Tag Archives: liars loans

Liar’s Loans, Plus Loan Brokers, Equals Fraud Heaven

Posted on February 5, 2016 by | 1 comment

William K. Black
February 4, 2016     Bloomington, MN

This is the fourth part of my series on the lies about “liar’s” loans that suffuse the Wall Street Journal article reporting that “big money managers” want to bring back “liar’s loans.”  This part focuses on the fact, which the WSJ treated as so obviously reasonable that it was unworthy of analysis, that:

Money managers want to bankroll the loans while relying on the mortgage firms to handle the process with borrowers, basically acting as a lender, “one step removed from the process,” one of these people said.

When the real lender taking the risk of making the home loan employs an agent from a separate for-profit firm to actually recruit the borrowers in return for receiving a sales commission from the real lender (the “big money managers”) we call that agent a loan broker.  The “big money manager’s” plan is (a) to make loans that are endemically fraudulent, (b) by incentivizing de facto loan brokers to find the buyers and handle the loan applications.

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How Many Lies Can the WSJ Pack into a Chart on Liar’s Loans?

Posted on February 3, 2016 by | 4 comments

William K. Black
February 3, 2016     Bloomington, MN

This is the second article in my series prompted by the Wall Street Journal report that “big money managers” want to bring back “liar’s loans.”  Given that the best study of liar’s loans during the crisis found a fraud incidence of 90% — this is a startling proof of how openly addicted to fraud the “big money managers” remain.  It demonstrates some of the terrible costs of the Department of Justice’s refusal to prosecute the fraudulent loan originators’ controlling officers.

In this installment I lay out briefly the lies that the banksters made, and continue to make, about liar’s loans and why those lies are so harmful.  The WSJ chart on liar’s loans faithfully repeated those lies as if they were revealed truth.  The chart is shown below.  Let us count the lies.

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The Worst of the Worst of the Worst: New Century and its Economics Shills

Posted on August 10, 2015 by | 10 comments

By William K. Black
Bloomington, MN:  August 8, 2015

I have often noted the existence of a primitive tribal taboo shared by virtually all economists against using the “f” word – “fraud.”  I have found a new example that sums up many of the pathologies of economics and economists.  It is an article entitled “Going for Broke: New Century Financial Corporation, 2004-2006.”  Given that New Century was a classic accounting control fraud, the use of the long-discredited gambling metaphor (our “autopsies” of S&L failures refuted it in 1984) demonstrates the crippling power of the taboo.  The three economists who authored the September 2010 article are Augustin Landier (Toulouse School of Economics) David Sraer (Princeton University) David Thesmar (HEC & CEPR) (collectively, “LST”).

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Implicit Assumptions and Biases about Liar’s Loans Lead Journalists into Error

Posted on February 13, 2015 by | 2 comments

By William K. Black
Bloomington, MN: February 13, 2015

The website “538” has one claim to fame – interpreting data.  In the mortgage fraud context it got this horribly wrong in a way that should be an object lesson to the dangers of implicit assumptions that implicitly exclude alternative theories of causation.  This typically happens because of an unrecognized bias.  Ben Casselman and Andrew Flowers provided the object lesson in their discussion of a new study (behind a pay wall) by Atif Mian and Amir Sufi entitled “Fraudulent Income Overstatement on Mortgage Applications during the Credit Expansion of 2002 to 2005”

“What they found: Mortgage lending surged in low-income, less creditworthy areas of the U.S. between 2002 and 2005. But systemic differences between incomes reported on mortgage applications and incomes reported to the IRS indicate that much of this “subprime” lending was reliant on borrowers fraudulently overstating their income.

Why it matters: Between 2002 and 2005, there was a tsunami of money for prospective U.S. homebuyers. This surge of mortgage credit was strongest in less creditworthy, low-income areas. But some economists have argued that incomes of homebuyers were increasing in these areas. After all, by looking at income as reported on mortgage applications, the areas with lower credit scores seem to have robust growth of homebuyers’ income. But new research from Sufi and Mian — the authors of “House of Debt” who have written for FiveThirtyEight — confirms that, no, economic improvement wasn’t behind these improving income numbers. It was fraud. Specifically, the fraud of homebuyers overstating income.”

