Friday, September 17, 2004

The Plague?

So, I stop by Drudge, earlier this afternoon, and read this for a headline, "FBI says nation nearing ‘epidemic’ of mortgage fraud." Because I have an interest in this industry, in more ways than one, I figured I better click the Drudge provided link, and check this out.

The headline the link leads to states this, “FBI: Mortgage Fraud Is Rampant in U.S."

Epidemic, rampant, mortgages, scary stuff, hey?  But, is there a rampant rising epidemic of mortgage fraud in the “nation” as the boys and girls at the FBI state?  Let’s consider, by looking at the numbers.  Here are the FBI’s numbers, and, let me tell you, they almost make your hair stand on end.  Well, not really, but here are the FBI provided numbers, as reported in the linked article.

"Through the first nine months of 2004, mortgage companies and banks have reported more than 12,100 instances of suspicious activity compared with only 4,220 in 2001. The FBI currently has 533 pending mortgage fraud investigations, compared with 102 in 2001."

Comparing 2001 to 2004, you will see that the numbers have increased three times, and five times, respectively.  Scary stuff.  But, the comparisons are simply numbers with no real meaning, unless the scary numbers are compared to the total number of mortgage transactions that actually take place in America each year.  So let’s look at those numbers a minute.  And I will be extrapolating here, based on my knowledge intermixed with reported data.

In the second quarter of 2004, twenty of the largest lenders in the nation reported mortgage sales of $537,600,000,000, as reported here. And a few of those twenty, hadn’t fully reported.  Anyway you consider that number, that is alot of mortgages.  But, we also must consider what the average mortgage balance is in the U.S., in order to consider the dangers the FBI is warning Americans about.  Remember the impending rampant epidemic?

I’m estimating, here, because I cannot find a link which reports the average home mortgage balance nationally, but, based on my experience, and knowledge of the industry overall, the average home mortgage balance in the U.S. is around $250,000.00, and possibly lower.  Now, if I utilize my estimate, and divide that number into the $537,600,000,000 mortgages originated, in just the second quarter of this year, that means 2,150,400 mortgages were originated in the second quarter.  Multiplying that number by four, comes to 8,601,600.  So approximately 8,601,600 individual mortgages may be made in U.S. in 2004.

Now, let’s take those FBI numbers, divide them into the numbers I have estimated, and see just how bad this supposed impending, rampant, epidemic is.

To do this, I will estimate, based on the data I supplied above, that 6,451,200 mortgages were made in the U.S., in the first nine months of 2004.  Now, lets divide the 12,100 instances of “suspicious activity,” as reported by the FBI in the first nine months of 2004, by the 6,451,200 mortgages made, in the first nine months of 2004, an estimate on my part, and see how “rampant” the “epidemic” really is.  According to my calculations, that means there is a .0018756 percent chance a mortgage that is made in the U.S. is “suspicious.” Not quite an epidemic, is it?

What is happening, here, in articles and suppositions bandied about by the FBI and other know nothings, is nothing more than the plague of central planning.  The plague, the epidemic, of the State, which is reaching out its grubby rat paws to an industry which supplies to the American people the ability to own a home.  Sure, there is some fraud in the mortgage industry.  Sure, there is fraud committed by borrowers.  But is there an “epidemic?” Is there an impending “epidemic?” Is mortgage fraud “rampant?” Hardly.

Update: I was just sitting on the front porch, it’s a beautiful fall evening, and it is still technically summer, and I thought, if the percentage of “suspicious activity” reported is a low as the FBI speculates, .0018756 percent of mortgage transactions, based on their data, this news should be something to crow about, rather than lament.

Posted by John Venlet on 09/17 at 02:46 PM
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A Little Advice to Phil Shapiro from Ludwig von Mises

Phil, your recent lament over the cost of a firewire cable, which I noted here, courtesy of Andy here, has awoken a concern for your reasoning in regards to achieving the ends you desire in matters of exchange.  I offer you the following guidance from Ludwig von Mises.

"The value of the price paid is called costs.  Costs are equal to the value attached to the satisfaction which one must forego in order to attain the end aimed at."

Ludwig von Mises, Human Action, A Treatise on Economics, Third Revised Edition 1963, IV A First Analysis of the Category of Action, 4.  Action as an Exchange, pg. 97

You can purchase the book here, for less the than the cost of the lamented firewall cable.

Posted by John Venlet on 09/17 at 03:27 AM
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