In a past life, I helped with the database integration of one of the first commercially successful neural net credit card fraud detection systems. I learned a lot there about how fraud artists think and operate.

I wonder what percent of the mortgage equity loans were sent south of
the border as remittances prior to default and foreclosure?

There are lots of ways to get money out of a bank. One of the best ways to rob a bank is to own it–or work there. What we saw with credit card fraud, is that folks would come to the US, often from Nigeria or the Far East, and bring with them either complex social networks(in the case of the Nigerians) or ability to operate substantial factories producing counterfeit credit cards back home (in the case of Chinese Gangs).

Credit card fraud tended to take a fair amount of work for modest returns. I would suggest that if folks are willing to set up multiple fake ID’s and manufacture a credit history for maybe, $5-10K in return, they’ll do a lot more to such $50K-$100K in real estate equity loans out of a bank.

When I worked in credit card fraud, we had fraud gangs operating in every major bank. One fraud gang operative that got arrested was a very gregarious and nice looking man who worked 10 feet from me–and got arrested a few months after I left that job. I was told by the experienced investigators that fraud gangs had infiltrated every major bank, every major credit bureau and ever major regulatory agency.

Some of the more involved operations included features like introducing a shy programmer at a large bank to a “girl to good to be true”–and her friends heroin and crack. That programmer walked out the bank a few weeks later with a tape that cost that bank $10 Million.

I would suggest organizations capable of doing that sort of thing can do quite a lot more. That might include even developing subdivisions where the specific purpose is to funnel money out of a bank-and giving equity loans to people that aren’t even citizens–and are willing to cooperate because they know they can leave the country when the hammer drops.

When that kind of pattern is established, there are a lot of folks who might be playing follow the leader. All they know is that they have a paper profit and they can send money to trusted relatives back home. Current US bankruptcy laws essentially mean their credit rating could be messed up for life–but would they really care if they are retiring to a nice house in a warm country with people they love?

When I was working in this business, banks typically hid substantial fraud losses. Banks also typically hide the fact that they are hiring foreign nationals visa programs like H-1b(one way is by hiring “body shops”) to manage key financial resources.

This makes it all very hard to figure out what is going on precisely. However, it is clear that many of the companies getting bailouts in recent years have been intense users of H-1b and similar programs and it is clear the big areas of mortgage defaults have been destinations of a very high level of immigration. I think we need a lot more in depth investigation of the connection here than has been done to date.

What just happened?

How did eight years of a supposedly “conservative” Administration get us to this point where the country feels like a tapped out Vegas binge gambler ejected from the plush casino into the harsh mid-morning light without even cabfare in his pocket?

We have a general framework for explaining it: Invade the World / Invite the World / In Hock to the World.

But, with some digging, the small pieces of the puzzle are starting to come into better focus.

For example, remember the big emphasis that Bush and Rove put on “faith-based initiatives” as a pillar of their “compassionate conservatism”? I wrote a few articles about that topic in late 2000, but it was hard to pay attention because it seemed so boring: the ACLU made the expected complaints, you heard the usual responses, yawn …

What almost nobody noticed was how faith-based initiatives tied into the Bush-Rove jihad against down payments in the service of their goal of boosting minority homeownership by 5.5 million households.

Beowulf comments:

You just reminded me of something a real estate developer told me a couple of years ago… He built subdivisions in an urban (i.e. black) part of town and his marketing campaign involved putting ministers on commission.

They’d stand in the pulpit and declare that buying a home is the first step of fulfilling the American dream and their Christian duty. Every church member who bought a house, the minister got a check.

It was all legal, apparently, if the payments were structured as part of a downpayment assistance program. Legal, that is, until the IRS took the punchbowl away in 2006.

So, one of the things that pricked the Housing Bubble in 2006 was the IRS cracking down on this form of “charity.”

Here’s a cogent description of the scam from a recent press release by the apartment building lobby. Obviously, the people who rent apartments are biased, but, at least they didn’t plunge the world into economic chaos, so they’ve got that going for them:

Congress Should Protect Taxpayers and Retain the Ban on ‘Charity’ Downpayment Schemes

WASHINGTON, Sept. 16, 2008 /PRNewswire-USNewswire/ — Congress should pause and carefully consider the consequences before it acts to overturn its recent ban of so-called “charity” downpayment assistance schemes, according to the National Multi Housing Council (NMHC) and the National Apartment Association (NAA).

Under these programs, a non-profit provides a downpayment to the buyer and is then reimbursed by the seller, often a home builder. In 2006, the IRS stripped several of these non-profits of their tax-exempt status, ruling that the programs benefit sellers more than buyers since sellers often raise their asking price to cover the amount they theoretically “donated.”

“These circular funding programs come with good intentions but produce loans that are three times as likely to go into foreclosure and merely perpetuate the tragically failed policy of zero-downpayment lending that helped create the current foreclosure crisis,” noted Jim Arbury, Senior Vice President for the NMHC/NAA Joint Legislative Program.

“Congress wisely banned these programs in the Housing Stimulus Bill that it passed in July,” said Arbury. “Now it is considering stepping back and once again allowing them. This would be a mistake that would lure more individuals into unsustainable homeownership and put taxpayer dollars at risk.”

