couple of areas. Not putting aside some extra dollars each month And relying on bankers to tell me that I could use even more in my home’s equity. I knew I should have saved more and diversified my “portfolio” with more than “stock and mutual funds”.

Maybe I should have invested in some more tangible investments. Wait, I tried that and lo and behold, the company I invested in is now being investigated by the DOJ/FBI and has a court date set. What I have found out from this is that the FBI representatives are very nice and helpful and never trust a University of Oregon grad. Just kidding about the U of O. Oh well hindsight is 20/20. I was lucky, I could have lost a ton more but it is making an impact. It could be worse, it could be raining. I never minded taking a risk but I do mind being cheated.

Share This

[c@lbob]

Rich,

The basis behind the claim that Mark Levin makes, that the Community Reinvestment Act caused the subprime crisis, is relatively simple: CRA requires banks to make loans in the low and moderate income areas that they serve; everyone knows that these ne’er–do-wells are going to be bad risks; which results in banks being forced to make subprime loans. Therefore, the CRA is the cause of the mortgage crisis.

The thing is, very little of this is true.

For decades prior to the passage of CRA, banks engaged in a process known as redlining, where they declined to write loans in certain geographic areas – typically low-income areas with large minority populations. They did not decline to write bad loans in these areas; they refused to write any loans at all. For example, in 1975 the largest bank in the Bronx wrote a grand total of 32 loans in the entire borough. No loans means no new businesses, no new housing, no opportunity.

The CRA simply requires that any federally insured bank that accepts deposits from people living in a certain area also write loans in that area. It does not require a fixed number or percentage of loans to be made, and it does not require that the banks relax their lending criteria in CRA areas. In fact, the law specifies that federal agencies evaluating the covered banks:

assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution…

The claim that the CRA forces banks to make subprime loans is nonsense. But what about the rest of the claim. Isn’t there some truth to the claim that anyone lending money in a poor area is going to have to be willing to lend to subprime borrowers?

Not according to the president of the SF Fed, who said over 80% of CRA loans made in 2006 by banks covered by the act are prime loans. That means that being poor does not mean that you are irresponsible, or that you have bad credit. It just means that you don’t have a high income or a lot of money. There was no shortage of responsible poor people out there, who had good enough credit and enough savings to qualify for a traditional, prime home loan.

It’s not the banks covered by CRA that are making most of the bad loans. They account for about a quarter of all subprime loans. Bank subsidiaries that are not necessarily subject to CRA account for about another quarter. The rest – representing slightly more than half of all subprime loans – were made by the mortgage companies.

So, the Community Reinvestment Act was signed more than 25 years before the current subprime crisis erupted. Banks, which are the only financial institutions covered by the CRA, have made a little less than a quarter of the riskier loans, and only 20% of those were CRA loans. The majority of the subprime loans were made by mortgage companies that do not have to comply with the CRA, and 40% of the mortgage loans initiated in the mortgage company sector in 2006 were subprime.

Most of the figures stated above come from a speech by Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco on March 31, 2008:

http://www.frbsf.org/news/speeches/2008/0331.html

The claim that CRA caused the subprime meltdown is not backed up by the facts.

Rich, if guys like Levin are just blurting out untruths, what is the point is heading them? There’s a big problem out there, but Levin is just whistling Dixie about the cause. He then lauches into a twenty minute screed about Congressional Democrats on this sand foundation.

What did the Democrats really do that was wrong?

Share This

[Ken]

In this area,

What did the Democrats really do that was wrong?

As near as I can tell, was not fight tooth and nail to keep Phil Gramm, the republican leadership and several wholly owned bluedog democrats affiliated with the DLC, from rolling back regulations that had kept banks and investment houses from poaching game in the same forest.

Glass -Steagall was killed by Gramm-Leach-Bliley Act in 1999 right in the teeth of the presidential cigar incident (pun intended)

Bill Clinton can never escape responsibility for it nor should he.

This is the true cost of bipartisanship as far as I can tell.

Obama might make mistakes but I would rather they be his own mistakes rather than any compromise that washes more foundation away from the New Deal that rescued our parents and grandparents from the last republican great depression.

