Fraud and the Subprime Mortgage Crisis

Fraud and the Subprime Mortgage Crisis

Fraud and the Subprime Mortgage Crisis

Fraud and the Subprime Mortgage Crisis

Synopsis

Nguyen examines mortgage fraud as an inherent part of the subprime mortgage crisis. He traces the exponential growth of mortgage fraud to the loose underwriting standards, alternative loan products, and inadequate regulation and regulatory oversight of the subprime mortgage industry. He describes the various financial crimes constituting mortgage origination fraud, a form of fraud involving fraud for profit, fraud for property, and predatory lending. The accounts of mortgage frauds by industry insiders presented in this book provide a chilling view of the criminal implications of an unregulated financial industry. Nguyen proposes several broad recommendations highlighting the need to recognize the potential for insider fraud, enhance government regulation and oversight, tighten loan qualification requirements, and increase standards of underwriting.

Excerpt

On March 16, 2008, the Associated Press reported that Bear Stearns, one of the world’s largest investment banks, was the latest victim of the subprime mortgage crisis (Bruno, & Read, 2008). Three months later, federal authorities announced the criminal indictments of Ralph Cioffi and Matthew Tannin, two former Bear Stearns executives (Hamilton, 2008). In early 2008, former Federal Reserve Board Chairman Greenspan (2008) wrote that “the current financial crisis in the U.S. is likely to be judged in retrospect as the most wrenching since the end of the Second World War” (p. n.p.). By the end of the year, the financial losses from the global economic meltdown had outgrown that of the savings and loans bailout in the 1980s and 1990s. According to “some estimates, it has made that costly debacle look like chump change” (Schmitt, 2008). In a report by compiled for the 2007 U.S. Conference of Mayors and the Council for the New American City, it was stated that “the wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods—and it’s not over yet” (Global Insight, 2007: 6).

In September 2007, subprime adjustable-rate mortgages (ARMs) accounted for “6.8 percent of the loans outstanding in the U.S., yet they represent 43 percent of the foreclosures” (Mortgage Bankers Association, 2007). RealtyTrac (2008) reported the number of foreclosure filings increased by as much . . .

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