The Structural Causes of Mortgage Fraud – The Core Institutional and Structural Components of the Mortgage Markets

James Charles Smith
University of Georgia Law School

Syracuse Law Review, Vol. 60
UGA Legal Studies Research Paper No. 10-14


Mortgage fraud, often a violation of federal and state criminal statutes, covers a number of different types of behavior, all of which have the common denominator of conduct that has the intent or effect of impairing the value of residential mortgage loans. Mortgage fraud has become prevalent over the past decade and shows no signs of diminishing despite the collapse of domestic housing markets during the past two years. This paper analyzes the complex relationships between prime mortgage loan markets, subprime markets, and various types of mortgage fraud. This paper concludes that the root causes of mortgage fraud are associated with the core institutional and structural components of mortgage markets, which cut across all types of residential mortgage products. The organizing principle is the historical evolution from proximity to distance within the mortgage market, which is explored along three axes. First, geographical distance between lenders and borrowers has replaced geographical proximity. The mortgage market is national, with local lending institutions no longer making a significant proportion of the loans that are originated. Second, transactional distance has replaced transactional proximity. Lenders and borrowers have little direct contact; instead intermediaries such as mortgage brokers, appraisers, insurers, and closing officers, separate the principals. Third, financial distance has replaced financial proximity. Previously both borrowers and lenders had significant financial interests in the mortgage loan transaction. The borrower had equity in the property, and the lender held the loan in its portfolio. Presently many borrowers have no equity (or negative equity) (due to fraud) in their homes, and due to the securitization of loans through the secondary mortgage market, few originating lenders retain a stake in the loans they create. Reforms that could serve to reduce borrower-lender distance or to ameliorate its effects include the fashioning of better closing procedures for verifying borrower identity, providing a premium for community-bank loans to local borrowers, making originating lenders liable for all misconduct by appraisers, requiring significant down payments for borrowers, and allowing secondary market purchasers full recourse against originating lenders for losses caused by borrower defaults. 

Full paper below…



8 Responses to “The Structural Causes of Mortgage Fraud – The Core Institutional and Structural Components of the Mortgage Markets”
  1. Alina says:

    “When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that justifies it.”

    Frederic Bastiat

    Mr. Bastiat made that statement over 150 years ago but it is very applicable to what has happened in this country.

  2. How sad, once again a learned source that has some very good content, but either does not get it or is sympathetic to the Banks while appearing not to be. There is no secondary market, the mortgages were all table funded, the Trusts are not Trusts but LLC’s that stay in good standing without ever filing a single annual return – they are filed in the Banksters onshore tax haven – Deleware and called Statutory Trusts – They are neither Statutory, nor are they Trusts!
    The loans were never securitized because the non-existant Trusts never took possession of the Notes or the Mortgages for the quite separate band of people the Banksters ripped off on Wall Street Municipalities around the world and anyone else that fell for their organized massive frauds.
    Neither, was it exclusively the Appraisers who caused the problem – they were like the people who escorted the victims of Nazi Germany to the “shower rooms’ they did what they did under the real threat of not doing another Bank Appraisal and were prepared to sell their souls to the devil to live an affluent life.
    Those responsible for this financial carnage are our government, other world power governments, lobbyists, the Banksters to include all the FSBs, their subsidiaries, the Federal Reserve, the Rating Agencies and hundreds of thousands of dishonest Attorneys who have created the tissue of lies around which this whole debacle revolves.
    When will we see some Doyen of the law, or better still a group of them, or a Supreme Court or our State or Federal Government stand up for decency, that most wonderful of gifts from our history – The Constitution of the United States of America and start publishing what they want us victims to do when appearing in Court to swear to tell the truth under penalty of perjury.
    Please feel free, unless you believe that this comment is factually inaccurate, which it is not, to publish it on your website and to reveal my name. I am an experienced Mortgage Loan Auditor, fighting corruption on a number of personal cases. Everything I say in my reports, my Affidavits in Support of Defendants in law suits has been researched in depth. We, the people are permitting this corrupt society in which we all live to flourish for the benefit of the dishonest and wicked people at the expense of the bulk of its citizens.
    Malcolm Doney

    • Good points, but were the Framers so foolish that they forgot to include any structure to allow citizens to obtain redress if they were victims of crimes?

      If the United States is a government of, by and for the people, why do we have to beg a prosecutor to prosecute crimes committed against us? Also, why do prosecutors refuse to present evidence of criminal conduct to grand juries even though they are required by law to do so if requested? See 18 U.S.C. § 3332.

