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Monday, July 09, 2007

Mortgage Fraud: East Coast, West Coast and Everywhere in Between

Last Thursday’s Wall Street Journal discovered on the West Coast what we already knew on the East Coast: that mortgage brokers could be a key part of the unraveling of the sub-prime mortgage market. Undoubtedly there are more examples in between the two coasts and other places to lay blame, but what the article and the Dawson "mortgage fraud" case shows is how the mortgage origination business is, as Chuck Schumer puts it, is like "the wild, wild west."

Origination companies are likely getting more attention these days then they might wish. Not only is Schumer pushing for new regulations governing everything from background checks to establishing a fiduciary standard for brokers, but the New York State Attorney General’s office is looking into the matter as well.

This should come to the brokers as no surprise because they are apparently unwilling to police themselves. Statements from the National Association of Mortgage Brokers seem totally off the mark if the goal is less regulatory scrutiny. Their strategy is to point fingers: "There’s plenty of blame to go around," says Joseph Falk, the association’s legislative guru of the sub-prime mortgage collapse.

He may have a point, but there’s a reason mortgage brokers are known as "originators," so perhaps the problem originates with them.


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