Over the weekend, we had a chance to read a good amount of An American Epidemic: Mortgage Fraud — A Serious Business.
It was written in 2005, so it’s delightfully free of any ex-post crash reasoning.
The author, Michael Richardson, owned a Colorado mortgage company that was busted by HUD for processing too much fraudulent paperwork. This caused him to discover that unbeknownst to him his employees were (on their own) engaging in mortgage fraud, prompting him to write this book and try to warn the industry.
This alone is interesting — that even on the small-time level, there was an information problem (bosses not knowing what the underlings were doing) — and the book is rich with details about the nuts and bolts of mortgage fraud.
But beyond that, one point he makes clear — and remember, this is before 2005, so before the crash and before conservatives blamed government intervention in the housing market for the crash — is that the FHA’s subsidization of $0-down loans made it all possible.
If you make someone pay 10% or 20% of a house’s cost upfront, then there’s no way you can alter the paperwork enough to make an ineligible buyer buy a house for an inflated price. But once you drop that requirement, everything goes. You can sell any house to any buyer for any price as long as you put in the effort to falsify documents and go through the cumbersome legwork.
Want to ensure we don’t have a housing crisis again? Just reinstate downpayments, and you’ll be in good shape.
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