If you’ve spoken with anyone who’s gotten a mortgage recently you’ve probably heard the same complaint: the loan application process has become excruciatingly complex. Even Federal Reserve Chairman Ben Bernanke has said that qualified borrowers with 20 percent down cannot get a mortgage.
Today’s picky and perfectionist loan application process is allegedly justified by mortgage fraud worries but grilling loan applicants does little, if anything, to prevent the widespread occurrence of mortgage fraud. Why? Because mortgage fraud is incredibly rare.
Mortgage Fraud Convictions
In FY 2011, says the FBI, it produced “1,223 informations and indictments and 1,082 convictions of mortgage fraud criminals. The following notable statistical accomplishments are reflective in FY 2011 for mortgage fraud: $1.38 billion in restitutions; $116.3 million in fines; seizures valued at $15.7 million; and $7.33 million in forfeitures.”
So there you have it! More than 1,000 convictions and damages well in excess of $1 billion.
This might be the end of the story except that it’s also helpful to have some context and the context is this: The New York Federal Reserve Bank says that in 2011 total mortgage originations amounted to $1.55 trillion.
Seen another way, there were 6.9 million individual mortgage originations in 2011.
Lastly, if mortgage fraud was really widespread would there not be more risk in the marketplace? Would we not see higher interest rates?
In other words, to resolve a problem of mythical proportion and gravity we’re turning down enormous numbers of qualified borrowers who want to buy or refinance. These are the very people with the capacity to revive the housing sector, the people who could be flooding the market with purchase orders for short sales, foreclosures and REOs — properties now available at discounts of 20 percent or better in many local markets according to RealtyTrac.
What’s equally strange is that the emphasis on application perfection is also hurting lenders. Lenders say they’re being forced to buy back loans because of minor or clerical issues which in practice have nothing to do with the repayment of the mortgage or the security of the loan.
No one is in favor of mortgage fraud, suggests that it doesn’t happen or that it’s a good thing. Instead, we worry that mortgage fraud is entirely common and as a result have toughened the loan application process for small borrowers to the point of absurdity while no one goes to jail for originating toxic loans, robo-signing or rigging interest rates.