Mortgage Fraud

Mortgage fraud continues to soar

Jim Kim — Thu, 28 Aug 2008 21:05:47 -0400

With regulators looking at all aspects of the real estate industry, and with Sarbanes-Oxley a perpetual boardroom presence, you would think that mortgage fraud would have peaked by now. But guess what? A new study by the Mortgage Asset Research Institute has found that the number of fraudulent loans issued from January to March of 2008 rose 42 percent compared with the same period in 2007. Whew! A CNNMoney articles suggests that all the changes in law, which have made it harder for people to qualify for loans, have created incentives for people to fudge. It's just so easy to tweak an application. The most common type of fraud seems to be that which involves false employment or income. This confirms what has been long said about Sarbox: If people really want to commit fraud, they will find a way. But there should be better controls in place for this.

For more:
- here's the article

One way to profit after compliance lapses

Tue, 01 Apr 2008 07:59:59 -0400

"... You can't legislate ethical behavior." So says Walter Pavlo Jr., who was jailed for embezzling $6 million from MCI in 2001. What does he do know? Why he's on the speaking circuit of course. For a fee, he'll recount how he faced a lot of pressure to get some debts off the books of MCI, which lead him down the slippery slope to prison. The more illegal stuff he did, the more he was accepted, notes the Pittsburgh Tribune Review. We have to ask in light of the mortgage fraud cases we're now seeing whether anything has changed. Sarbanes-Oxley was the right idea, but it cannot reign in human behavior. There will always be cheats. Hopefully, the pressure for executives and auditors has been lessened a bit.

For more:
- here's the article from the Pittsburgh Tribune Review

KPMG liable for mortgage lender implosion

Tue, 01 Apr 2008 07:59:59 -0400

Once again, we can ask: Wasn't Sarbanes-Oxley supposed to prevent this? Mortgage fraud has been front-page news. A 581-page report by a bankruptcy court examiner has found that New Century--a subprime leader--did a lot of shady stuff. The bombshell is that the report found that auditor KPMG enabled these practices, and thus should be held accountable. The New York Times raises the spectre of Enron and Arthur Andersen. KPMG denies the allegations. There is a big inside story here. Apparently, there were some emails from the KPMG partner suggesting the client was really playing hardball. But at some point, the auditor has to stand up. We'll likely hear more soon.

For more:
- here's the New York Times article
- more on auditors caving in

Related Articles:
Analysis slams Bear Stearns' subprime activity. Article
Some hedge funds hit by subprime meltdown. Article