The unfortunate reality of mortgage fraud is that there has become levels of acceptability within the industry that frankly never should have been allowed. For instance, if the borrower misrepresents his income or his occupancy, as long as the loan does not go into default, the lender did not worry about the misrepresentation, even though the borrower may have lied with the intent of obtaining a loan. The problem is of course that the rules and regulations that were put into place were intended to safeguard the process to preëmpt certain individuals from being able to obtain a loan (if the income was not high enough to support the loan) or to signal the lender that the loan was for a non-owner occupant loan which has a higher risk and thus should have been priced differently. The “lender”, however, is a nebulous term because as Kevin S. Gouveia, CPC, states the Holder in Due Course changes as the paper (Discussions (1) see LinkedIn.com discussion Prevent Mortgage Fraud) is flipped, escalating the eventual investor risk as the paper is loaded down with additional fees and the risk is not properly rated. Therefore the party that is damaged by the process of fraud is the eventual investor who purchased the paper on the capital market.
How do we prevent this? Well this is the trillion-dollar (and growing) question. The original intent of the laws that governed this process was sufficient; however, the lack of due diligence in training and impressing upon each person that was involved in the lending process led to this melt down. For instance, some real estate appraisers were professional, reliable and providing adequate service to the lending community, but as the demand for jobs increased beyond the point of reasonableness, the knee-jerk reaction for many shops was to grow. The growth of these shops was to obtain appraisal trainees who may or may not have had proper supervision thus putting the original appraiser in a position of providing appraisal reports that became less professional and much less reliable. The same is true in each part of the lending process: processing, underwriting, and sales. The loan mechanism broke down from overuse. What needed to happen was that growth needed to be limited for each part of the lending process to have time to respond to the demand and each component to take on the proper responsibility for the corresponding product or service that was provided.
What has happened is that the majority of poorly trained individuals have already left the scene and the rest of us are looking around to “mop up”, as it were. Mop up from the tidal wave of greed that has drowned so many in the aftermath of this “comedy of errors.”