A Long Housing Boom Won't Yield to a Brief Recovery

Scott Almeida had a problem.

Fresh out of jail and in need of some money, Scott needed to find a job quick. Florida’s housing market was red hot in 2002, so he thought he’d shoot for a mortgage license. Scott liked shooting things—when the cops busted up his cocaine trafficking business, they’d also found a large stash of assault rifles and ammunition.

Fortunately neither the coke nor the guns got in the way of Scott arranging mortgages.

Florida regulators overlooked the coke trafficking. And they didn’t ask for the police report that revealed Scott’s firearm collection. It didn’t bother them that Scott’s only character reference was a note from his mom… nor that the “reputable supervisor” he chose for his business was some complete stranger he happened to meet in the prison visitor room.

With his newly approved mortgage license, Scott got back to doing what he does best: crime. Over the next three years he committed over $3 million in mortgage fraud ripping off elderly and disabled borrowers everywhere from Tampa to Miami.

And Scott is hardly a special case.

The Miami Herald performed an eight-month study on Florida’s mortgage lending industry. They found that from 2000 to 2007:

• Regulators allowed at least 10,529 people with criminal records to work in the mortgage profession.
• Of those 10,529, nearly half cleared background checks after committing fraud, bank robbery, racketeering and extortion.
• More than half the people who wrote mortgages in Florida during the period were not subject to any criminal background check.
• Regulators allowed at least 20 brokers to keep their licenses after committing mortgage fraud.

All told, guys like Scott Almeida committed nearly $85 million in mortgage fraud. They committed 922 larcenies, 752 frauds, 327 burglaries, 161 forgeries and 67 robberies. And lest you worry that these were a bunch of white-collar financiers, they also threw in 835 assaults, 84 sex crimes and 15 homicides for good measure.

I would also point out the 253 illegal drug sales, but those might have been thrown in to sweeten a few deals.

I’ve written time and time again about the horrible lending standards maintained during the housing boom in this country. However, the Herald’s article blew away even my most cynical assessment. One particularly ambitious guy, Richard Crowder, committed over $37 million in fraud. By the time he was done he owned 14 waterfront units in South Beach. He’s now facing nine years in prison.

Countless analysts and pundits have tried to call a housing bottom in the last year. All of them are way off. The real housing bottom occurred back in 2003-2005 when coke dealers and murderers started arranging mortgages for the elderly in Florida.

In light of this and countless other lending abuses, it’s absolutely stunning to hear people act surprised that the mortgage meltdown continues today. The boom went from 2001 to 2005. Why would the bust take half as long?

Comments

[H-Bomb]

Does the title of this article makes sense?

[DRich]

OK. I just don't get this article. Is it a set-up for excusing all those crooks with Ivy League MBA's? The poor baby's were just led astray by the hardened criminal element and were forced to write NINJA loans and leverage them 50x with no reserve. OR, is it that those awful people that walked into mortgage offices and forced creditors to issue subprime loans were actually in collusion with the criminal element and that is what really brought down Fannie & Freddie. Just what is the point?
SIVs CDOs, default swaps, and 100 to 1 leverage, THE PROBLEM, is the result of the idiots that have been elected in the last 20 years that think that deregulating everything and free money is a great idea (and it is for those that are crooked & greedy). These are the crooks that say FREE MARKET, NO TAXES, NO RESERVE, NO OVERSIGHT, then run with pitch forks in hand straight to those they most hate demanding no-strings-attached help.

[ValueInvestor]

The Florida mortgage market was so fraught with fraud and theft its down right disgusting. Hearing some of the scams they pulled makes you want to pull your hair out, but being naive to the whole situation is just as bad.

Certainly this isn't the cause of the mortgage collapse, but it helped inflate Florida home values at greater levels than the rest of the country making it the hardest hit.

[Rokjok777]

Congratulations to DRich, who got THE RIGHT ANSWER: Free Market, No Taxes, No Reserve, No Oversight are the root causes of all this. It has become like received wisdom from on high (esp by Republicans) that deregulating everything is good and ANY government is bad; and that cutting taxes is always the answer. In the great reckoning that is unfolding, where America's creditors wake up and think about who they're giving credit to (the largest debtor nation on earth, obsessed with far-flung military adventures and nation-building), and slowly they are deciding that being repaid paper tiger money for their debts maybe isn't so clever. Pete Petersen is dedicating $1 billion of his personal funds to an effort to educate Americans to some of these facts. His initiative is called "IOUSA". Time to wake up! And no, Obama doesn't get it either. Ron Paul does but he was never taken seriously by the media machine.

[23 YEARAPPRAISER]

as an appraiser, i dont even want to tell you the illicit "things" i saw INSIDE of mortgage broker offices.......

many agents/brokers cant even spell or add........

or even tell you the name of the governer of their state.........

we wont see ANY market stabilization until at least 2011

[Can'tSpotABubble?]

Aren't you glad the House of Representatives today voted to give a blank check to crooks like this via the Fannie/Freddie bailout? Unfortunately you the taxpayer will be expected to cash the check with the fruits of your labor, and that of your children, and your grandchildren.

Let's just stop all pretense of a free market in America and call it what it plainly is.... Socialism without health care, roads, bridges, education, etc.

[CLH]

When you hire someone to do a job for you, you should check him out. Sorry I dont feel sorry for the borrowers who were just as greedy as the lenders.

[barnburner]

CLH, are you speaking of the Mortgage Brokers when you say "you should check him out" or the borrowers. If there had been regulations in place the Mortgage Broker would have had to ask the questions that should have been asked. As a borrower you have to make certain assumptions or your would never get through the process. For example, when one goes to a Mortgage Broker with a license on the wall you have to assume he has met some standards. How many people here that have bought a house, and I have bought many, went to the find out if the Mortgage broker or the Bank they used had met some standard criteria (which apparently in Florida is nearly non-existent)? OK, no one except CLH. How many of you read all the detail so the Loan as the mountain of paper was passed bye you to sign? What!, only CLH?

[PastTense]

How exactly were these borrowers being ripped off?

Right now it seems to me that the biggest group being ripped off is the taxpayer (who is footing the bill to bailout financial institutions which don't deserve to be bailed out).

[Ray Lopez]

Good repeat of the Miami Herald article. MH is a good paper.

[carey_jim]

The saddest news of all is that socialism is even worse.

The running dogs of capitalism are the sames guys who accompanied Mao on the long march.

Under capitalism, the strong, unprincipled and criminal exploit the weak, stupid and frail.

Under socialism the strong, unprincipled and criminal are the government.

It's a good thing when the government sticks to its role as referee and maker and enforcer of (good) laws.

But when the government contracts out the guarding of the chicken coop to the foxes ....

[ValueInvestor]

PastTense,

Borrowers were getting ripped off with false appraisals, so they paid way, way more than they should have.

Also, the banks were getting ripped off by a pretty outrageous scheme

It usually occurred when a condo worth $400 K is bought by a scoundrel, who then gets his scoundrel appraiser to appraise it for $700 K. They list the condo for $700 K and get another scoundrel to buy it for the $700 K because he has a scoundrel mortgage broker thats in on it and willing to lend that much. They pay off the original $400 k and keep the extra $300K, then let the mortgage go into foreclosure and all parties involved split the $300k. The buyers usually use false identities so they can't be found and the extra $300K they made is unrecoverable.