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Mortgage fraud: borrowers can face charges

During the housing boom a few years ago, it was common practice for big banks in the real estate industry to take a deliberately rosy view of borrowers' ability to repay loans. Countrywide Financial, at one time the nation's leading mortgage lender, essentially made it a business strategy to find ways around traditional underwriting requirements.

It seems odd, then, for federal prosecutors to be charging a borrower with mortgage fraud for exaggerating his income on a loan application. Yet that is what happened in a recent case reported by NBC News.

The North Carolina man ended up serving a year and a half in federal prison. Given the emphasis the U.S. Justice Department is placing on white-collar crime, this kind of case could occur in St. Louis as well.

We now know that big banks bundled their loans into the problematic credit instruments that triggered the financial crisis of 2008. Those same banks, of course, received billions of dollars in bailout funds as federal regulators scrambled to pull the economy back from the brink of disaster.

So how did federal agents end up going after this particular man for mortgage fraud? He had appeared in a well-received documentary film about distance running in the Sahara desert. This, in turn, landed him an appearance on "The Tonight Show." An IRS agent who saw the man's interview with Jay Leno wondered how someone could take so much time off work and still maintain his income.

The IRS agent began investigating the man. The investigation included hundreds of hours of review of bank and tax records, as well as electronic surveillance. The agent even looked through the man's trash seeking additional clues.

Eventually, the agent, while wearing a wire, caught the man making a statement about taking about "liar loans." Those loans, common during the real estate bubble, did not require lenders to verify a borrower's ability to repay the loan.

Source: "Borrower targeted for mortgage fraud, while bankers got bailouts," NBC News, Rock Center with Brian Williams, Sopan Deb, 11-14-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our St. Louis white collar crime defense page.

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