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Ohio indicted more than 40 people Wednesday in a huge criminal investigation involving mortgage fraud according to the Cuyahoga County Court of Common Pleas docket.

I indirectly mentioned an FBI-raid on one of the companies involved, Realty Corporation of America, in a video last year: http://www.youtube.com/watch?v=KauXJvuwg4w

There will likely be much talk about this in the mainstream media, but I want to highlight a few things.

Some of the articles already purport lenders being tricked into lending money to borrowers who gave false information to the bank. That is simply incorrect. The lender has many tools to verify much information speaking on my personal knowledge of the industry and its rampant fraud because I worked in the banking industry for about five years.

The lenders involved, through my own research of public records, were Wells Fargo, CitiBank, GMAC, Deutsche (probably through a purchase of notes), Ameriquest/Argent, and very little US Bank. I also noticed Toyota and Ford in civil cases involving defendants, but they are obviously not into mortgages or real estate.

None of the lenders or their officers have been charged for anything yet, but I truly believe something will happen. There is a reason I mention the lenders in this case. The lenders have been seen as blameless and innocent because they simply lend money and borrowers lie to them and rip them off. It is true that borrowers often rip off banks, lie, cheat, and steal, but the Bible says the wicked run with the wicked.

Some mortgage brokers were definitely involved. There are two sides to the lender-getting-tricked issue. If the loan application and its process for approval was completed through the correspondent side, then I can understand the lenders being tricked. A correspondent loan is one whereby the mortgage brokerage or entity can act like a bank and fund the loan with the bank's money with the bank essentially not even knowing about it, which is legal. There is the wholesale side, which is much more common, whereby the brokerage sends the information for the loan process to the lender or bank to be completed, whereas the lender would underwrite (verify) the entire file and fund the loan. It is more likely the loans were completed through the wholesale side and through retail banking.

Wells Fargo and Countrywide were famous for "getting in bed with Realtors," as they would literally have loan officers in the offices of Realtors, which I believe is a conflict of interest. (Wells Fargo and Bank of America still do this today though.) That right there causes a problem, which may have been a problem in this case.

Regardless, the chain of complicity to see who else was involved in mortgage fraud on the lender's side will take longer to determine. Plus, this crime would be more of a federal "wire fraud" issue. Listen, lenders are definitely not innocent in most cases. Lenders often defraud investors like Fannie Mae, Freddie Mac, and Federal Housing Administration (FHA) by not doing their due diligence, giving a blind eye to blatant fraud merely to make money on the origination of a deal, and create false documents to sell the note to the investor while the lender retains servicing. The complicity chain could take years and millions of documents to determine who else is involved and how much the officers were involved.

Personally, I'd like to see who the title agencies were; the appraisers; the notaries; and builders of homes (if anything was new construction). There were definitely other people and entities involved. Cuyahoga County's Mortgage Fraud Task Force has definitely improved in one year, but I think it is still extremely weak, as I've blown the whistle on banks to some of the detectives and Cleveland FBI.

Most of the names of the alleged thugs have difficult-to-pronounce names. In fact, two of the defendant's last names start with Satan; that should be a reason to change your name right there.

Anyway ...

How Could This Crime Have Been Prevented

Not knowing the specifics of the case, but speaking on my own personal knowledge of the industry in which I previouslyl worked, simple enforcement of regulations and oversight of banking would have deterred the lenders from making bad decisions and borrowers from even thinking about allegedly falsifying anything to get money.

Also, the FBI was depleted in the war against terror, whereas many good special agents were taken out of the white-collar crime investigations. Investigators and prosecutors must be trained how white-collar criminals think because it is a very special niche crime. I continue to make the mistake of thinking that law enforcement is sophisticated enough to know what is happening, to care, and to even know the law; the reality is that law enforcement is very weak in white-collar crimes.
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