Mortgage Fraud Raised to an Art

Here is a great story I came across this morning. Since i am busy with this week's refi boom, I've just reprinted it here:

Orson Benn, once a vice president at the nation’s largest subprime lender, spent three years during the height of the housing boom tutoring Florida mortgage brokers in the art of fraud.

From his office in New York, he taught them how to doctor credit reports, coached them to inflate income on loan applications, and helped them invent phantom jobs for borrowers.

While prosecutors looked at roughly $100 million in loans written by Benn and a cadre of co-workers, that represents just a portion of the loans they approved during his aggressive expansion into Florida.

The Miami Herald found that Benn’s network approved more than $550 million in home loans from Tampa to West Palm Beach to Miami, according to an analysis of court records. In Miami-Dade County alone, Benn’s office approved more than $349 million in loans on 1,913 homes — more than one in three have since fallen into foreclosure, the analysis shows.

Valdes brokered at least 100 of those loans worth $22 million — nearly all based on false and misleading financial information, the newspaper found

How did they doctor loan apps? Simple mortgage broker fraud: “non-existent employers, grossly inflated salaries and sudden, drastic increases in the borrower’s net worth.”

There apparently was an art to falsifying the documentation, and Benn taught his brokers precisely how, falsifying income and employment data:

He taught one of those brokers, Scott Almeida, a convicted cocaine trafficker, to prepare phony income statements and doctor credit reports. A few months later, Almeida introduced Benn to Tampa brokers David Tuggle and Eric Steinhauser. After Benn taught them to prepare phony documents, they began to write millions of dollars in loans.

Real Estate Trends

What a great week for the mortgage business. For those of us who have survived the carnage so far, a mini refi boom is just the medicine to get us through the end of the year. It's a good thing it is Tuesday, because it is time for my weekly industry post.

Click here to read the Real Estate Report - December 2, 2008.

Is The Fed a "Blushing Virgin?"

I love watching CNBC in the morning. Not just because I am a nerdy finance guy, but because I love the way the morning hosts can spin puns and make any story sound sexual (the term "market bottom" has been overused here).

This morning's discussion was about the Fed and their latest moves in the whack-a-mole game which is the government response to the current crisis. Specifically, the guest host suggested that the Fed is playing the role of the blushing virgin - not putting enough out there for the ravenous marketplace.

This after the Fed has already more than doubled its balance sheet to over $2 Trillion through various liquidity programs. Seeing the success of the latest move - the $500 Billion injection directly into mortgage markets (a success, see last week's post), some want the Fed to triple down on this play - to "lay down and give it up" to follow the virgin analogy.

I say cool it guys. Let's take a break from this drunken-sailor spending and let the markets digest the current offerings. Rates have moved down to five-year lows, Holiday spending appears to be healthy, and the new year will bring a new stimulus package from the new administration. I say, Fed: keep your legs crossed for a few more weeks and let the market be just a little bit giddy.