It seems the FBI is finally answering the question: where are the orange jumpsuits for the criminal mortgage brokers? With as spectacular a collapse as the housing market suffered, some wrongdoing must have been involved. For example, stories of so-called "liar loans," where information was fudged to get loans approved, have been talked about since the bubble popped. But we haven't heard much about anyone actually getting in trouble for falisfied mortgage applications -- which is fraud. But the FBI may finally be taking action.
The Financial Times reports:
The FBI is preparing to arrest hundreds of people across the US as early as next week for offences including encouraging borrowers to falsify income on mortgage applications, misleading home owners about foreclosure rescue programmes, and inflating home appraisals, said two people with knowledge of the operation. An FBI spokesman declined to comment.
This is obviously good news -- for several reasons. First, these people certainly deserve to spend some time behind bars. Their actions helped to fuel one of the biggest economic disasters that the U.S. has ever known -- for a quick buck. Moreover, if significant numbers of these fraudsters are prosecuted, it will help to deter other scam artist-types from trying to take advantage of Americans who aren't so financially savvy in the future. After all, if all these guys just got away with it, then why would anyone with no scruples fear doing the same thing again in the years to come?
Second, these arrests may also help us better understand how big a part of the problem these misbehaving lenders really were. Some people contend that they were a major cause of the bubble. Others believe that the borrowers themselves really knew what they were doing and deserve the blame. If we see the FBI throwing hundreds of shady mortgage brokers in jail, because they took advantage of borrowers, it may help to clear up this dispute. It would also show that a lack of oversight in the mortgage industry was a major factor in creating the bubble.
But what has taken the FBI so long? It's mid-2010, about three-years after the housing market began to deteriorate. It's nice to see that the feds are finally getting around to arresting these guys, but it would have been better if they had done so a year or two earlier. In the meantime, they've likely spent most of the money they made, so any subsequent civil lawsuits or fines might not get back the money that was essentially stolen.