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September 24th, 2008

Officials Seek To Cleanse Mortgage Market Fraud



On both the consumer and corporate sides of the coin, fraud has truly begun to stain the mortgage market. However, federal investigations and new regulations, measures are underway to bolster a bedrock of our economy to return it to the productive and structured state in which it once operated.

The Federal Bureau of Investigation announced yesterday they have begun investigating four past giants of the mortgage market for their possible role in the collapse of the industry. Fannie Mae, Freddie Mac, AIG, and Lehman Brothers have been added to the list of 26 corporate lenders currently under federal investigation. The FBI’s investigation comes on the heels of the government’s proposed $700 billion bailout. According to federal officials, the investigation will focus on “financial institutions and the individuals that ran them.”

Separately, the Federal Housing Administration has begun warning their lenders not to participate in a lending practice Fannie Mae did away with back in August — a dishonest practice know as “buy-and-bail” committed by the borrower, not the lender.

“Buy-and-bail” is a deceitful borrowing practice committed by homeowners who can afford their monthly payments that convinces a lender to write them a loan for a second home, because their first property has lost significant value in today’s marketplace. The borrower explains that the loan for their second home will be repaid by supposedly collecting rent on their first home. When the loan for the second residence goes through, homeowners explain how their “renters” withdrew on the property, and the homeowners simply stop making payments on the first house. Simply, it’s a voluntary foreclosure.

Investigations and new regulations like these should hopefully add balance back to the mortgage lending industry.

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2 Responses to “Officials Seek To Cleanse Mortgage Market Fraud”

  1. carl Says: September 30th, 2008 at 12:16 pm

    We all want affordable housing. There are numerous government programs designed to provide low-cost rental and ownership properties to people in all walks of life. Lenders, builders, realtors and buyers all benefit from affordable housing because affordability means an increase in transaction volumes and more money into the pockets of those dependant on the real estate market.


  2. Tim Manni Says: October 2nd, 2008 at 10:27 am

    Carl — Thanks for your comments. Of course, affordable housing is paramount to US citizens, it’s part of what makes this country great.

    The government has done a lot of good things to promote affordable housing. Yet, in recent years the government has over promoted home ownership to certain degrees, and people who shouldn’t have gotten home loans got them and subsequently defaulted on them.

    You are defiantly correct in saying many people benefit from getting citizens from all walks of life into homes. There was a lot of money made issuing subprime loans, now we’re all paying for it. But I do agree with you, everyone should get the opportunity to own a home, but who’s going to pay for it?

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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