Fannie Mae and Freddie Mac are in an interesting predicament. After benefiting from one of the largest housing booms in history, making it their mission statement to making housing available to more Americans than ever before, they didn’t count on the widespread mortgage fraud that has permeated the industry [Houston Chronicle/AP]. (Of course, I am not considering their own internal irregularities.) They have their own team of investigators to flush out fraud.

Looser underwriting requirements, automated valuation, dependency on wholesale lending (mortgage brokers) and exotic mortgage products are all part of the problem. Usually a member of the real estate industry is involved such as an appraiser, real estate broker, mortgage broker or lawyer.

It would seem to me that this is only a punitive effort and not preventative. These government sponsor enterprises already have a competitive advantage over other secondary mortgage market players and should be using some of this muscle to reduce the risk of mortgage fraud.

The danger here is that investors, at some point, are going to actually see the need to measure the risk associated with mortgage fraud, which will be reflected on the portfolio values that are bought and sold.

Other articles of interest:
Fannie and Freddie Now Have To Tell [Soapbox]
FBI sees double the Suspicious Activity Reports [Soapbox]
White Lies: Study Shows Occupancy Fraud in 53% of Claim [Soapbox]
Predatory Lending Results From Overzealous Efforts To Increase Homeownership [Soapbox]

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