Sunday, October 28, 2007

This is an interesting take on the sub-prime mortgage debacle

Slow housing market speeds up scam Predatory buyers are borrowing more than what a house is worth,pocketing the difference, then foreclosing. Interesting scam. You have to wonder how the banks could be so negligent in their loan process to let this happen.
[The villain of the story] landed a loan for $340,000, paid the seller $245,000 and pocketed the $95,000 difference, state investigators say. Profits secured, [he] let the home go into foreclosure.
He was arrested for fraud, but he wasn't alone in fleecing the banks.
Florida has moved to the top of its list of fraud-riddled states, based on lenders' complaints. Losses from mortgage fraud hit a record $1 billion last year nationwide, according to the FBI, which lists Florida among the hot spots.
And of course there are other avenues to the money in these deals.
If a borrower with stellar credit uses a mortgage broker to take out a conventional loan, the lender pays the mortgage broker about 1 percent of the amount of the loan as an origination fee.

But if a borrower with poor credit uses a mortgage broker to arrange a subprime loan, the lender pays the mortgage broker much more: 5 percent, 8 percent, sometimes more. So a $600,000 loan could generate $30,000 or more in origination fees.
When all people look at is the monthly payment, they don't realize they just paid a whole lot more for that house. But that is another post.

Exactly how many of the home loans now in foreclosure are the result of fraud, how many the result of people not understanding the contracts they signed, or other issues, I'm not sure we know.

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