Snarky Behavior

Who is Defaulting?

December 9, 2008 · 3 Comments

Somewhat dropping knowledge:

The news media is very good at shaping a collective narrative of what’s going on in our economy.  Times are tough, Americans are hurting, etc., etc.  And while this is true for many, it certainly is not true for all.  We need to stay diligent of how we provide assistance, and to whom.

My international capital markets professor, in a lecture about mortgage-backed securities, shared a VERY interesting study done by Fitch ratings agency.  The study randomly selected 45 case files of homeowners who had recently foreclosed on their homes due to “an inability to pay.”  What did those homeowners look like?

  • 66% fraudulently stated at the time of the loan that the home would be “owner occupied.”
  • 51% fraudulently overstated the value of the property, or the condition of the home at the time of the loan
  • 48% fraudulently stated they were first-time home-buyers, when a simple credit report showed past mortgage activity
  • 44% could not pay their structured debt due to “payment shock,” defined as greater than 100% increase (i.e.  balloon mortgage)
  • 44% questionably or fraudently stated income or employment
  • 22% had fraud alerts on their credit reports at the time of the loan
  • 18% had questionable ownership of accounts due to name or social security numbers not matching
  • 16% Strawbuyer/Flip scheme indicated based on evidence in servicing file
  • 16% Identity theft indicated
  • 10% Signature fraud indicated

So before we go running to help out these “struggling homeowners,” let’s be clear who we’re REALLY helping out.  Dumb, or oftentimes fraudulent, speculators.

Categories: graduate school
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3 responses so far ↓

  • Rohit // December 9, 2008 at 11:24 pm | Reply

    No more bailouts!

  • John Smith // March 22, 2009 at 5:45 am | Reply

    Here’s my question…are we looking at a 50-50 chance whether they were honest or not? Don’t get me wrong, that half needs to get smacked, but do the miscreants add up to the whole, or were many of these guys all of the above?

  • ArthurDental // March 22, 2009 at 1:16 pm | Reply

    You’re all idiots. Do you think the banks didn’t know this? Do you think the institutional investors didn’t know this?

    I went to a homebuying seminar where a “banker” told us don’t worry if we can’t document our income. If you paid a little bit of attention you’d realize people working in the industry were FORCED to write as many mortgages as possible.

    It’s always easier to blame individuals than the system that encourage them.

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