Tuesday, March 02, 2010

Mortgage Fraud - All The Way Up, And All The Way Down

Just a quick note on *short sales* which are picking up steam in the wake of this housing market implosion.

My real estate buddy in Naples informs me...

Here's what's going on. People who are underwater are getting contacted by *investors* who tell the homeowners that they can get a bid on their home for them within a month. What homeowner wouldn't be interested in that? A month later, they come up with a bid that's *significantly below market value*.

Then, they take that bid to the bank and the lender mysteriously approves the sale.

But there are a couple of issues/problems here:

1) The way some of these transactions are set up, the homeowners are not absolved of the mortgage debt. They are free of the house, but the lender is still owed money. Fine Print can be a bitch!

2) There's a serious conflict of interest inserting itself into these transactions. Supposedly, these *investors* have hired people directly from the loss mitigation units of the foreclosing banks. So these FNGs become liaisons between the investors and the lenders, though, mind you, employed by the *vulture* investors. What exactly does that mean?

Well, personal relationships between buyer and seller invite all sorts of payoffs and side deals. The example my buddy gave was a house being acquired by investors for 100k that had a clear market value today of 150k. Institutionalized bank stupidity is always a suspect, but I'd like to see the money/approval trail for that one.

As my buddy told me, it is near impossible for distressed homeborrowers to even get a phone call from the lender returned - never mind wresting a *loan mod* or executing a *short sale*. But these *insiders* - who are now ostensibly outsiders - already have all the connections and know-how to help make things happen.

Some people refer to this type of fraud/cronyism as the *revolving door between industry and government*.

The best example I have concerns lawyers and the SEC. All these young law school grads know the plan - work for the SEC for ten years at 80k....then after you've made all the important connections there, you're a shoe-in for a plush 400k job in the compliance department of some Wall Street concern.

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