There was something fitting last week in the wave of arrests of mortgage brokers and others on the lender’s side of the mortgage transaction. The feds arrested some 400 people in Operation Malicious Mortgage. Locally, the Santa Clara County (Silicon Valley) D.A.’s office arrested a mortgage broker.
Up til now, the pain in the mortgage meltdown has been mostly felt by the borrowers who signed up for loans with impossible terms. Homeowners have been losing their homes while the folks who sold them the loan, with a wink and promise that they’d never really have to pay back the loan on those terms, kept enjoying the commissions they garnered on the deal.
Now it appears law enforcement has started to investigate the claims that were made both at the inception of the loan and when the originating lender sold the loan upstream to Wall Street and pension funds. The broader impact of rotten lending is encapulated in the suit by the Arkansas Teachers Retirement Fund against Countrywide Mortgage. Unsuspecting investors thought they were putting their money in sound loans, made to solid borrowers and backed by real equity in homes.
I see this as a step toward justice: the closer the brokers were to the transaction, the more they were liable to realize that the borrowers had no real capacity to repay the loan on any terms. The loan was merely setting the borrower up to lose the house, by sale or foreclosure.
