Great article from the Huffington post .
Which make me think about who are the real victims of all this Mortgage Fraud. They are the underwater home buyer/investor and the investor in the mortgage backed securities.
The home buyer is a victim because they bought houses unaware of underlying forces which were both inflating houses and then forcing the whole real estate market to crash dramatically. So they bought houses with a sub prime mortgage (or not) to see the house price depreciate by 25, 30, and 50% in some cases.
When these underlying forces were fraudulent, as in the example which was very prevalent in the 2005 – 2007 time frame, where the big banks had figured out they could make so much more money on defaulting mortgages than normally performing mortgages.
Say you bought a house for 300,000 with a mortgage from Wells Fargo, WFC is not coming up with any money to lend to you, the money comes from a securitization pool set up by CITIBANK, with a bunch of investors (pension funds, mutual funds etc..) – this mortgage back security could have been sold to these investors 6 months before for a billion dollars. The investors (who are really your creditors for your house, everybody in between are just intermediaries) are looking for a 5% yield (or return). Citibank by packing the mortgage pool with sub prime mortgages which are at higher interest rates (higher risk of default) does not need to use the whole billion dollars to payback the investors their 5%.
Citibank can use the excess cash to buy credit default swaps on the security, not just one but many (lets say 10). That means that the incentive to citibank to build a security to fail is the difference between making 300,000 and 3,000,000. This is the crazy, illogical, unethical and greedy system that the financial community had set up for themselves. In order for it to work it required 2 sets of suckers, those willing to buy houses at ever inflating prices, and at predatory terms (higher interest rates, adjustable mortgages, interest only), and naive investors at the other end of the chain.
The question of incorrect documentation is really about deception, and mostly deceiving the investors. If everything was transparent, properly transferred documents recorded and filed with the county clerks office, then it would have been a lot more difficult to fill the RMBS with toxic crap, and the RMBS may not have passed underwriting standards. Better to create a big black hole of missing documents so nobody can audit it.
So back to my original point, the home buyer was most definitely a victim of Mortgage Fraud, and deserves to be getting a principal mark down at a minimum as part of these loan modifications. Both parties should be talking to each other – the security investor and the home buyer, and working out a principal markdown and better interest rate. The intermediaries, the servicing bank (Wells Fargo) and the Investment Bank are guilty of Securities fraud and Mortgage Fraud, and crashing our economy and our financial system. They should be going to jail because they make Bernie Madoff look like a pick pocket (no offense to pick pockets) .