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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.

LD

  • Ace

    How would you rank order the following professions in terms of integrity?

    -prostitution
    -lawyers
    -used car sales
    -mortgage brokers
    -politicians
    -Wall Street management

    There is no doubt who comes in first in terms of having the most integrity but after the ladies of the evening, who comes in second?

  • TML

    Interesting assortment of professions here. I guess all I can say is that you know with all these crowds you know somebody is getting screwed…. whether they like it or not is another thing.

  • Tom Landry

    Take a good look at the people involved up there. These were low income to middle income loans. Targeted at people that could not afford to buy in the first place. Thats putting it kindly. The truth is the red-lining and all the other borrower profiling they stopped looking for. NOT BECAUSE IT WAS UNFAIR. Because they wanted to bilk people with as many mortgage backed securities as they could sell. So they lent to anyone with two legs and could work a pencil.

    The real information here is this. These are the lenders that had exclusive rights. To sit in model homes where the new houses were being sold right along with the realtors. No one else could get in to sell a mortgage. They sold to anyone that could write with a pen. The way this works is: Sell as many mortgages as you can to anyone you can. They of course make fees. Then the mortgages were attached to mortgage backed securities and sold to other nations. See thats what this whole thing is about.

    The other real information is. The only reason these guys (mentioned lenders) went out of business. Is because they are wanted. Not by our country. But by the nations that bought these mortgage backed securties. Backed by the very bad mortgages these guys wrote. EVERYONE involved here knows the game. See people are in trouble here with other nations.

    So now with all of their stupidity. The countries that were scammed with the mortgage backed securitys that were backed by nothing. Said screw this we aren’t buying.

    Now all of our people are unemployed can’t pay taxes. So they have to raise the price of gas to bring in revenue.

    Which the stupid don’t understand they do of course. Digging another big fat hole for themselves. Its really hysterical to watch.

    The game is simple. They sold MBS’s that were not backed by the asset. Only representing the asset. They all went bad because the waterfall of lending went bad. They pumped out as many mortgages as they could to anyone they could. So they could write more mortgage backed securites. This this in now the worst experince of their lives for doing so.






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