Should Homeowners Be Jailed For Taking Out Bad Loans?

To date, not a single mortgage lender has been sent to prison for their role in the financial crisis. At least one borrower hasn't been so lucky.

Charlie Engle, the drug addict-turned-ultra-marathoner profiled by New York Times columnist Joe Nocera this week, is currently serving a 21-month sentence in minimum-security prison for exaggerating his personal income on two so-called liar's loans, neither of which required additional verification.

"Everybody was doing it because it was simply the way it was done," Mr. Engle was caught saying on the wiretap that led to his convinction, Nocera notes. "That doesn't make me proud of the fact that I am at least a small part of the problem."

Engle's punishment stands in stark contrast to that of the Countrywide chief executive Angelo Mozilo, who personally pulled in millions of dollars from his company's embrace of low-documentation loans like Engle's. As a part of a deal with the Securities and Exchange Commission to settle fraud charges, Mozilo did fork over $67.5 million to the government for his role in the subprime crisis, no more than a manageable fraction of his overall profits.

Engle wasn't so lucky. Besides his imprisonment, he found himself forced to pay $262,000 in restitution to Mozilo's Countrywide Financial, by then owned by Bank of America.

Increasingly aggressive tactics have been implemented to recoup questionable loans since the subprime bubble popped. The debt-collection industry, for one, has made use of arrest warrants to obtain money owed, with the Wall Street Journal recently reporting that "20 judges across the nation said the number of borrowers threatened with arrest in their courtrooms has surged since the financial crisis began." One in three states, the WSJ noted, now allow the use of these "debtor's prisons" for those borrowers unwilling to repay loans.

Recouping investor losses has been the primary focus of the Security and Exchange Commission since the crisis first unfolded, with Citigroup fined $75 million for misleading investors last year. Goldman Sachs also agreed to pay a $550 million fine -- $300 million to the government, $250 million to investors -- after the SEC sued them for mortgage-related securities fraud.

Reports have recently emerged of homeowners being sued for mortgage fraud after taking out "no-doc" loans -- mortgages that require very little documentation. Courts have even turned to a new form of "debtor's prisons." Have you been a victim of such a lawsuit, or do you know someone who has?

Have You Been Sued Over A Bad Mortgage?

 

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Comments

[Mr Sick Of Greed]

03:31 PM on 04/12/2011

let's start by putting the entire Goldmans Sachs company in jail.....

[Jeanette DeBella Bogue]

01:14 PM on 04/01/2011

I now know why there are so many private prisons!

[DanBeach]

01:34 PM on 04/01/2011

US has the largest debtors prison system in the world...

[El Chingaso]

09:37 AM on 03/30/2011

First off, jail time costs taxpayers money. I worked in prison for 2 years, and the only people that belong in there are those who pose a security threat to average citizens. Someone who lied on a loan application is not a criminal threat and, by no means, should be wasting tax dollars with incarceration. Such matters are not the purview of criminal justice -- how outlandish -- and should be handled in civil courts. Banksters, on the other hand, need girlfriends in the joint who can bench press 400-plus pounds. Now that's justice...

[FaceReality2]

12:05 PM on 03/31/2011

"the only people that belong in there are those who pose a security threat to average citizens. Someone who lied on a loan applicatio­n is not a criminal threat"

So people who commit bank fraud and other white collar crimes, like Bernie Madoff, shouldn't be considered criminals and shouldn't be punished with prison time?

[cmr11]

07:59 AM on 03/30/2011

who ever approved their loan should go to jail.

[Greg Uchrin]

03:56 AM on 03/30/2011

YAY, Let's Bring Back Debtor's Prisons!

[FaceReality2]

12:06 PM on 03/31/2011

This guy is going to prison for bank fraud (misrepresenting his income in order to obtain a loan), not for owing money.

[zelda777]

11:52 PM on 03/29/2011

Should Homeowners Be Jailed For Taking Out Bad Loans?

No, silly, the bankers should be jailed for issuing the bad loans! Isn't loan sharking, you know, illegal????

Jail the bankers! Tax the Rich!

[nypapajoe]

11:28 PM on 03/29/2011

No! The question should be why haven't the bankers, brokers and insurers of default loans been indicted yet? That's the most important question! They conspired to create this catastrophe, they enriched themselves in the Billions of dollars and not one person from the financial sector has gone to court let alone jail! It's amazing that their are people in jail for possession of Marijuana but the bankers responsible for the greatest conspiracy to Rob our nation are still out there committing more financial monopolies to steal even more!

[Muhtadi]

10:47 PM on 03/29/2011

"Everybody was doing it because it was simply the way it was done".....

That sums this whole mess up - EVERYONE was doing it. Its time we stop playing the blame-game and realize we were all feeding at the same trough.

[ponziu]

10:38 PM on 03/29/2011

At least they will have a place to stay when the banks foreclose on them...

No, but seriously can someone please put those crooks in suits in jail for giving out bad loans just so they can increase their sales quota and later steal people's homes for pennies.

http://ponziu.blogspot.com

[Muhtadi]

11:19 PM on 03/29/2011

True, lenders were not very concerned at the time if the loan went bad because 1.) housing prices were moving up so fast that even a 125% loan-to-value mortgage would be above water in two years and 2) government was trying to buy votes by purchasing these loans from banker (via GSEs) thus injecting more money back so the banker so he could make another loan - which makes another voter happy that he now has something he can not afford. Of course this process also gets the original lender off the hook if the loan goes bad because they no longer hold the note.

Now what you are saying about "stealing peoples homes back for pennies" is non-sense. If I loan you 100K to buy a 100K house and you default on the loan while at the same time the value of the property drops to 40K, the lender just realized a 60K loss.