“We learn from history that we do not learn from history.” –

— Georg Wilhelm Friedrich Hegel

Share This

[c@lbob]

“…compromise that washes more foundation away from the New Deal…”

I agree with your criticism of Democrats, Ken, and the clip I made of your comments are the heart of the matter for me.

Too many Democrats bought into the dimantlement of FDRs policies, to our peril.

It may be true that better regulatory policies are required for the 21st century, but using the tools that were in place before 1980 would have allowed us to avoid the current mess in the financial markets, IMO.

I hope we ignore the howls the captains of finance will make about the onerousness of reporting requirements regulations impose. Their activities must be reported because they are untrustworthy.

It’s time to get tough on crime.

Share This

[JoB]

HMCRich..

generally speaking.. our regulatory agencies alert congress to issues which need redefining by law…

those regulatory agencies were under the direct control of George W Bush for the last 8 years.

it was their job to alert the FBI to banking fraud

and then the FBIs responsibility to investigate..

and then the federal prosecutors job to prosecute.

ALL agencies under the direct control of the Bush White House.

They were alerted to the problem and chose not to investigate further or to prosecute.

What does this tell you?

This is not socialism.

When business and government conspire to illegally defraud for mutual benefit.. we generally label that as fascism.

Blaming this on the recent loss of republican power in congress while ignoring the stranglehold they exercised for decades is pure political mauevering..

Blaming this on programs designed to require banks to stop practicing discriminatory lending policies ignores the fact that fraud was never mandated as part of that legislation… CLA inspired loans could have as easily been prosecuted for fraud as others.

Blaming this on people who never should have taken loans they couldn’t afford ignores the predatory lending practices which placed people who could qualify for standard loans into subprime loans because they generated larger commissions for salespeople and could be turned into profitable commodities for banks who passed the risk on to other institutions..

like your retirement program.

When the foxes are in charge on the henhouse.. they have a really difficult time restraining themselves.

The republican’s greatest failure is they counted on that restraint.

To paraphrase Alan Greenspan.. who would have believed that they would loot their own institutions to the point of collapse?

At best.. those in charge were naive.

my guess is as this all unravels and files which have been kept secret for decades are released.. we will not find bystanders.. but participants.

and people will stop talking about dubya.. who i believe was little more than a public relations face on those who used the power of their offices to loot the nation.

and who would still do so if we let them.

Share This

[JanS]

welcome back, JoB :)

Share This

[JoB]

thanks JanS..

i am still wading through to see what i missed:)

Share This

[HMC Rich]

Fascists, now really. Greed yes. Fascism, Ciao Mussolini. Fact is your lovely congressional democrats did torpedo Il Bushee and the Republicanos in committee. Not once but twice. Sorry, but the truth hurts. Los Republicanos gave the Dem Plebes a say but Maestra Pelosi has now taken it away after 100 years. Transparency my bum.

OK Job, I agree with you on Greenspan. I disagree on with you that Republicans have been the majority for decades. Since the New Deal through the Carter regime and during Reagan and Bush 1 presidency, the dems were in power in the houses of congress much more than the Republicans. You would be more correct if you said from 1994 to 2006.

The 1990’s saw more millionaires than any other time before that. (on the heals of Reagan) The wealth gap expanded due to innovation leaps and inventions making people rich very quickly. Family debt levels soared. The ratio of debt to equity in family homes rose steadily. Funny how Greenspan had to keep raising the Prime Rate to keep thriving businesses in control. It became even more manic during W’s years too. The housing bubble still amazes me and unfortunately, it is going to get worse for a bit. It is all connected and as much as you want to just blame Bush, you can’t. He does deserve some blame but not all of it.

Ken, Hegel, really? You know how to bring out the dialectic in a guy. Just for fun, I am going to mimic Levin. Are we really in a struggle to subjugate each other? So which Marxist economy do you advocate? North Korea? China? Cuba? Ignoring history is the tool of the Marxist. Write your own for the good of the people when it suits you. Otherwise destroy history in search of Utopia. Thanks for the provocative quote. I Kant understand it. I don’t know what reality we are in anymore.

Catlbob. You know, you may have some points and I agree with you that it is time to get tough on crime. What I believe is this. Simplistic it may be but it is what I believe.

-Don’t give loans to people who can’t afford them. Contrary to certain schools of thought, being poor is not a crime and the less fortunate do need some help.