“These loans skyrocketed from six percent of the Federal Housing Administration’s mortgage originations in 2000 to approximately 30 percent as of 2004, and now threaten the financial viability of the FHA,” said Arbury. “The FHA says it expects to lose $4.6 billion in 2008, an unanticipated loss it attributes largely to seller-financed downpayment mortgages.”

“Today, the House Financial Services Committee will consider a bill (H.R. 6694) that would overturn the ban and purportedly protect the FHA by limiting the use of seller-financed downpayment assistance to households with credit scores above 620,” explained Arbury. “Unfortunately, the wishful thinking that higher credit scores translate into lower default rates is not borne out by the facts. According to HUD data, even households with the highest credit scores required by the bill are twice as likely to default if they use downpayment assistance.”

“This is why seller-funded downpayment assistance programs have come under fire from the IRS, the Government Accountability Office and HUD’s Inspector General’s Office,” Arbury concluded. “For its own financial health, the FHA should not be forced to return to insuring loans that involve seller-funded downpayments.”

A major goal of the Obama Administration will be to keep millions of illegal immigrants from going home, which would deprive the Democratic Party of large numbers of votes in coming decades from them (after they are put on “the path to citizenship”) and, more importantly, their American-born (and thus birthright citizen) children. Spending hundreds of billions of the taxpayers’ dollars to keep illegal immigrant construction workers previously employed putting up unneeded McMansions in exurban Las Vegas from leaving the U.S. is a small price to pay for future Democratic dominance.

A reader writes:

As you and I know, fully half of the illegal aliens work in construction and most of the rest work in the hospitality industry. When the housing (and commercial) construction collapsed last summer, we all knew it would not be long before the unemployed illegal aliens packed up and self-deport. (It actually costs a lot to live in the USA if you do not have a job.) Now Obama comes to the rescue! Before they can run out of money, they can go to work on the biggest public works project in American history. Will Americans be allowed to work too……sure!…..if they can speak Spanish, if they have several years of recent experience doing the same work. (This will guarantee that much of the stimulus will end up being paid to illegal aliens.) Naturally, the powers that be do not want their vast army of cheap construction workers to pack up and go home….besides ….there is a political payoff here for the support provided by Hispanics in the last election.

Here is an informative June 24, 2002 article from Realty Times about Bush’s plan to increase minority homeownership by 5.5 million households. This trade journal emphasized six years ago that the core of Bush’s plan was raising the minority/low income quotas for Fannie Mae and Freddie Mac mortgage activity by a total of $440 billion. This is the kind of thing that gets lost in time because there’s no partisan point to remembering it. Republican flacks want to blame Fannie Mae, but here’s the Republican President leaning on Fannie Mae to increase its minority quota by $260 billion.

(By the way, do you ever get the feeling that historians will someday look back on the Bush-Obama years as a single era?)

Bush Minority Homeownership Plan Rests Heavily on Fannie and Freddie

by Kenneth R. Harney

When President Bush announced his Minority Homeownership plans last week in Atlanta, his top priorities were new federal programs: a $2.4 billion tax credit to facilitate home purchases by lower-income first-time buyers, and a $200 million national downpayment grant fund.

But none of the new federal programs–if passed by Congress–will come even close to achieving the 5.5 million-household increase in minority homeownership the President set as his target.

Instead, most of the heavy lifting was assigned to two mortgage market players that have sometimes come under fire from Bush administration officials and Congressional Republicans: Fannie Mae and Freddie Mac.

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In an essay entitled “Never Forget. You’re Reminded” in today’s New York Times, film critic A.O. Scott cautiously raises the question of why there will be, once again, so many Holocaust-related movies opening during the upcoming Academy Awards season:

The near-simultaneous appearance of all these movies is to some degree a coincidence, but it throws into relief the curious fact that early 21st-century culture, in Europe and America, on screen and in books, is intensely, perhaps morbidly preoccupied with the great political trauma of the mid-20th century.

The number of Holocaust-related memoirs, novels, documentaries and feature films in the past decade or so seems to defy quantification, and their proliferation raises some uncomfortable questions. Why are there so many?

Tough question … Let me think about it… No, I’m drawing a blank. I’m as baffled as A.O. Scott is. I don’t have a clue either why Hollywood keeps making movies about the Jewish Holocaust as opposed to, say, the Ukrainian Holocaust or the Gulag Archipelago. It’s completely baffling.

Seriously, if you want your ancestors’ suffering to be remembered, you’ve got to make the movie yourself. Here’s my review of “Katyń” from The American Conservative:

It often seems as if humanity’s seven decade struggle with Communism has disappeared down the memory hole. While Nazis in glistening black leather remain our culture’s omnipresent exemplars of evil, Communists are apparently too dowdy to bother remembering.

A few filmmakers have begun to dissent, however. Florian Henckel von Donnersmarck’s superb drama about the East German secret police, “The Lives of Others,” won the 2006 Best Foreign Film Oscar and ran for a half year in American art houses.

In Warsaw on September 17, 2007, director Andrzej Wajda, recipient of a Lifetime Achievement Oscar, premiered “Katyń,” his long-awaited epic about the 1940 Soviet decapitation of the Polish nation in which his cavalry officer father had perished. The 82-year-old cinema legend reminisced, “I can’t really talk about him, except to say that he was my ideal and that he died at the age when I needed him the most.” The mass murder’s cover-up then lasted a half century in Soviet-run Poland: not until 1989 was Wajda free to inscribe the year of his father’s death on his tombstone.

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