Are We Too Distracted to Send Crooks to Jail?

The Next Hit: Quick Defaults
More FHA-Backed Mortgages Go Bad Without a Single Payment

By Dina ElBoghdady and Dan Keating
Washington Post Staff Writers
Sunday, March 8, 2009; A01

The last time the housing market was this bad, Congress set up the Federal Housing Administration to insure Depression-era mortgages that lenders wouldn’t otherwise make.

. . . With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency’s overall growth in new loans, according to a Washington Post analysis of federal data.

Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.

If a loan “is going into default immediately, it clearly suggests impropriety and fraudulent activity,” said Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, which includes the FHA.

The spike in quick defaults follows the pattern that preceded the collapse of the subprime market as some of the same flawed lending practices that contributed to the mortgage crisis are now eroding one of the main federal agencies charged with addressing it. During the subprime lending boom, many mortgage brokers and small lenders milked the market for commissions and fees by making as many loans as possible with little regard for whether they could be repaid.

Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves. And those once-robust reserves are showing signs of stress, raising the possibility that taxpayers may have to pick up the tab for the first time since the agency was established in 1934.


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__________________________________________________Is our appetite for unpunished fraud just endless?

The Washington money-pump is shoveling money so quickly and with so little oversight, that as quickly as fraudsters can devise a scam, another billion or two accrues to taxpayer responsibility.

No indictments. No time. No oversight. This is the change we need?

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