-Loose lending practices in the financial markets and derivatives helped to also create this problem but we need to understand the problems more to avoid future pitfalls and then try to fix it.

-Prosecute illegal practices. I too am miffed by some of the excuses I have heard recently. Corporate cheats and any dirty politicians should be found and prosecuted.

-Find the problems with the regulations (or lack thereof) and enforce them to keep the “greed” in line but not hamstring their market abilities too much. Businesses nor governments stay viable forever.

-Oversite may need to be centralized and not spread over so many different agencies or there needs to be better coordination between agencies. (Oh My God, I might be advocating a government agency!)

-Congress is part of the problem. Congress approved regulatory programs that didn’t work all the time. They have to take some of the blame. You can say de-regulation if you want but I say it is also government interference too.

-BHO needs to start saying some positive things and also needs to stop scaring the markets so much.

-Government cannot cure everything and sometimes should let businesses fail. It may hurt in the short term but in the long term it may be beneficial.

Which policies of FDR were stripped that could have helped this problem. I am probably going to disagree with some of it but then again, he was excellent in prosecuting the second world war.

Share This

[c@lbob]

The Glass Steagall Acts of 1932 and 1933 come to mind.

http://en.wikipedia.org/wiki/Glass_Steagall_Act

Share This

[JoB]

TheHouse..

i don’t just blame Bush. Clinton signed the legislation which wiped out the barrier between private and commercial assets which is the thorn in the midst our current festering financial situation. that legislation did come from a republican controlled congress though.. and they did have enough votes to override… and he was under a ton of pressure and mistakenly thought he could buy compromise by not making the gesture…

but.. to his eternal shame.. he did sign it. He may even have thought it was a good idea.

the original boom did spur our economy.. making all those millionaires… which by the way i don’t see as a sign of economic health for our nation since it was tied to all that personal debt… and outright fraud.

But Clinton didn’t gut the regulatory agencies that were the safeguard keeping rampant greed from undermining the financial structure of our economy… the Bush White House did that.

And the republicans were definately firmly in power during the greatest transference of wealth from the poorest to the richest… in our history…

Unprecedented, unrivaled greed.

not to mention the least investment in either public or private infrastructure in our history.

Which has brought us to a financial situation which is worse than that which triggered the great depression.

call this a recession if you want to.. but this isn’t just another bump on the financial road to riches.

Best possible projection is that those of us who leave our assets in our investments now may once again have what we have now in a decade or two…

and most of us have no choice since those assets are captive assets in our retirement programs which are difficult to release from the stock market without substantial penalties…

not to mention withdrawing them would only make our current financial situation worse… and ultimately devalue the assets we tried to save by turning them into cash.

this is one big rock and hard place.

You are in trouble if you bought the American dream and financed in with credit while you invested in your retirement savings program…

you are in trouble if you counted on the pension that doesn’t exist any longer.. that you negotiated as part of your compensation program…

you are in trouble if you saved your cash because it is as likely to lose lose value if the economy totally tanks as any other asset.

we can all play the blame game until the cows come home but in the meantime our economy is tanking and if we don’t do something about it both as individuals and as a nation we aren’t going to survive.. let alone thrive.

of course, this is happening to the entire world… so we will be better off than some…

if only we grew more of our own food…

but i heard a statistic lately that should cause us all to think twice about our current priorities.

There are more honor students in India today than there are students in the United States. If the ingenuity of our people is our greatest asset.. having overused our raw materials… we are in trouble here…

Something tells me we had best invest quickly in those budding minds that will ultimately pull our behinds out of the morass we have mired them in.

Or we could just blame someone else and go on with business as usual until there is no more business to do and no options for recovery.

It is way past time to stop vainly looking for our own personal economic angle in this ponzi scheme and take personal responsibility for building the kind of sustainable economy that will allow us to survive.. and eventually thrive.

I’m going to start by investing in the community gardens… eating is one of my priorities and i am pretty sure i can’t grow enough on my own.

then i am thinking of an old fashioned preserved food exchange so we can eat well this winter…

i am investing in our economy by continuing to spend wisely.

and it might be time to volunteer for a literacy program or two…

these may be small steps.. micro solutions… but they are a start.

Where will you start?

Share This

[Author]

Posts