The Proverbs of King Solomon are full of warnings about consorting with the sinful: those who lie, cheat and harm other people. And those principles still hold today as JP Morgan Chase, one of the biggest US banks, confesses to knowingly writing bad loans for government housing agencies and lying about them for over a decade.
Bad mortgages, fraudulent foreclosures and unethical practices of all kinds on the part of the country’s major mortgage lenders contributed to the catastrophic housing collapse of 2008, and since then the US Department of Justice and other organizations have been pressing suits against the nations biggest lenders –and winning, with settlements totaling billions from Bank of America. JP Morgan Chase and others. And it’s not over yet.
The Justice Department uses a variety of laws and legislation in its quest to prosecute the mega banks. The latest round against JP Morgan Chase involves charges of violating the False Claims Act by knowingly originating non-compliant mortgages that were then serviced by government housing agencies the Federal Housing Administration and the Department of Veteran’s Affairs.
Those loans, wrongfully created and then passed on to hopeful homebuyers and small investors, were ineligible for federal insurance and failed to meet minimal quality standards. When the bad loans were discovered, Chase never informed the FHA and VA about it. What’s more, Chase admitted it had been doing this since 2002.
Those bad loans defaulted, as so many did during and after the collapse, which meant heavy losses for the FHA and VA – losses which eventually affected those agencies’ ability to issue other loans in a trickle down effect.
Like the other big banks caught red handed by the Justice Department, Chase admitted wrongdoing and paid up. But the implications of these actions – and the decade-old cover-up – have far reaching effects. Government housing agencies, including not just the FHA and the VA but also Fannie Mae, Freddie Mac and other agencies of the Department of Housing and Urban Development, are responsible for the majority of mortgage loans in the country, especially for lower income buyers.
For independent investors following Jason Hartman’s principles for building wealth from income property, efforts to clean up the messy lending industry are worth watching. It may not always be clear just where a mortgage originated and under what circumstances. Loans are serviced by secondary institutions and bought, sold and packaged in many different ways – so anyone holding a mortgage could be caught up in the bad dealings of the big banks. (Top image: Flickr/imagesofmoney)
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