I am not sure how everything thinks all the bankers profited from the collapse. It's just absurd.

[FaceReality2]

12:21 PM on 03/31/2011

"I am not sure how everything thinks all the bankers profited from the collapse"

The banks made money from making bad loans by selling the loans to other parties, thereby shielding themselves from the risk of default. The loan originators sold the loans upstream to bigger banks (making a commission of around 4% on each loan) who then bundled them and securitized them and sold the securities to unsuspecting investors (including Fannie and Freddie after they lowered their requirements to try to maintain their market share in the secondary mortgage market), making huge fees and commissions in the process.

When the house of cards collapsed, many of the banks got caught with a huge inventory of these crap securities. Some of them had been stupid enough to buy them to satisfy their reserve requirements (remember they were rated AAA by the ratings agencies).

Alan Greenspan, acolyte of Ayn Rand, was forced to admit that the Free Market failed here for want of what he called "counter party vigilance" caused by these default risk avoidance schemes.

[Arts4u]

07:47 PM on 03/29/2011

And what about the banks and developers who willingly participated in the sale of new houses which aren't worth the dirt they stand on...?

'Here in the U.S., few understand that defective construction is extremely expensive to fix. Quickly built McMansions are primarily at risk of water damage from leaky flashing, windows, etc. Once water seeps in, then mold starts growing inside the walls, floors peel up, drywall crumbles, etc.

A few years without maintenance, and that shiny new development of McMansions becomes a "gated ghetto." From bucolic bliss to 'gated ghetto' (Los Angeles Times)

Big builders have learned how to game the U.S. legal system to evade responsibility for defective construction--please see homeowners against deficient dwellings for more on this and related issues. And of course, going bankrupt and disappearing always works, too.

Shelter is not the same as speculation. In the rush to get rich quick, the two have been seen as identical throughout the world. Speculation is a mindset, a frenzy of greed, numbers in an account, "the stuff dreams are made of;" shelter is a physical reality, an assemblage of materials in the tangible world which require care in assembly and in maintenance.

The difference between financial speculation and buildings will become ever more apparent in the coming decades as buildings built on the sands of speculations fall apart.'

http://seekingalpha.com/article/198729-chinese-construction-and-u-s-mcmansions-when-things-fall-apart

[mn gopher]

05:41 PM on 03/29/2011

Is it okay that there was no verification by the lender? No. Did he commit fraud and sign documents stating how much he "made".............. yes.....

It doesn't matter that "everyone" was doing it...

[FaceReality2]

12:25 PM on 03/31/2011

The bankers should have been required by regulation to verify borrowers' income and assets. But of course the baggers and wackadoodles preach that regulation is bad.

And yes of course the borrowers committed bank fraud by misrepresenting their income, perhaps in conspiracy with the loan officers encouraging them to do so.

[tgiovanni]

04:36 PM on 03/29/2011

On the bright side, that homeowner going to jail will have roof over his head, regular meals, and health care.

There isn't much difference between being a slave to the bank, or a prisoner of the state.

[krumudgen]

06:56 AM on 03/30/2011

As the saying goes..."three hots and a cot"

[pompous]

01:37 PM on 03/29/2011

Homeowners who knowingly commit fraud i.e. lie to get a loan, cost of home far exceeds income and have no intention of paying mortgage, homeowner chooses to stop making mortgage payments when they are financially able to make payments should suffer some penalty financial or otherwise. Mortgage bankers, loan officers et. al in the event that they knowingly commit fraud or assist in fraud should suffer a penalty and jail if the fraud is widespread/sweeping. Homeowners have a responsibility to know what their payment is, they should know the type of mortgage they have and how that mortgage will or could affect their payment, will they need mortgage insurance. The mortgage products created were an effort to democratize homeownership across the economic strata by increasing access to homeownership. In the midst of this equalizing strategy many on wall street saw the opportunity to line their pockets. Americans, including the well educated, began to believe that housing values could only go up or use equity as a bank to fund vacations, cars, boats, etc. Fraud, regardless of its origins, only weakens the system and ruins it for law abiding citizens. whe

[Get RealSoon]

03:51 PM on 03/29/2011

California Civil Code
2923.1. (a) A mortgage broker providing mortgage brokerage services
to a borrower is the fiduciary of the borrower, and any violation of
the broker's fiduciary duties shall be a violation of the mortgage
broker's license law. This fiduciary duty includes a requirement that
the mortgage broker place the economic interest of the borrower
ahead of his or her own economic interest.

Weather you believe what Homeowners need to know about mortgages is an opinion. Mortgage Brokers had the financial licensed background, which is why they are employed to by the Homeowner in the 1st place. Working in the borrowers best economic interest. Just like your doctor and mechanic have a fiduciary duty to service. It is not your job to go to medical school or become a mechanic before hiring there services.

Lenders were to use form 4506-T form to verify the borrowers income through the IRS. No such law ever allowed stated income no doc loans. It was simply made up.

"If the borrowers income can not be verified by statements or taxes then the broker is to use a Global Salary Calculator using the average income"-Freddie Mac.

I doubt any borrower filled out a hand written income application.

I mean no punt towards your comment. I'm hoping to just add a better understanding of the fraud.

[considerthis]

12:54 PM on 03/29/2011

And besides, the private prison business has not been doing well lately and profits are down, especially in Texas. We must find more ways to incarcerate people so these busnesses can thrive.

[changling]

12:28 PM on 03/29/2011

Stupid question. Jail those who made those bad loans. They did it knowingly and often lied to get the customer to sign.