The Fraud
The recent reliance of all kinds of lenders on third-party mortgage brokers has contributed mightily to the sub-prime meltdown we've experienced lately. Independent mortgage brokers are largely honest, but there is an element of organized fraudsters invading this field. They have committed or colluded in a long list of fraud varieties such as:
- Broker-facilitated fraud
- Loan documentation fraud
- Short Sales
- Foreclosure rescue scams
- Appraisal fraud
. . . to name just a few
The Flaw
Lenders have not done due diligence. Unqualified applicants were automatically approved as the total of loans made was the goal, not the quality of the borrowers. Here's another case of a compensation system encouraging fraud.
The Fix
Vigorous due diligence to qualify applicants and adherence to the government's Suspicious Activity Reporting system methodology will no doubt be given close attention going forward.