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Fraud

This week I thought I would share a little insider’s information with you that I found interesting regarding fraud that is rife in my industry.

Every Friday, I get an email from Miss Busta, the Chief Advisor of Things Both Relevant and Interesting in the Non-Conforming Loan Market for one of our wholesale lenders.

Her weekly column is done in a question/answer format and I chose to share with you her light-hearted, yet very true, comments about the past subprime market because I think you will like to see her take on it.

 


 

Dear Miss Busta,


Sure, you might talk a good talk, but I know for a fact that subprime loans are fraudulent. Nice try.

 

— Shining My Halo in Omaha

 

Hello Halo,

 

As with most things in life, you are right and you are wrong. You are left and you are right. You are bitter and you are sweet. (Except for you – you may be a skosh more bitter than the rest of us.) If you’re willing to listen to another point of view, I’ll make the effort to enlighten you.

 

Any lender worth their salt won’t fund a loan that smells fishy, looks bad or otherwise flies in the face of good common sense. “Subprime” is actually a misnomer; the term non-conforming is more accurate in that these loans don’t conform to standard guidelines. When you’re flapping your wings over fraudulent things, what you’re probably referring to, dear angel, are specific products that were all the rage not that long ago. You know a few of them by name – NINA, SISA, SIVA – and no, I don’t mean the Russian sisters.[for those readers that do not know what these acronyms mean, they are referring to loan programs that require No Income No Asset (NINA), Stated Income Stated Asset (SISA) or Stated Income Verified Asset (SIVA)] These four-letter loans were fodder for fraud — created for borrowers who didn’t want to show documentation and, as it turns out, ideal for those with weak moral character. (It’s so hard to be good and so easy to be bad.)

 

Do you remember what we called these gems?  Alt-A – the category of loans falling between prime and subprime. The F.B.I., with whom I’ve had a long and fruitful association, reviewed millions of loans and published a Mortgage Fraud Report that you can find here: http://www.fbi.gov/publications/fraud/mortgage_fraud07.htm

 

Guess what they discovered? The fraud rate on Alt-A loans is 300% higher than subprime. And those are the facts. Even Fannie Mae’s post-purchase loan reviews show that monkey business with Alt-A loans is higher overall.

 

You know that old saying about how to tighten a bolt? Crank it ’til the bolt breaks, then back off a notch. That’s exactly what happened to just about every lender out there; the guidelines got way out of whack. Now, business is getting back to the basics and Alt-A has pulled a disappearing act.At Accredited, we make sure that each file is meticulously underwritten so that the loan and the borrower are perfectly matched. That way you, the borrower, and my company are all around and on friendly terms well into the future.

 

As my favorite uncle Edward R. Murrow used to say, “Anyone who isn’t confused doesn’t understand the situation.” Consider yourself both Bustafied and unconfused.


 

To learn more about Miss Busta, visit her site at http://www.missbusta.com/

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