FBI Will Not Go After Borrowers Who Lied on Mortgage Applications

[flashl]

Borrowers who defrauded lenders by lying on their mortgage application could be thrown in prison for up to 30 years and forced to pay a $1 million fine under the current federal law. But the FBI says there is no intention to pursue borrowers at this time.

In 2006, the FBI studied three million mortgage loans and found that 30 to 70 percent of early payment defaults can be linked to misrepresentations in mortgage loan applications.

The figures aren't really surprising when you consider the fact that most of the defaults occurring right now involve borrowers who have not yet seen a payment reset. It is blatantly obvious there were an overwhelming number of borrowers approved for mortgages they could not afford.

The only way for this to happen was for someone to lie on a mortgage application. Some media stories have implied that it was lenders who did the lying and that most borrowers are victims of predatory lending schemes.

The truth is that borrowers did their fair share of lying too. More than 40 percent of subprime borrowers received loans without having to document their ability to pay. The borrowers simply 'stated' their income on the mortgage applications.

Almost 60 percent of stated-loan applicants inflated their incomes by at least 50 percent, according to the Mortgage Asset Research Institute. The worst part is that everyone knew the income was being inflated. The industry even had a name for these kinds of loans--'liar's loans.'

FBI Barking Up the Wrong Tree

Although lying on a mortgage application is a federal crime, borrowers who committed mortgage fraud are low on the FBI's list of priorities. Joseph Schadler, an FBI spokesman, said investigators will be focusing on organized property flipping rings and bogus foreclosure rescue schemes instead of lying buyers.

'We're going to pick the ones that are the most egregious and have the greatest impact on the economy,' Schadler said. 'Fraud for property is less impactful on the economy than the speculative fraud where people are trying to flip homes for profit.'

Home Guide

This is going to be interesting to watch.

[bluestateguy]

1. Some borrowers are encouraged to lie by their realtors

THAT is who the FBI should be going after as a top priority.

[lligrd]

2. No Kidding. What Is The Penalty For Lenders Who Lie To

their clients?

[MindPilot]

3. And all this time I thought it was the lender's responsibility

to verify the information an applicant gave them.

In my forty some odd years of being able to apply for loans, no lender has EVER just taken my word for anything. They've always wanted not just verification, but verifications of the verifications. For one home loan in the late eighties, I recall having to get documents from the SSA to prove my SSN. A decade of tax forms, a pilot's license, a DD214 and previous home loans all with the same social security number that's on my passport and every other one of "my papers" was not enough.

For some real fun try buying a house when you're single and having to prove your non-married status.

These stories of loans of hundreds of thousands of dollars on a handshake just don't square with my experience.

[mac2]

4. It's called fraud when I was going to business school

[MindPilot]

7. Yeah but which is one committing the fraud?

The applicant who is desperately trying to buy a home? Or the broker who OKs a loan based on unverified--perhaps even known false--information?

[Warpy]

5. I know a week before I passed papers and fully three months

after I'd locked in a mortgage rate by supplying the mortgage company with all my information, some woman from the company called and said they needed my most recent pay stub, and by the way, I also needed to pay off my used truck loan (something I'd already done). They were checking everything, in other words.

The lenders are surely at fault here. At the end of the bubble market, they were making money every time paper changed hands: as closing costs, as commissions when they sold the paper to hedge funds for laundering. If some of those liar loans actually produced a few actual monthly payments, it was gravy.

I sincerely hope the ski junket for BofA officers didn't serve its intended purpose and that the bank's auditors start going over all their transactions with a microscope. Countrywide wasn't the only lender that did this stuff, but they were one of the biggest. Their management needs a reality check that only prison can provide.

[AngryAmish]

6. I know a guy who went to federal prison for a year for this

This was 10+ years ago. He never missed a payment but lied about income.

I always figured he pissed off someone with a lot of pull with the feds.