Profiles of the ordinary thieves of the housing bubble
People are basically honest and will do the right thing if given the chance. However, people are also opportunistic, and if encouraged and enabled to steal, many ordinarily good people will go down the wrong path. Lenders led many astray. During the housing bubble, lenders were desperate to loan money in what they thought were low-risk, high yielding investments. The advertising to entice homeowners to become loanowners was both effective and too-good-to-be-true.
The housing bubble turned many good people into thieves. Most were petty thieves who merely gamed the system to get free money. This same group now feels completely justified asking for principal reduction as if that were an entitlement instead of what it is, government graft.
Over the years, I have collected many stories of housing bubble grift, but the occasional newspaper article or daily HELOC abuse story doesn’t delve into the sordid details of the worst offenders. The people who really know how bad people behaved are the fraud investigators. Six years after the housing market peaked, investigating fraud is a booming business.
In this business, the best employees are the most paranoid ones.
As viewed from Frank Alpan’s cubicle, through the glare of two flat-screen monitors, the collapse of the housing market looks a lot like a crime scene. Clicking his way through electronic case files, he hunts for clues: a strange font on a pay stub, numbers on a W-2 form that don’t add up. He is continually amazed at just how sloppy some suspects can be.
Alpan (whose name has been changed, as his company’s policy forbids unauthorized employees to speak to the media) spends eight hours a day at this desk in Digital Risk’s office building in suburban Maitland, Florida, reconstructing the exact circumstances that led so many Americans to buy houses they couldn’t afford. The cases he has seen reveal a country gone berserk: a woman in Ann Arbor who refinanced her home five times in five years but neglected to tell her lender that she had quit her job;
During the housing bubble, the median household income in Irvine, CA was about $85,000 per year. For five consecutive years from 2002 to 2006, the median home price rose on average about $85,000 per year. Any Irvine homeowner could have quit their job and lived off the appreciation in home equity. Apparently, some people did.
a concrete finisher in Las Vegas who applied for 15 mortgages in one week;
That’s knowing how to game the system. There is always a delay between when a loan is approved and when record of the loan shows up in the public records. If a borrower times all their loans to be approved in this small window, each bank is unaware of the others simultaneously approving loans. Of course, lenders require a borrower to sign a statement stating they are not processing multiple loans, but this is hardly a deterrent to a determined thief.
pastors—dozens of them—who doctored bank statements, bought houses they couldn’t pay for, and then filed for bankruptcy. “The nice thing about pastors is that their church shares information when asked,” Alpan says. “Pastors are always an easy [fraud] claim.”
Keith Ritter from the post Grifters for God is an ordained minister.
…. Once problems are uncovered, clients can try to recover money. … The information that analysts dig up unsettles Alpan. “There’s nothing you can hide,” he says. “This is why auditors are so paranoid.”…
Alpan’s reviewing the case of a grocery-store manager in New Jersey who paid $120,000 for a home whose value then jumped to $220,000. Over the course of a single day, the manager took out five home-equity lines of credit. A week later, with half a million dollars in his pocket, he walked. The scheme is called shotgunning, and Alpan sometimes wishes he was unscrupulous enough to have done it. “I could have been a millionaire,” he says, snapping his fingers, “just like that.”
It is tempting, isn’t it? Whenever I profile the property of a really egregious HELOC abuser who took out $500,000 or more, I get a small pang of jealousy. There was so much free money given away by stupid lenders, sometimes I feel like I missed a great opportunity.
One of every four files Alpan reviews contains a hardship letter. Such letters are meant to win the bank’s sympathy, but more often than not, they end up highlighting the lies the borrower once told. “I was selling cars … making $2,100 a month, and they cut my hours,” explained one borrower, though his mortgage-loan application had said he earned $350,000 a year as a regional manager for a Big Three automaker.
He was making $350,000 a year if you count the mortgage equity withdrawal. If you count the free money from the Ponzi scheme, most liar loans weren’t lies.
One hardship letter that went viral around the office began, “I did a lot of coke, and now I can’t afford my mortgage.”
Alpan scowls as he plows through the files. The infinite variety, as well as the sheer tonnage, of bad behavior has clearly affected him.
It’s affected me too. Profiling HELOC abuse cases day after day has made me very unsympathetic to the loan owners who play the victim card.
I am always shocked by the sense of entitlement some thieves have.
Among the thousands of fraudulent loans he has audited, the only common denominator is deceit. “It’s not just lawyers and pastors and CEOs who lie and scheme. It’s nurses and schoolteachers, too,” he says. “Everybody’s guilty; no one’s up to any good.”
The common man was the cornerstone of the Ponzi scheme.
People from all walks of life got involved.
Business owners and entrepreneurs financed their ideas with Ponzi house money.
And attorneys played their part.
And the squatters the attorneys enabled.
Many of these self-proclaimed victims think they have been so wronged they deserve to keep the money and the house.
And the senior citizens who found a way to make up for their lack of retirement savings.
It didn’t take money, experience or intelligence to play the game. Anyone remember Casey Serin?
And then, of course, there were the real thieves…
Like Zimmerman, Alpan used to work on the other side of the industry, at a firm that sometimes handed out loans to the undeserving. … When one man didn’t have the gas money to come in and sign papers, an officer drove the papers to him.
One Digital Risk employee came from a brokerage whose in-house motto was “Copy, paste, cut, delete. We’re not done until the loan’s complete!”
Quite a motley crew, wouldn’t you say?
An ordinary house, an ordinary Ponzi, an extraordinary amount of HELOC booty
The dollar amounts ordinary people withdrew from their houses was quite extraordinary. Perhaps thirty years ago houses were desirable as a shelter and a place to call home, but now, they have the potential to provide prodigious amounts of cash to people who would not otherwise have access to such large sums.
- The former owners of today’s featured property paid $130,000 on 8/5/1997. They used a $128,732 first mortgage and a $1,268 down payment — an amount equal to a modest security deposit on a rental.
- On 5/7/2001 they refinanced with a $160,000 first mortgage.
- On 9/12/2003 they obtained a $50,000 HELOC.
- On 9/10/2004 they refinanced with a $235,000 first mortgage.
- On 2/3/2005 they opened a $112,000 HELOC.
- On 5/11/2005 they refinanced with a $255,000 first mortgage.
- On 3/20/2006 they obtained a $125,000 HELOC.
- On 8/11/2006 they refinanced with a $413,000 first mortgage.
- Total mortgage equity withdrawal was $284,268.
This was not a special property. In fact, this is well below the median. These people were well down the property ladder, yet they still managed to obtain $284,268 in free money, and they didn’t do anything nefarious. Think about what the real crooks walked away with.