      If you want to know why corruption and injustice is rampant now, see my article at the link below. By the way, although you were not taught this in school, injustice is the reason cited most often for declaring independence. See the Declaration of Independence at

  3. indio007 says:

    Mark sometimes you have to take the law into your own hands. No I don’t mean vigilantism ! I mean prosecuting as a private attorney general for the tort committed against the public interest. Scire Facia to start dissolving these corporations for violating their corporate charters and acts ultra vires. There are remedies but the whoring government officials won’t do their duties. They need to be taken out using these same legal remedies. Malfeasance misfeasance and nonfeasance of office. We have become cowardly in this country. 16th century Englanders would have took these people to task. We are weak.

    • The remedies that you speak of are ways to petition for civil redress to use the law to obtain damages and injunctions. While they are ways to obtain redress and deter misconduct, they are not as powerful as the means the Constitution provided to obtain redress for criminal acts.

      When seeking civil redress, you first must go through a judge to get to a jury, but when seeking criminal redress, we were supposed to be able to first go to the citizens on the grand jury. If the grand jury issued an indictment, then a criminal prosecution would ensue which until the 1930s could not be dismissed by a prosecutor or even a judge unless the indictment was void.

      As Patrick Henry said when speaking about the power of juries, “As long as I have existence, my neighbors will protect me.” Although this is commonly associated with the defense juries pose to unjust prosecutions, Patrick Henry was also aware and likely speaking of the power that the citizens on the grand juries have to investigate crimes and initiate the prosecution of criminals.

      Unfortunately, the right to present evidence to grand juries has been usurped, and now, those who can improperly influence the prosecutors can get away with any crime they want, from committing fraud to steal homes to rape and even murder. See my article at the link below for more information.

    • How Right this is! I have not been active in the Blog world but have been working against this evil corruption now for three years. I believe that my direct participation in the creation of a letter, together with others in our State and sent by a Not for Profit to the Florida legislature earlier this year, which evidenced and put on notice our elected representatives that if they voted for and passed into law the outrageous proposal to turn this State into a non-judicial state with back dated effect on all existing mortgages that they would be actively participating in the criminal hi-jacking of the Florida legislature. The day that letter was received was the day they pulled the Bills from both houses and it all happened before coaches left to protest in Tallahassee.
      Your proposal is along similar lines – we know our public officials, including the vast majority of our Judges and many of the Attorneys on both sides of the foreclosure actions are corrupt. If our government at State and Federal level cannot honestly conduct its business, our Courts have become little more than hangman’s courts, not for the ruthless routing out of criminals, but to criminalize the victims of organized Bankster fraud. Anyone doubting the validity of my comments regarding our Court system should pay a visit to a Rocket Docket, or any other foreclosure type of Hearing in the 20th Circuit, either in Lee or Port Charlotte Counties to see this “hangman’s court” in full swing, experience the criminality first hand, watch the victims of this modern day Mafia, ill educated in matters of law and used to being controlled and being complacent in the face of outright tyranny, being processed, much like hapless farm animals lining up in the stockyards on route to their unavoidable slaughter. People like you me and many others with whom we individually have contact need to organize, develop and implement an action plan to stop this mindless corruption – this is the United States of America – we are the people – we have the power – not the mindless crooks who think they have it because they believe we are so stupid we will continue to re-elect them based on their next set of lies. The corrupt media is not going to disseminate this material, those days of the press keeping them honest have long gone, it is up to us to use every possible means of communication to spread the word, to encourage the people to take action, especially to band together and file criminal prosecutions – the Courts, both Federal and State would be too busy to even think about processing fraudulent mortgage foreclosures and we would need to start a massive prison building drive to house all the new convicts.
      Malcolm Doney

  4. The author makes some good points, but as a law professor, does Dr. Smith really not know that laws are routinely ignored by those in power and those who can improperly influence them? Does he not wonder why some can violate the law with impunity? Does he not wonder why prosecutors don’t pursue these banksters for their rampant crime spree?

    If the United States is a government of, by and for the people, why do we have to beg a prosecutor to prosecute crimes committed against us? Why do we have to beg for any redress for the crimes committed against us? Why have the petitions of millions of Americans been ignored by the prosecutors?

    Since fraud is a crime, how come the banksters felt that they could commit crimes which resulted in the thefts of the homes of millions of Americans and get away with it? If you want to know why, see Why Does the Government Ignore Our Wishes? at and don’t miss my short speech.

    If you take a look, you’ll learn about the structural problem that allows some to violate the law with impunity, violate our rights, abuse their power, steal homes and commit horrible crimes. My article on torture includes a link to the U.S. Supreme Court case which explains how one of our stolen rights makes the difference between justice and injustice, between freedom and slavery. Read it if you want to know how liberty and justice were supposed to be secured under the Constitution.

    Read my article, listen to my speech, then tell all of your contacts because the lying scum in power want to keep the truth from you so that they can continue to abuse you and your family whenever they want.

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