Examining Lending Discrimination Practices and Foreclosure Abuses

53 Pages Posted: 26 Apr 2012  

William K. Black

University of Missouri at Kansas City - School of Law

Date Written: March 7, 2012

Abstract

The incidence of fraud in stated income loans is 90 percent. It is overwhelmingly the lenders and their agents that prompted these frauds. Over two million fraudulent mortgage loans were made in 2006 alone. It was overwhelmingly fraudulent loans to borrowers who lacked any ability to repay their loans out of their income that caused the housing bubble to hyper-inflate. Endemic accounting control fraud in the origination of mortgages led to creation of 'echo' fraud epidemics in other contexts, including widespread appraisal fraud, endemic fraud in the sale of mortgages and mortgage derivatives, widespread predatory lending targeting Latinos, blacks and the elderly, and endemic foreclosure fraud. Fraudulent lenders use compensation to create perverse incentives in which bad ethics drives good ethics out of the marketplace. Fraud begets fraud. The federal government, California, and dozens of financial firms have sued the largest banks for fraud, yet the Justice Department refuses to even conduct a meaningful criminal investigation of the largest banks. Absent vigorous financial regulators that understand control fraud and make reducing and sanctioning such frauds their top priority the prosecutors cannot succeed against an epidemic of accounting control fraud. Financial regulators who make the necessary criminal referrals and provide the FBI with the expertise to identify and investigate accounting control fraud mechanisms are essential if we are to prevent or prosecute an epidemic of such frauds. Effective financial 'regulatory cops on the beat' are essential to our ability to prosecute elite white-collar criminals.

Keywords: fraud, mortgage loans, control fraud, echo fraud, derivatives, predatory lending, financial regulation

JEL Classification: G18, G21, G28, K14, K22, K23, K42

Suggested Citation

Black, William K., Examining Lending Discrimination Practices and Foreclosure Abuses (March 7, 2012). Available at SSRN: https://ssrn.com/abstract=2045596 or http://dx.doi.org/10.2139/ssrn.2045596

William K. Black (Contact Author)

University of Missouri at Kansas City - School of Law ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

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