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By Ralph Roberts

RISMEDIA, Oct. 8, 2007-Recently, I was discussing the mortgage meltdown with a reporter who made the mistake of asking me who or what I believed was primarily responsible for the mortgage meltdown and housing crash of 2007. My reply consisted of a single word: “fraud.” My conservative estimates target fraud as being responsible for at least 80% of the problem, and most of this fraud was perpetrated by industry insiders (both in the real estate and mortgage loan industries) on the consumers.

Of course, there is plenty of blame to go around. If consumers were not so greedy, using their homes like ATM machines whenever they needed an equity fix, perhaps the problem would not be so widespread and so deep. If fiscal conservatives were in charge of running the government at federal, state, and local levels, maybe we would not have a culture built around deficit spending. If politicians hadn’t agreed to ship manufacturing jobs overseas and open our markets to free foreign competition, maybe Americans would have more money to make house payments. If we had universal healthcare coverage, people wouldn’t end up in bankruptcy whenever they needed surgery.

I could go on, but from what I have witnessed in the real estate and mortgage loan industry comprises a concerted effort on the part of industry professionals and insiders to fleece the consumer. Cash back at closing schemes caused a huge part of the problem. When homeowners purchased their homes, many of them would borrow in excess of the property’s true market value-sometimes hundreds of thousands or even millions of dollars more than the home was worth. They were then stuffing the proceeds in their pockets as if they had earned it.

Some might say that in this case, consumers are clearly at fault. After all, they were the ones who benefited most from the scam. However, in a huge majority of cases, professionals were advising these homeowners, telling them that this was a perfectly acceptable practice, that “everyone was doing it,” and that you were almost stupid for not doing it. The professionals would even conspire to defraud the banks, lining up appraisers who were known to appraise houses at whatever target value the buyer, seller, and agent decided. In return, the appraiser won more business, and the loan officer and real estate agent “earned” higher commissions. Everybody wins!

Another tactic that mortgage lenders used to suck in clueless buyers consisted of selling consumers on adjustable rate mortgages (ARMs) that had teaser rates. When housing prices were spiraling into the stratosphere, fewer and fewer people were able to afford to take out a conventional mortgage to purchase a home. They simply didn’t have the income and savings required to obtain loan approval at the current interest rates. Instead of denying these high-risk lenders loans, the industry simply lowered the initial interest rate, so more people could qualify. Loan officers downplayed the fact that the interest rates would probably rise significantly months or years down the road. They told the buyers that they could simply refinance if the rate was too high. Unfortunately, when credit tightened, homeowners could no longer refinance with a conventional mortgage. Foreclosure became imminent.

During the big party when housing prices were on the rise and interest rates were dropping, mortgage brokers and the loan officers who worked for them, turned away few if any applicants. If you didn’t make enough money, they would encourage you to fudge the numbers on your loan application. To boost your credit score, you could simply piggyback on someone else’s credit card (this little loophole has been fixed). In some cases, the loan officer would simply have the applicant sign a blank loan application, so the loan officer could fill in the required information later-information that would be sure to win the applicant loan approval.

And this is just the day-to-day fraud. Professional con artists are also responsible for boldfaced scams that have ripped off homeowners and lenders alike. Armed with the Internet, technology, and know-how, these fraudsters could produce forged paperwork to score millions of dollars in mortgage loans for homes they never even bought.

What we are seeing now is fraud fallout. The system has been bruised and battered for too long. The very professionals who rely on the industry to feed them and their families have caused the problem, and many of them are now nowhere to be found. They scammed the system and left hard-working Americans to pick up the tab.

Ralph Roberts is a real estate fraud expert and activist and co-author of “Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership” (Kaplan, August 2007).

For more information, visit or contact Ralph at or 586.751.0000.