As I’ve been arguing, “the cause” of the mortgage meltdown is a combination of bad federal policies, including easy money from the Fed, federal lending mandates, and implicit bailout promises.
But, as Vincent Carroll points out, fraud also played a role:
According to a settlement reached between [Paul Anthony] Baker and [Attorney General John] Suthers’ office, Encore Lending was basically an engine of fraud. For example:
* “Baker admits that he deposited money into borrowers’ bank accounts – or otherwise provided funds to borrowers – in order to enable borrowers to have sufficient assets to qualify for a loan.”
* “Baker also admits that, regardless of the borrower’s actual income, he stated a borrower’s income . . . as whatever the borrower’s income needed to be to reach the necessary debt-to-income ratio” to qualify for a desired loan.
* Baker allegedly engaged in other fraudulent practices, too, although he doesn’t admit to them in the settlement. But as the settlement notes, the attorney general contends that Baker falsified pay stubs and W-2 forms to submit to mortgage lenders and even assisted unemployed borrowers in finding jobs in an effort to qualify them for loans.
A media release from Suthers’s office summarizes that case and others as well.
True, such fraud was encouraged by federal lending pressures. Yet, at least in this case, fraud took on a life of its own and exacerbated the mortgage problem.
The government plays a legitimate and essential role in rooting out fraud. That is one of the conditions that makes possible a free market. And, in this case, judging from Carroll’s account, Suthers as a government official is doing the right thing.