Breaking News: The FBI is probing Fannie Mae, Freddie Mac, Lehman Brothers and AIG in a broad look into possible mortgage fraud, sources say. http://www.cnn.com This news must just be in as I don't even see a story for it yet. Just a "breaking news" alert.
Not to discount the mortgage fraud part... but if they dig deep enough it's present in different proportions in every lending institution in the US. The *really* bad part is that in order to open the market to more people over the last decade there have been many new programs that were highly susceptible to default even if the underwriting guidelines were met to the letter. What used to be called "up for down" (I remember two guys that went to jail for that) was codified into "The Nehemiah Program" and a host of similar options with varying names. When you borrow more than the house is on the market for you can be pretty sure you're on thin ice. Add in a bevy of "interest only" loans, arms that are based on volatile indicators, and various sub-prime programs... it didnt even take mortgage fraud to destroy the lending industry. The fraud on top of it was just a bonus. Nonetheless companies that were driving this bus like Fannie and Freddie... the guys that create the underwriting guidelines... were merrily paying executive compensation in sums that could run a small country. If the government bailout comes to pass I hope they stiff them and send 'em a dismissal by email. It doesnt take a brain surgeon to run the engine of industry without ever adding oil... we oughta let a couple of MBA schools assign running the lending industry as extra credit projects. At least there'd be some accountability. A student that wants a good grade is more likely to excercise due dilligence than some guy thats gonna get a $15 - 20 million golden parachute even if he kills the company, and it'd be hard to do the job worse than it's been done to date..