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 on 09/17 at 02:46 PM

  1. I read that article, too, John, and I couldn’t figure out what were the actual crimes.

    >> One common mortgage fraud scheme is “property flipping,” in which property is purchased, appraised fraudulently at a much higher price and then quickly sold. The mortgage holder is then left with property actually worth much less than the loan it issued. <<

    In Arizona, the lender picks the appraiser. I can’t figure out how the appraiser is going to be fooled by this one house when it diverges from all the other comparable homes.

    Inlookers, this is important: The license to work in real estate is worth a hell of a lot more than any one fraudulent “score”. I can’t see why any appraiser wouod risk a steady six-figure income for a share in the few thousand dollars that would result from a scheme like this.

    >> Other schemes involve fake identities and credit histories, use of “straw buyers” to conceal the true buyer’s name and forged loan documents. <<

    This I can see happening, but only with the convivinace (or extreme incompetence) of the lender. A dodge for investors is to claim that a home they intend to rent out is going to be their primary residence, thus qualifying for better terms. A cursory glance at the credit report will betray this fraud, and, if the loan closes, it’s because the lender did it “eyes wide shut.”

    Bottom line: Statistically negligible bullshit.

    Posted by Greg Swann  on  09/18  at  05:36 AM

  2. Well, given the boom in refi of late, one wonders if the added crime rate is holding steady, on a crime per loan basis, rising, or dropping.

    Posted by Bithead  on  09/18  at  05:58 PM

  3. Bithead - The factors you mention, above, definitely come into consideration in regards to the FBI’s wolf cry.  I would posit that the “crime rate,” as you term it, is dropping overall. 

    The systems of checks and balances, developed by the mortgage industry to detect fraud, without the interference of the State, have, as Greg Swann states, made the FBI’s ballyhoo about an “epidemic,” nothing more than “statistically negligible bullshit.” With a distinct emphasis on bullshit.

    Posted by  on  09/19  at  08:42 AM

  4. At Ashcroft’s urging, Bush can be expected to announce the appointment of a Mortgage Czar as the opening volley of the new War on Real Estate.

    Posted by  on  09/20  at  10:27 AM

  5. Michelle Malkin, for whom I actually have a great deal of respect:

    >>>>
    The article fails to mention an obvious factor in the rise of mortgage fraud. Hint: Open borders. There are upwards of 13 million illegal aliens in this country, and they are not all crammed in apartment buildings and homeless shelters. As I reported last year, “The American dream of home ownership, complete with the white picket fence, is alive and well for those who break our laws and break down our fences to get in.” The Washington Post had trumpeted home loans for illegal aliens--just the tip of the housing fraud iceberg. More from my column:

    A 25-year veteran of the mortgage industry in California confided to me recently: “It boggles the mind to think how many illegal aliens are homeowners in this country thanks to these programs, all fully insured by our government. Because of fear of lawsuits for discrimination I can also tell you that a lender may have a borrower who speaks little or no English who claims to be either a citizen or resident alien and it will not be questioned nor any proof required. Since FHA does not require any such documentation, a lender cannot cite their regulations as a basis for the request as they can on conventional loans.”
    Another easy avenue to home ownership is through the use of bogus Social Security cards. Moneylenders have no access to a verification system to check Social Security numbers before approving loans. A Department of Homeland Security investigator informs me that an ongoing federal probe of FHA/HUD-backed loans found that “a staggering number were approved to persons with false Social Security numbers.” The Denver metro area alone accounted for 20,000 to 40,000 of the FHA-approved loans for suspected illegal aliens. “Even if a small percentage of the loans were foreclosed, HUD could be bankrupted,” the homeland security official said.

    A spokeswoman for the U.S. General Accounting Office told me this week that the agency’s office of special investigations plans to report on the results of the probe later this fall. But “considering the size of Los Angeles, New York, Chicago, Houston, and other large cities throughout the United States known to be inundated with illegal aliens,” says my source, “I don’t think the federal government is willing to expose this problem for financial reasons as well as for fear of political repercussions.”


    Nothing has changed.

    Posted by Bithead  on  09/20  at  03:44 PM

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