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12th Street Capital Prescient re: Mortgage Fraud

Posted by Larry Doyle on January 12, 2010 3:33 PM |

Last August, our friends at 12th Street Capital highlighted the strong likelihood of increased mortgage fraud by brokers originating loans with FHA insurance. In my piece “Fair and Fraudulent Mortgage Lending,” I referenced the stellar work and perspectives provided by KD and his 12th Street team. I wrote:

Where can one go to receive a fair deal in the process of getting mortgage financing? What parts of the mortgage market may represent the next wave of fraud? Which firms may currently be involved in these frauds?

Major “high five” to KD and our friends at 12th Street Capital for providing tremendous perspectives on these topics this morning. KD writes:

From the Fair Mortgage Collaborative website . . .

The Fair Mortgage Collaborative is a nonprofit membership organization whose members are individually and collectively committed to providing low and moderate income and minority homeowners and homebuyers access to mortgages with the consumers’ best interests at its core, at a fair rate of compensation. Our approaches and standards work for all homeowners and homebuyers.

KD’s comment: “While I certainly applaud their effort, I would make the friendly suggestion they should be looking at FHA lenders and Reverse Mortgage lenders in particular . . . for those are the bastions of future (and current) abuses.”

What do we learn today, five months later? The Wall Street Journal reports on a number of mortgage firms being subpoenaed for the very activities highlighted by 12th Street last August.

The WSJ reports, U.S. Subpoenas 15 Mortgage Firms:

The U.S. Housing and Urban Development announced Tuesday that its inspector general has issued subpoenas to 15 mortgage companies seeking information about failed home loans that resulted in claims against the federal mortgage insurance program.

HUD Inspector General Kenneth Donohue and Federal Housing Commissioner David Stevens announced the crackdown at a news conference and vowed scrutiny of why the companies have high default rates on home mortgage loans.

The companies that were issued subpoenas are:

First Tennessee Bank N.A., of Memphis, Tenn.; Alethese LLC, of Lakeway, Texas; Security Atlantic Mortgage Co., of Edison, N.J.; Pine State Mortgage Corp., of Atlanta; Birmingham Bancorp Mortgage Corp., of West Bloomfield, Mich.; Alacrity Financial Services LLC, of Southlake, Texas; Assurity Financial Services LLC, of Englewood, Colo.; D and R Mortgage Corp., of Farmington, Mich.; Webster Bank, of Cheshire, Conn.; Mac-Clair Mortgage Corp., of Flint, Mich.; American Investment Group Inc., of Arlington, Texas; 1st Advantage Mortgage, of Lombard, Ill.; American Sterling Bank, of Independence, Mo.; Sterling National Mortgage Co., of Great Neck, N.Y.; and Dell Franklin Financial LLC, of Columbia, Md.

The goal is to determine why these lenders have such high rates of default and whether there is any wrongdoing involved, HUD’s inspector general said. But U.S. housing officials said they will respond aggressively if the probe uncovers evidence of wrongdoing.

One might think the Feds should be talking to the crowd at 12th Street or at the bare minimum reading Sense on Cents.

This story does highlight the fact that 12th street Capital was inadvertently left out of the recent Sense on Cents Hall of Fame and Hall of Shame induction ceremony.

With great pleasure and no further adieu, by the powers vested in me I honorably induct 12th Street Capital into the Sense on Cents Hall of Fame.

Don’t let it go to your head.


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