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[Gears in Motion] Standard Mortgage Practice Was Often Mortgage Fraud

Does this actually surprise anyone?

In Kenneth Harney’s article Half a Billion Dollars Says U.S. Is Getting Serious About Busting Fraud [1], he identifies mortgage fraud practice and what the US is doing to fight it.

The funny thing is, many recent practices were fraudulent and commonplace, yet ignored by lenders, mortgage brokers, borrowers, appraisers, and pretty much anyone semi-connected the the housing busines – all were more interested in the final goal of a successful mortgage closing so everyone got paid or got their house.

Here are some interesting facts:

As far as appraisal padding goes, that is a wildly low percentage IMHO. I’d say it was more like 80%.

Well, I’ve resided in 4 of these states…

According to the 2009 report from the mortgage researchers, the top 10 states where disproportionate numbers of frauds occur are not necessarily where you’d guess. For example, the No. 1 state for mortgage frauds last year was tiny Rhode Island. Next came Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.

Aside from the organized fraud rings, lenders essentially knew this was occurring, but were more interested in making loans. Regulators were asleep at the switch, afraid to upset the apple cart. Appraisers wanted more assignments. Borrowers knew they were lying on their applications and mortgage brokers showed them how to manipulate the process.

Now we all get to pay for the clean-up and act like everyone is innocent and it’s just one of those unfortunate things that happen.

This just in.

Mortgage fraud is still happening. I can speak for the appraisal portion of this process. Aside from dealing with fewer mortgage brokers due to the Home Valuation Code of Conduct [2] or (HVCC [3]), NOTHING HAS CHANGED.

There is pressure – the lenders are dealing with appraisers who play ball and appraisal management companies [4] are eliminating competency in valuation of collateral for mortgage lending.

The gears are still in motion.