Mortgage Crisis Redux?
| July 29, 2009 | Posted by Roshawn Watson under Uncategorized |
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Mortgage Fraud is Skyrocketing
Fraud has become so rampant lately. According to the FBI, mortgage fraud has doubled since 2007. Sadly, the culprits are not always crooks from afar but can range from friends lying on their mortgage application to criminals bamboozling millions from their companies and clients. Because of the increased scrutiny of loan applications by lenders, speculators are lying about their incomes and employment on mortgage applications to snap up distressed properties as investments. These buyers are banking on the value of the properties returning, so they can make a profit. As we know, this dangerous strategy can fail if you don’t know what you are doing and don’t have adequate resources to carry the property if recovery takes longer than you think. Additionally, home prices do not always go up, especially in the short term.
Opportunist with Legitimate Loans Can Still Be Scam Artists
Of course, not everyone cashing in on the mortgage crash is fraudulently qualifying for loans they cannot afford. This is a fabulous time to snap up some real estate deals. If you can ethically qualify for a conventional mortgage and are financially in the position to buy, then you can really save a ton on interest and on the purchase prices in many cases. We definitely need some home buyers and legitimate real estate investors. However, there are some who have adequate financial solvency who still bear blame. Consider a new firm called PennyMac headed by Stanford L. Kurland. Apparently, PennyMac is doing quite well by purchasing severely discounted, distressed properties for fractions of what they are worth and then unloading them for hefty profits. There’s nothing wrong with making money, but it is not a coincidence that Kurland is the former president of failed mortgage giant Countrywide Financial. Indeed, several employees of PennyMac are former executives from Countrywide Financial. Countrywide’s parent company recently paid upward of $8 billion in settlements for Countrywide’s pushing of home buyers into loans they could not afford. In other cases, some firms commit overt fraud by deceiving home owners into forking over hundreds to thousands of dollars to save their homes from foreclosure. Note, sometimes this means that the homeowners will turn over their equity. Nonetheless, often the homeowners still end up in foreclosure and more financially devastated than before the firm “helped” them.
Speculation can hurt recovery
Fortunately, recent data shows that the housing market is starting to recover. According to the National Association of Realtors, June marked the third consecutive month that sales of previously occupied home rose. It is also encouraging that the inventory of foreclosures is finally shrinking. However, one threat to this recovery is speculation. President Obama has pledged to put an end to an economy “built on reckless speculation [and] inflated home prices.” Speculation can be damaging in that it can diminish the legitimacy of the real estate prices (i.e. can create housing bubbles). This is important because at some palpable level, this economic downturn has ultimately resulted from a crisis of confidence anyway. When consumer confidence is down, we’re less likely to purchase because of concern that the prices are elevated artificially and that the economy is bad. Accordingly, speculation-driven price increases in real estate can convolute economic recovery.
As we turn this chapter in our economy, it is prudent to not repeat the same mistakes that contributed to or exacerbated this mess in the first place.
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