Painting the whole picture

Washington is abuzz with bail-out plans for the mortgage crisis. It is a great topic for the socialists. And when you are running for office it is even better.

But details of the mortgage crisis are beginning to emerge, some of which tend to let the air out of the “compassion” tires.

A recent FBI report tells quite a different story than the one politicians are wont to tell. The politicians paint a picture of a hard-working family taken in by a lender who didn’t explain the loan to them, followed by unexpected expenses and/or job loss. Can you all see the innocent victim emerge? Buddy, can you spare a few hundred K?

But an FBI report explains all sorts of things that strip away the label “innocent.” Here is a sampling:

Fake appraisals. The lender was led to believe properties were worth more than their actual value. They show a photo of a trashed condo supposedly worth $275K. Surely the homeowner involved knew the value was inflated. The trick is to pretend there is equity over and above the loan amount when in truth the loan is for 100% of the value.

Foolish extension of credit. Subprime borrowers accounted for only 5.3% of all loans in 2003. By 2007 that number grew to 14%. Qualifying borrowers is a core task for banks. And information about applicants is readily available and very detailed. A lender’s bad judgment is NOT the taxpayers’ problem.

Income or Buyer misrepresentation. Another bank blunder I’m not inclined to have sympathy for. They claim to be victims of a rush to complete the applications. A nice way to put it, but I call it a lack of due diligence. And if a buyer lies about how much money he makes, I say he is on his own.

Avoiding FHA. There was a deliberate attempt by bankers to compete with FHA. And they were very successful. Why? Because FHA loans are a pain in the neck! But the safeguards imposed by the FHA really do prevent problems down the road…problems like the subprime crisis.

Identity theft. The good credit score of one person is falsely used to secure a loan for someone else. Some of these schemes are very elaborate.

There are other examples not in the report which should have been red flags for any lender and/or buyer. For instance, if three families show up to sign for the closing on a single-family home, someone ought to be asking questions.

Also, politically correct or not, the borrower ought to have a valid Social Security number and he’d better be able to prove he is in the United States legally. As sensible as that may seem, it is not required and often disregarded.

The FBI report is at: http://www.fbi.gov/publications/fraud/mortgage_fraud07.htm

So, if you suddenly lose compassion for people who are losing their homes, it’s not you. The problem lies in the deals that were cut. I feel no sense of obligation to help those who have defrauded the system.