Congressional hearings on lending meltdown miss the big boat: fraud and GSEs

The Department of Justice and the FBI busted another mortgage fraud ring. This one involved more than $4 million in investment properties in New Jersey. Three members of the ring were arrested on Wednesday. Their fraud allegedly resulted in hundreds of thousands of dollars in losses to mortgage lenders.

I watched CSPAN for awhile on Wednesday as members of the House Oversight and Government Reform committee grilled key financial players about the lending meltdown that’s playing havoc with economies around the world. There was plenty to rant about—lenders basically pay for their ratings, something many of us already knew but others with retirement plans obviously didn’t. But this committee is starting at the top of the money chain. They should start at the bottom.

Sen. John McCain called Fannie Mae and Freddie Mac the “catalyst” for the meltdown and he got that one exactly right. It’s true that financial institutions were spurred by greed because of subprime mortgages. These instruments do carry high risk but they also carried the potential for high profits because of higher than normal interest rates. What the institutions could not know: the level of fraud in those documents.

I’ve said this before and I’ll continue to say it because it’s true. Via Fannie and Freddie, you could get a mortgage without real income, without a down payment—basically without accountability. These programs even tailored loans to conform to Islamic Sharia standards—I’m still waiting for an explanation for how you work interest into this type of instrument. Imagine the outcry if a government sponsored enterprise (GSE) tailored loans for Christians or Jews. This is a perfect example of why government and religion should keep a mutual distance.

Read my previous column (click 'References' below) about mortgage fraud losses, and then just go to the FBI website. Pick a field office and check out the news releases. You’ll get an idea of why lax mortgage lending standards were indeed the “catalyst” for this meltdown. And then ask yourself why Fannie and Freddie are still conducting business as usual. Many of the now worthless financial instruments are, in my opinion, a product of fraud. I believe the truth will eventually come out. Congress should be grilling Fannie and Freddie.I'd like to know exactly where my taxpayer money went. Congress set out to sail on a sea of questions, searching for answers. They're missing the big boat. No surprise there.