Hope you don't need your dictionary for the title....

I will focus today on fraud that is legal (at least so far) and point out just a few (more) examples - a few more items that should drive you to outrage.

Will they?  History says no, but Don Quixote needs his windmills.....

Let's start with the simple - "Down Payment Assistance".  There is yet another of these "charities" that is circulating petitions to try to get this scam restored - a scam that the recent homeowner "assistance" bill killed (one of the good elements of that bill.)

Let's talk about why this "program" is in fact a fraud upon the public - no matter who the provider is.

Let's take a hypothetical $100,000 house you own.  You put it on the market for $100,000.

A "buyer" comes to you and has no down payment, and thus can't qualify for an FHA loan (which requires 3% down.)

You take a $100,000 contract on the house.

But you don't get $100,000.  You "agree" to make a "donation" to the DPA company in the amount of the $3,000, plus an "administration fee" of, say, another $950.

So you received, in fact, $96,050 for the house.  But of course you paid 6% (real estate commission) on the full $100,000, not on the $96,050!  Your Realtor loves this little scam since he makes more money.

From the buyer's perspective, they paid $97,000 for the house; they got $3,000 from the seller.  The buyer likes it too, although in fact he probably got screwed, because the seller is less likely to reduce his price and pay the bribe, er, graft, er, "assistance".

But wait - what is the price recorded at on the HUD-1?  Ah, there's the rub, eh?  The HUD-1 shows a $100,000 transaction!  So does the lender, so does the title transaction, etc.

So everyone else in the neighborhood now has a "comp" on the house for $100,000, which pumps the price of their houses by 3%, and the lender is instantaneously upside down by 3% and change, as the actual value of the home is $96,050.

The actual sales price of the house wasn't $100,000. 

This sort of intentional false statement is supposed to be illegal.  In fact, it is supposed to be a federal offense.  But through this "loophole" hundreds of billions of dollars has flowed, with many "charities" making plenty of money (and paying very nice salaries) to their executives and employees.

Laundering the money through a third party doesn't change the fact that what really happened was a nearly $4,000 seller's concession on the sales price, with the "charity" grafting off almost a quarter of it!

Yeah.

Worse, FHA has that 3% rule to insure that you have some skin in the game and can manage to save the 3%.  Of course this "no money down" program voids that part of their program, so now one of the principles of soundness and safety of long-term lending - that you can manage money well enough to save up a down payment - has been destroyed.

These so-called "charities" are, in my view, nothing of the kind.  A 501c(3) must exist for bona-fide charitable purposes.  What's "charitable" about intentionally misrepresenting the sale price of a house and destroying one of the pillars of sound mortgage lending?

Where are the cops - in this case, the IRS?

Next up, you'd think that with mortgages getting harder to get and underwriting tougher, fraud would be on the decrease, right?  You'd be wrong.

The study found that the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42% compared with the same period in 2007.

The big jump was a surprise even to MARI. "We were stunned," said spokeswoman Jennifer Butts. "It shows that some folks [in the industry] are desperate."
....

The most common type of fraud that MARI found pertained to employment history and income. Many applications exaggerated how much borrowers earned and misrepresented their job descriptions.

The biggest increase came from a jump in the number of undisclosed or incorrectly reported debts, liens and judgments.