Financial Times:The Federal Bureau of Investigation is preparing a nationwide crackdown on mortgage fraud, the latest in a series of efforts to curb lending practices that contributed to the housing meltdown, according to people familiar with the matter.
4 comments:
No, I know nothing in particular in case you are wondering. I just like that picture because I don't understand why someone would pay $8.00 to drink the sap of something that cats nibble on when they need to hork up a hairball.
$8.00 ...?
With overdraft, it was almost $40.
:-)
It's not so much fraud as a change in the basic business model being used by the banks.
Banking use to be boring: Lend money to credit-worthy people at a small increment over prime rate, use that margin to pay the bills and the rest was profit. Make enough loans, and even a tiny percentage nets a lot of money. But over the past couple of decades, banks decided that this wasn't good enough.
The decision to become more investment bank-oriented has been well documented, and I won't belabor it. But a change that hasn't received enough attention is how loan decisions are now made.
The new model is to loan money to people with marginal credit-worthiness. Give them a low interest rate to make it too good to pass up. The idea is that these people will, on average, be more likely to miss payments, be late, or otherwise violate the basic payback criteria. Then you hit them with fees & penalties. The fees and penalties are much more lucrative than the interest ever was. Of course, foreclosure is a possible end game, and you soak the borrower for more fees and penalties during that process too. This boosts profits as long as defaults are kept reasonably well. Oops.
Over the past year, I have taken out three loans, two auto and one home equity line of credit. My credit score is over 800. Equity in the house is more than triple the line of credit. My income is in the top 5%, and I've been employed at the same company for 18+ years. Should be easy to get a loan, right? Nope.
While applying for the auto loans, I was told by several banks that I was just too low of a risk to be of interest to them. Actual quotes:
"The amount we would make on this loan is not worth our time"
"We're looking for people who need the loan."
"The outstanding balance of your loans is too low." (In total, I owe more than $100k over the next five years)
Ultimately, I got financing, but was denied the lowest available interest rate because "your credit score is outside the acceptable range".
Foreclosures used to be something to be feared, now, taking a page from commercial borrowers, residential borrowers simply don't care.
In states where judicial foreclosure is required increasing numbers are simply not paying their mortgage and then filing "I demand you produce the note" papers to stretch out the time they can live in the home for free.
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