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Sunday, December 09, 2007 8:23 PM

Convoluted Mortgage Fraud Theories

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A number of people have all emailed me with a sensational but preposterous "Mortgage Meltdown" article by Sean Olender about the interest rate freeze.

Yes there is "fraud everywhere" as the article suggests, and yes the freeze "has nothing to do with keeping people in their homes", and yes, "The problem isn't just subprime loans", and yes a "mortgage meltdown" is in process.

But the rest of the article is complete nonsense.
Here are a few snips:

The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing.
The goal of the freeze is not to "stop bond investors from suing". The goal of the freeze is to Peddle a Sucker Trap Disguised as Hope.

However, so few people will qualify for the program (see Little Hope For Hope Now Alliance) that no one can possibly claim it will stop much of anything, including lawsuits or foreclosures.
The key is to refinance borrowers whose current loans involved fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn't involve fraud.
This main part of the program is a freeze, not refinancing. If someone is qualified for refinancing, they are expected to do so at whatever rate they can get.

The freeze plan only gives breaks to a small minority and those breaks are in the form of a freeze not refinancing. Most of those involved in seriously overstated income or other loan fraud are probably already foreclosed on, seriously delinquent, or otherwise not likely to qualify for refinancing.
The government is trying to accomplish wide-scale refinancing by tricking bond investors, or by tricking U.S. taxpayers. Guess who will foot the bill now that the FHA is entering the fray?
What bond investors are going to be "tricked"? Where? By what mechanism? The claims get sillier and sillier.
We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers.
It was Hillary Clinton, other Congressional fools, and President Bush who want to sacrifice the constitution via safe harbor acts. See Hillary Clinton and George Bush: Two of a Kind for more on this topic. I will be among those screaming if Hillary brings that bill forward, but the freeze plan itself does nothing to prevent lawsuits.

There are so many legitimate fraud issues to discuss and so many real housing issues that deserve attention, there is no reason to bring out the conspiracy theorists with these kinds of convoluted ideas.

Mike "Mish" Shedlock
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