HomeDebtor Fraud Intentionally Unpunished

The scam during the housing bubble was to intentionally overstate income (and then take some sort of exotic loan) so as to hide the fact that you couldn’t afford the house.  Your “escape” was that when (remember, houses never go down in price) the loan’s “teaser” expired you’d just go refinance.  The banks loved it (they got to hit you for another round of fees and costs) and the liars loved it – they got to live in $500,000 houses on $50,000 of income – even if they’d never actually own the place.

This, by the way, is a federal offense (lying on a mortgage application) yet The FBI and other law enforcement officials were and are under explicit orders NOT to prosecute these crimes.

Now the scam is to understate your income so as to qualify for a “better” modification – and again, the government is refusing to enforce the law:

Until recently the rules were clear: if you grossly understated your income to qualify for the program, you had to restart the loan modification process. It made sense. After all, we got into this housing mess partly because too many people were dishonest about how much they made.


The government needs this program to work — and fast. That’s the only way to explain the Treasury Department’s waiver of a requirement punishing borrowers who understate their income by 25 percent or more when trying to get a modification.

That means a borrower who had told a lender he made $75,000 but was found to make $100,000 doesn’t have to restart the modification process. Under the waiver announced Dec. 16, that person now gets to continue the trial period instead of being rejected immediately.

Isn’t that special?

Are you pissed yet?  You should be.  This sort of game means that the “waterfall” that I posted before goes further down than it should for a given borrower:


This is the reality folks: Your neighbor lied about his income to get his house in the first place.  He took out a loan he couldn’t possibly repay on the original terms – an OptionARM or other “exotic” loan, and then (in many cases) HELOC’d out every penny possible and blew it on a Hummer, a Boat and a few exotic vacations.

This caused the “value” of your house to skyrocket.  Cities and states of course got lots of tax revenue as a consequence of these higher “values.”

But these “values” were not real.  They were a fraud.  Remember that a transaction requires a willing (and able) buyer and seller.  Without a willing (and able) buyer, the price does not go up.

When the Ponzi ran out of suckers, people started to default en-masse.  The government panicked – so-called “wealth” was disappearing, and in addition cities and states saw their “revenue” disappear as those who can’t pay mortgages don’t pay property taxes either.

So government rides to the rescue with an alleged plan to help those who are at risk of losing their house due to unemployment and other effects not of their own doing.

What happens?  The very same people who played grift and scam on the way up do it again on the way down. 

The felonies they commit are charged not to them, but to you – by government policy.

This is not a “lie” folks – it’s a crime.  A crime that our government is not only willfully ignoring but is and has been encouraging, and forcing you, the honest American, to pay for.

And let’s be clear: while it is a “dirty secret” the US Attorney’s Manual says:

Prosecutions of fraud ordinarily should not be undertaken if the scheme employed consists of some isolated transactions between individuals, involving minor loss to the victims, in which case the parties should be left to settle their differences by civil or criminal litigation in the state courts. Serious consideration, however, should be given to the prosecution of any scheme which in its nature is directed to defrauding a class of persons, or the general public, with a substantial pattern of conduct.

Got it?

If you lie on your mortgage, the government doesn’t care – even though that was and remains one of the primary causes of both the housing bubble and now is preventing the market from being marked back down to actual fair value and clearing.

The government has in fact declared itself as an accessory to millions of felonies both before and after the fact.