Finally! Big Bank Admits Fraud against FHA/HUD

This Los Angeles Times article by By Nathaniel Popper and Scott Reckard (http://www.latimes.com/business/money/la-fi-mo-citi-settlement-20120215,0,1477531.story) brings into focus an idea that I have been sharing for some time. Even before I worked with the Wayne County Prosecutor's Office Deed Fraud and Mortgage Fraud Task Force, which was the first in the nation, I strongly suspected that many banks and their agents were responsible for much of the Mortgage Fraud. Greed is behind the numbers. Plain and Simple. The Big Banks were able to repackage and sell the notes and mortgages which they originated for a handsome profit, most of them much more risky than FHA and HUD guidelines allow and all guaranteed with U.S. Taxpayer money. This was a win-win situation for the Big Banks.

I have often argued against the idea that the recent and ongoing Real Estate Bubble is the fault of ignorant borrowers who did not know what they were getting into upon signing note and mortgage documents. I have also argued against those who say the majority of notes and mortgages were the result of borrowers flat out lying on applications to gain a home. With those arguments typically went a blame game of the Clinton or Obama Administration's coercion or demands that low and moderate income borrowers be given home loans even against the better judgment of the Big Banks. The arguments would typically include that Big Banks know what risks are acceptable, but "The Administration" is forcing them to make loans.

What I saw at the Deed Fraud and Mortgage Fraud unit was and is indicative of what happened across the nation. The people working for the Big Banks either directly or indirectly as mortgage brokers were responsible for most of the mortgage fraud. Without those key people fabricating documents and data and assuring potential borrowers that it was "ok", this debacle would not have happened. If Big Banks had not been so greedy and only looking to the profit margin, this debacle would not have happened to the scale in which it did.

We need look to the settlement numbers -$25 Billion- to see that this fraud debacle was truly astounding. Settlements are usually based on what it is worth for both parties to not move further with investigation or prosecution. It is also telling that this settlement includes an admission of guilt by Citibank. Most settlement agreements avoid admissions of guilt. While I am not happy with the settlement offer (I feel it does little to help homeowners and borrowers harmed by the Bubble), I look forward to this Real Estate Bubble coming to an end.

I invite your comments to this article.