Hundreds of mortgage professionals have been arrested within the past week, with most arrests occurring Wednesday, June 18. According to the FBI, there may be as many as 1,400 additional investigations, which could lead to many more arrests for fraud.
What this means is that those who cheated the system will be held accountable for any illegal acts that may be largely to blame for the current mortgage crisis. While this currently includes the brokers and other loan officers that forged documents and committed other illegal acts, it also could eventually include homebuyers that overstated income or otherwise lied on their loan documents.
The most common violation committed by both mortgage professionals and homebuyers alike involves the overstatement of income or assets. In fact, some of these loans have been referred to as “NINJA” loans, which is short for “No Income, No Job or Assets.” In many cases, blatant misrepresentation of the buyer’s ability to afford the home has caused substantial damage to mortgage companies and those investers that bought the collateralized debt obligations (CDOs) that finance mortgage lending.
Those that cheated must pay the piper, and the government is likely to come down harshly for those that caused the most damage. Indeed, two former hedge fund managers at Bear Stearns also were arrested in “Operation Malicious Mortgage” for lying to investors about the impact of CDOs on fund performance.
Regardless, such government intervention is too little, too late. Had the FBI responded in kind 3 years earlier, the extent of the mortgage crisis and the subsequent recession would have likely been much milder.
Tags: mortgage fraud, operation malicious mortgage