Investigators auditing loan docs force buy-backs

23 Nov

There are a growing number of businesses that are focusing tremendous efforts on finding misrepresentations, fraud, or egregious mistakes in loan files that resulted in bad mortgages, ultimately leading to high levels of borrower default and foreclosure.  Some of these entities have proven successful on behalf of loan investors (such as those who hold mortgage-backed securities, a familiar dinner table term) in forcing the banks who originated such loans to buy them back.

In a Wall Street Journal Online article posted yesterday (View full article here: http://online.wsj.com/article/SB10001424052748703559504575631110278708250.html?mod=rss_whats_news_us_business), some extraordinary stories are revealed.  Unfortunately high levels of fraud which would have seemed almost inconceivable in the mortgage business ten years ago, were obviously sufficiently common in recent years that the trend of such “extreme” examples became common enough to derail the bedrock business of mortgage and real estate.  The Wall Street Journal article cites some of the scenarios where “no doc” loans where borrowers did not have to verify their income through tax records or financial statements led to catastrophe.

Here are a couple “interesting” stories quoted from the WSJ article.  “One borrower whose loan was scrutinized claimed to be a shoe salesman earning $35,000 a month. A regional sales manager who cited earnings of $250,000 a year actually made $47,000 as a clerk for the same company.” (click here to link to full WSJ article).

Fortunately, some of the banks that engaged in such utter lack of judgment are being held accountable for some of their actions (buying back the loans), but with the current high rates of foreclosure, borrowers struggling to repay their existing debts (even in “traditional” loans) and lending severely hamstrung, the tales of this crisis have not yet been fully written.

If you’re interested in this issue, follow my updates on Twitter @BrokerageAtty.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad is the chair of the firm’s Transactional Group, and his practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law, and Wind Energy Law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals.

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One Response to “Investigators auditing loan docs force buy-backs”

  1. Julia Bernovic November 25, 2010 at 10:13 am #

    Nice Article
    Really Helpful for me ,i enjoyed while reading.Thnx
    i add you my RSS list ..

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