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Arnold Kling’s Cunning Hairdresser Theory of the Financial Crisis

Posted on October 14, 2013 by | 4 comments

By William K. Black

Arnold Kling is a libertarian economist who once worked for Freddie Mac.  This article discusses a blog and an article he wrote about the causes of the crisis.  Both (unintentionally) illustrate key theoclassical economic positions critical to understanding the origins of the crisis.  Kling’s blog was in response to a January 29, 2013 post by Thomas J. Sugrue.  Sugrue provided data demonstrating that blacks and Latino homeowners suffered far greater wealth losses in the crisis than did whites.  This upset Kling, who responded:

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Creating Effective Regulation is the Imperative Issue at the Federal Reserve

Posted on September 9, 2013 by | 3 comments

By William K. Black
(Cross posted at Benzinga.com)

The only positive aspect of the public contest to pick a successor for Ben Bernanke that the White House has inexplicably sparked is that economists are acknowledging that the next head of the Fed must act to create (not “restore”) effective regulation by the agency.  It is long past time to have a serious discussion about the collapse of regulation by the Fed.  In this column I make the first of what will become four points.  First, the consequences of the Fed’s regulatory collapse have proven catastrophic for our Nation.  Second, the Fed’s supervisory structure inherently creates a conflict of interest identical to the one that existed in the Savings and Loan (S&L) debacle until Congress and the President decided the conflict was intolerable and eliminated it in 1989.  Third, the supervisory culture of the Fed ensures recurrent supervisory failure – and the Fed’s economists are largely responsible for these failures.  Fourth, the Fed’s economists’ dogmas and ignorance of fraud mechanisms have combined to create to create intensely criminogenic environments.  The Fed does not simply fail to prevent the epidemics  of control fraud that cause our recurrent, intensifying financial crises – its policies are so perverse that they aid the fraud epidemics.

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The FBI’s 2010 Mortgage Fraud Report Reveals Why the Banksters Love Holder

Posted on August 14, 2013 by | 9 comments

By William K. Black

The Obama administration’s continuation of the Bush administration’s refusal to prosecute the elite banksters (or even the vastly lower status CEOs of the fraudulent mortgage bank) that drove the crisis has made it clear that the rule of law no longer applies to wide ranges of life and that crony capitalism will continue to reign.

One of the difficulties we have is that because the last two administrations have fanatical devotees of the cult of the Virgin Crisis – the myth that the ongoing crisis was the first in modern times conceived without sin (control fraud) – that it is exceptionally difficult to know what their creed is.  DOJ has refused to prosecute any elite banker for mortgage loan origination fraud.  The rare prosecutions it has brought against senior officials of fraudulent loan originator (a large, but obscure regional mortgage bank: Taylor Bean) did not prosecute the officials for their fraudulent origination (or sale) of loans.  The Taylor Bean officials were only prosecuted for their fraud against the TARP program – and only because Neil Barofsky (SIGTARP) made the criminal referral about that fraud and pushed relentlessly to force the Department of Justice to prosecute.  With zero prosecutions of the massively fraudulent home lenders that drove the crisis to we are left with no information on why committing hundreds of thousands of frauds via the twin epidemics of loan origination fraud (inflating appraisals and making endemically fraudulent “liar’s” loans) is no longer a crime that the FBI investigates and DOJ prosecutes.  No senior DOJ or FBI official, of course, is stupid enough to state openly why we no longer prosecute even the CEOs of long-bankrupt mortgage banks that led these accounting control frauds.  The U.S. Attorney for Sacramento, one of the epicenters of accounting control fraud, was foolish enough to attempt to explain why he did not investigate or prosecute the banksters:

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Which Aspect of the FDIC’s Litigation Failures is the Most Embarrassing and Damaging?

Posted on March 12, 2013 by | 9 comments

By William K. Black
(Cross posted at Benzinga.com)

On March 11, 2013 the Los Angeles Times published a revealing article by E. Scott Reckard entitled:  “In major policy shift, scores of FDIC settlements go unannounced.”

The article’s summary statement captures the theme nicely.  “Since the mortgage meltdown, the FDIC has opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.” Continue reading →

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“Pervasive” Fraud by our “Most Reputable” Banks

Posted on February 28, 2013 by | 8 comments

By William K. Black

A recent study confirmed that control fraud was endemic among our most elite financial institutions.  Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market.  Tomasz Piskorski, Amit Seru & James Witkin (February 2013) (“PSW 2013”).

The key conclusion of the study is that control fraud was “pervasive” (PSW 2013: 31).

“[A]lthough there is substantial heterogeneity across underwriters, a significant degree of misrepresentation exists across all underwriters, which includes the most reputable financial institutions” (PSW 2013: 29).

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Who is Steven Krystofiak

Posted on July 16, 2012 by | 3 comments

By William K. Black

“My name is Steven Krystofiak, President of the Mortgage Brokers Association for Responsible Lending.”  That is how Krystofiak began his written statement to the Federal Reserve concerning mortgage fraud.  It is a follow-up to his oral testimony at a Federal Reserve hearing on June 16, 2006 at the FRB San Francisco entitled: “Responsible Lending and Informed Consumer Choice, Public Hearing on the Home Equity Lending Market.”  Continue reading →

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