A Window into How the Market Went Crazy

[MindPilot]

Source: Voice of San Diego

In February, a homebuyer paid $591,000 for No. 602, a bank-owned unit in the Parkloft development near Petco Park.

Two years ago, the buyer of the same unit paid $1.1 million.

But the 46 percent price plunge in two years represents more than the effect of a despondent housing market, prosecutors say.

The unit was never worth $1.1 million and buyer Gloria Agundez never earned the $301,000 salary to make the mortgage payments on that sum, officials said. And the employer listed on Agundez's application for a mortgage, U.S. Mergers, never existed, officials said.

Read more: http://www.voiceofsandiego.org/articles/2008/06/20/news/03creative062008.txt

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I'm going to guess that this barely scratches the surface...

[slackmaster]

1. Hey MindPilot, I read this in the Fishwrap this morning and was thinking about posting it too

Highly recommended. A good read. This is a clear case of fraudulent activity, and the subject line is highly appropriate.

:hi:

[MindPilot]

2. The article kind of paints the mortgage lenders as the victims

but I think they are at least complicit and probably in some cases active co-conspirators.

[slackmaster]

3. The lenders did not exercise due diligence, and are complicit or victims of their own negligence

Their underwriting processes failed. I hope investigators are taking a long, hard look at who benefited from these deals and where controls broke down.

These situations involved jumbo loans which are generally not securitized or sold on the secondary market, so the institutions that actually funded the loans will end up taking it in the shorts. (For loans that are traded, it's the investors who buy the securities who get screwed.)

The Creative Financial Solutions people were a little too "creative".

Side note: the Betechs (the ones who aren't now fugitives) own several pricey condos in San Diego.

[Hugin]

5. Very interesting...

"are generally not securitized or sold on the secondary market"

It's not the Sub-prime 'deadbeats' at all, is it?

[slackmaster]

7. The borrowers aren't totally blameless, they probably should have known better

What's special about this case is that it clearly involves fraudulent appraisals, credit reports, etc. that the borrowers possibly did not know anything about.

The breadcrumb trail is there for all to see.

[Hugin]

8. Oh, I agree...

Many of them should have known better... (for some of that I blame the dumbing down in our Educational
System.)

But, the problems and negligence run all throughout the system.

[slackmaster]

9. This one goes way beyond anything that can be written off as simple negligence

There was criminal fraud.

[Hugin]

11. Wow...

That wasn't clear to me in snips from the OP! (I opened the article and read it a few paragraphs down.)

Yeah, this was totally criminal.

[1Hippiechick]

18. Absolutely! And I hope they are prosecuted to the fullest extent possible! My husband is a

life-long mortgage lender--now a broker--and he shops from the East Coast to the West Coast for the best rates for his clients. The requirements of the lending institutions are SO stringent that I don't understand how this deal was pulled off!?!?!

[gasperc]

10. the borrowers? it was identity theft in this case

there is a toxic mix of blame. Yes, some borrowers manipulated the system or were stupid. But, again as the appraiser and others insist. So many banks and lender's had made thier lending practices so lax that they were lending money to pieces of paper, literally.

[Blue_Tires]

4. crazy

a lot of criminals used imaginary wealth on paper to make real cash during the dot-com heyday...I guess i'm not surprised to see it going on wherever there is a hot market with rampant speculation and no oversight

[lligrd]

6. Ugh, Imagine Finding That Purchase On Your Credit Report nt

[Gormy Cuss]

12. I'm so glad that thumb prints in the deed recording book prevents this type of fraud in California.

:eyes:

When I bought a house I was surprised by the printing requirement and was told it was state law to reduce flipping fraud (n.b. by "flipping" here I mean criminal flipping using repeated paper sales in a short period to boost the value artificially.)

The named owner said that her identity was stolen. I wonder whose print appears in the record?


When fingers are pointed in the housing market meltdown, it's institutions and brokers who belong at the end of those fingers most of the time. The individual buyer fudging assets or income on a primary mortgage is a minor player in the fraudulent activity.

[robcon]

14. I think the lenders intentionally blinded themselves to the fraud.

As long as there was a secondary market for the lenders, to whom they could sell these substandard mortgages, they turned their eyes away from the frauds and lies that borrowers were almost "encouraged" to make.

When there's a sucker who want to find a way to lend you lots of money (since the lenders passed on the risks to the loan syndicators), there will always be enough crooks, liars and schemers who will find a way to get their hands on that money.

[Gormy Cuss]

16. I'd bet good money that they turned away intentionally.

If portfolio lending were still the norm much of the "growth" in housing values wouldn't have happened in places like Stockton, San Diego, and other areas.

There's always a good supply of crooks and liars who figure out how to circumvent simplistic so-called security schemes. The thumb print requirement struck me as one of those feel-good moves that gave some legislator a "tough law" to crow about and it also allows lenders to claim they were diligent even while they were writing loans without checking income or assets.

[alcibiades_mystery]

13. The housing market was a classic bubble, not just fraud

This whole FBI sting is pure government propaganda, designed to create the illusion of bad apples that "really" plunged the market. It's bullshit. The cause is deregulation, pure and simple, the GOP policies of the last 20 years or more.

[robcon]

15. What de-regulation are you talking about?

Commercial banks have syndicated their mortgages for decades, as the market was divided among loan originators, syndicated loan portfolio holders, and some financial institutions (mostly savings banks/savings & loan associations) who held onto the majority of the loans they originated.

Nothing will stop a fool from being a fool... if a foolish loan originator can find a bigger fool (those to whom he could sell his a no-income-verification loans, for example) the idiots will pay in the end. Regulation or de-regulation of these transactions has nothing to do with the problem: the lack of credit-worthiness of the borrowers (who, in saner times, would not be able to obtain mortgages) is the problem.

[Fovea]

22. Would the ultimate idiots be

the honest folks who pay taxes to bail out the new owners of Bears Stearns?

[riverdeep]

17. So, what do we do now?

If we bail out homeowners (and Bear Stearns), does that really fix the underlying problems? If we don't bail them out, will our consumer-driven economy circle the drain? Ole Georgie certainly left a mess, didn't he?

America has turned into one giant gambling mentality, something for nothing. And we just crapped out.

[slackmaster]

19. Hang the guilty, put more safeguards in the system, and let the market correct itself

It's really the only way that is fair and rational.

[riverdeep]

20. So, no help for homeowners?

I'm not against that myself, necessarily. The quickest way for the market to correct itself is if we stay out of all bailouts. The quickest, but not the most painless. Can we get back the money from Bear Stearns, at least?

[slackmaster]

21. I don't see a clean way of "helping" them that would be fair to everyone else

At least the people who bought homes on terms they couldn't afford in the long run, got to enjoy a taste of home ownership before going back to reality. If not for the fraudulently-originated loans, the people who are now being foreclosed on would have continued with whatever living arrangement they had before they got into their present mess.

Their evictions and the subsequent drop in prices are a necessary part of the housing market correction.