Mortgage Fraud and Bank Greed, where do we find a balance?
I have audited bank loan documentation files professionally, and as a bank President, many times.
It has surprised me sometimes at the mistakes and documentation errors some of America's finest and largest banks have made over the years. Once I found a house, that a bank financed, that was supposed to be a 3 bedroom house, with a swimming pool, (at least that is what the bank loaned money on), and in reality it was built as a 2 bedroom house with no pool. In another case, a bank had a loan on a home that simply wasn't on the location. Another case we found tragic, a bank loaned money on a home, that upon further research, had burned several years earlier.
In these cases, when a bank makes a loan, and is simply guilty of not doing adequate due diligence in order to fully document it's files, the bank should be accountable. This is what the courts have said, and this is right. It has been said that there are millions of homes in America that courts have halted forclosure activities on for two reasons.
#1, Some banks cannot afford to take them back, fix them up, and then market them
#2. Some banks simply have lost the deeds, mortgage papers or legal documents that perfect their security interests.
But there is another side of the story. In some cases the banks did their job. They required loan applications, credit reports, and completed their loan forms, notes, deed of trust documents in correct form and filed them correctly. But, there are many cases when the customer, the borrower did not tell the truth. In some cases customers have lied about their ability to afford the loan, overstated income and understated expenses. In some cases others may have manipulated people and actually forged signatures or falsified documents. In these cases, it seems logical and fair that these people should be accountable, if they falsely borrow money, based upon false documents that they have prepared and given to the bankers as facts, and then they do not pay their loan in accordance with the contract. Indeed, in Las Vegas, Nevada, it is reported that 80% of the people who bought new homes there, have simply walked away from their loans, with no intention of paying back their loans. What every happened to the idea of trying to do what is right, as long as you can? There is one side of a story, when a bank charges unfair rates or acts in an unreasonable fashion, such as charging 29% on loans or hitting consumers with inordinate service fees and charges, that is wrong, and consumers can't be blamed for being angry or disloyal to banks that cross the line of reasonable fairness.
On the other hand when people go into a business contract with the intention to falsify or fraudulently induce a bank to lend them money, based on lies, then, the consumer has crossed the same line, or reasonable fairness. Justice and accountability are two sides of the same sword. If a banker can be held accountable for not doing his job correctly, in the eyes of the law, so should a consumer be held accountable for not telling the truth or for fraudulently making application based upon false disclosures to the bank.
I read a story about a man in Texas who borrowed money to build over 50 condominiums and apartment buildings, and later when he went bankrupt, it was disclosed that he couldn't read or write, and that many of his documents were prepared by others and were simply fraudulent. That man went to prison, and those who helped him were punished as well.
As a former banker, and as a commercial appraiser and financial consultant, I feel no sympathy for the banks that do not do their jobs well and in accordance with the law. When I was in banking, we worked diligently to see that our loans and documentation was in order, and that we loaned money to good people with good credit, good collateral and the cash flow and character to repay their loans. As an appraiser I constantly see properties that sometimes are worth less, and sometimes more than the underlying loans. But when I was a banker, and we saw property values declining, we reappraised the assets, and then worked with the client either to pay the loans down or provide additional collateral. We inspected the collateral and tried to know our customers and follow their progress in business. The personal "touch" of a banker is important, and if the banker can't do that, then it is often up to professionals like appraisers to inform banks of property value and condition.
But, there are always those who would "game the system". People who study and understand the laws and procedures of institutions and then try to exploit situations. On one case, I made an interim loan to a man who was building a large 3 story house. I was the bank President, but that didn't stop me from going out one day to see the construction progress of my collateral. When I arrived on the scene, I was shocked to see a pile of burned black rubble. I had $175,000 outstanding, the collateral had burned and the customer had not informed me. I called him in, and said:
"You and I have a choice. The insurance money from the fire damage was supposed to have been sent to the bank but somehow you got it, and kept it. Now you can use those proceeds to pay off the loan, or I will have to sue you and the insurance company for fraud and misappropriation of funds." He paid the loan off and apologized profusely. Now, in this case, as the banker I was lucky, I got paid and avoided litigation. But if I had gone to court I would have won and the court system would have punished that man severely, and perhaps the insurance company as well. In our current economy, it is normal to "hate" the bankers, and to sympathize with people who have lost their homes. In some cases these people should never have borrowed and the banks should not have loaned to them. The cases when the banks lied, or "marketed" to people who obviously did not qualify for loans, are sad, because the banks in greed did not abide by their fiduciary responsibilities. But the cases when people intentionally lied, or allowed others to falsify documents and loan papers in their names, to falsely induce banks to lend money, these people should be prosecuted in accordance with the law. Or it may even be appropriate that those who manipulated them, or "used" them to borrow funds by false statements, should be prosecuted.
Our nation is great because it is a nation of ethics and law. We have been a people ruled by a system of justice and a business environment that requires fair business practices. Those in the business world who have abused this system, and those consumers who have abused this system, should both, abide by the system of integrity, truth and honesty. This, is the only way to save and recover our economy. Send a strong message to those who "game the system" with lies and untruth. Create a system, where bankers and consumers alike, know that the essential foundation of the system is honesty, fairness and balance.