No Predatory Lending In 2008?
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The FBI is out with its latest annual mortgage fraud tally and the news is fairly grim: Despite a reduction in loan originations, fraud filings from financial institutions increased 36 percent to 63,713 in fiscal 2008 compared to 46,717 filings a year earlier.
This is an unhappy statistic, but it does not tell the whole story. First, as the FBI explains, “the total dollar loss attributed to mortgage fraud is unknown.” This makes much sense given that fraud cannot be known until it’s uncovered — think of Bernie Madoff, Enron and Worldcom.
Second, there’s no central repository to collect mortgage fraud complaints thus the counting and definitions of one source may be different than another.
Third, and most importantly, the FBI report does not cite ONE instance of predatory lending.
Could it possibly be that in a one-year period there was not a single predatory loan issued anywhere in the US?
You’re kidding, right?
Predatory Lending Is Not A Federal Crime
The reason there are no predatory loan statistics in the FBI report is very simple: Although most mortgages originate from nationally-regulated lenders, predatory lending in not a federal crime so there are no statistics to report.
As Benny Kass explains, “there are no federal laws making predatory lending illegal.” Kass is a long-time real estate columnist with The Washington Post and a well-regarded real estate attorney.
In other words, if you make a material misstatement, misrepresentation, or omission on a loan application that can be regarded as mortgage fraud. However, if a lender sells a subprime loan to a family that qualifies for a prime mortgage and increases their housing costs by thousands of dollars per year, that’s just dandy — even if it drives them into foreclosure and bankruptcy. No crime there, no obligation to do what is best for the borrower.
Suspicious Activity Reports (SARs)
The FBI report reflects Suspicious Activity Reports (SARs) rather than actual fraud cases. Given that millions of loans are originated each year the number of fraud prosecutions is tiny. As the FBI reports, last year — in fiscal 2007 — there were 1,204 mortgage fraud cases. They produced 321 indictments and 260 mortgage fraud convictions.
The point, of course, is that the FBI cannot go after predatory lenders if predatory lending is not a crime. Can you guess which industry has worked zealously to assure that mortgage fraud is an issue — but predatory lending is not?
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