Dennis' Mortgage Blog

California Attorney General Kamala Harris has announced that she has formed a 25-person task force tasked to go after mortgage fraud. 

In announcing the task force Harris stated, "We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state." She further said, "There is a direct connection" between mortgage fraud "and the issue that we are challenged with in terms of our state budget crisis." 

Showing her definition of mortgage fraud to be very broad, Harris' task force will investigate corporate fraud as defined in part as corporations that bundled mortgages for sale as securities to the state or pension funds under "false pretenses."  False pretenses being a pretty broad range from stated income loans to perhaps grading the overall paper in the bundled mortgages as lower credit risk than they might have been.  Harris is taking a more aggressive stance in pursuing criminal charges against lenders than has been previously pursued, many lenders have paid settlements in civil claims to states but none have yet been prosecuted in criminal court.  One attorney indicating that proving criminal intent is a lot more difficult for the state than the burden of proof in a civil court where settlements are financial.

Homeowners who have been victims of scams designed around negotiating loan modifications, short-sales or to stall foreclosures are also targeted by the task force.  When the housing market first crashed and before the state could require licensing for those working as third parties to assist homeowners with loan modification negotiations many homeowners were paying upfront fees to companies to negotiate for them, only to find out later that there never were any negotiations.  Homeowners who were victims of this type of activity may find some restitution, or perhaps closure if the perpetrators are successfully pursued by the task force.

A third prong on the attack on mortgage fraud are those who engaged in, or are currently engaged in, deceptive marketing, failure to properly disclose loan terms and/or qualifying mortgage applicants for home loans they could not afford.  This prong is targeted mostly on mortgage originators.

While I applaud Harris for her task force, her belief that the "$640 billion" of lost wealth is the result purely of mortgage fraud is an oversimplification and allows homeowners and others easy scapegoats.  Not every loan made that went into foreclosure was fraudulent.  A significant number of foreclosures have been strategic by homeowners who can afford their mortgages but do not wish to pay for a loan that is greater than their home value.  And what of the thousands and thousands who acquired cash out refinances and home equity lines to buy boats, cars and other consumer items.

There are certainly many Californians who were victims of fraud, loans that were misrepresented or processed so they did not know what was happening.  There were also many Californians who were complicit with the loan application process who knowingly obtained mortgages to access equity or purchase homes they could not afford in hopes of cashing in on the housing boom. 

I am probably overly sensitive to the issue having been part of an industry that has been pilloried by the media, politicians and your average Joe on blogs, letters to the editor, etc.  as the reason for the housing market collapse.  For every loan originated there was an originator processing an application, a lender underwriting, approving and funding a mortgage and a borrower signing the loan application and loan docs who bought the home or got the equity pulled out of the property. 

We will see how Harris' task force proceeds, of particular interest will be what, if any, success is had in their investigation and stated intention of prosecuting corporations.  No other state, nor the federal government, has been successful beyond civil penalties in this endeavor.  Twenty five people is a pretty big task force, my hope is that they are able to find those who were significantly involved in deceptive lending or modification practices.  Unfortunately and fortunately many of those individuals and companies are no longer in the industry so they could be hard to find and investigate.

Meanwhile, as I have been stating for over a year, the current cycle of mortgages are the strongest I have seen in over twenty years due to the strict underwriting standards and the quality of applicant required to fund a mortgage.

Rates on a roller coaster today and close slightly better than yesterday after starting the day significantly lower.  Most lenders did not reprice for better rates after the open so tomorrow's opening will be interesting to see what direction rates may take.

Mortgage rates continue to remain low for the time being.  Call or email Dennis today to determine your purchasing power for a new home loan or monthly savings from a refinance.  Direct dial 562-472-1118