Wednesday, October 6, 2010

Where’s the Jail Time?

Almost as soon as the most recent recession hit, I began to read stories about the illegal activities in the real estate market. The one story I haven’t read since then is about arrests of the hundreds, or perhaps thousands, of mortgage brokers who broke the law by fabricating data on mortgage applications to allow them to sail through the approval process. They collected their fees or commissions; the rest of us are paying the price.

In bringing up children one of the more important lessons parents can instill is that actions bring consequences. Yet when it comes to illegal activity in the business world, that rarely seems to be the case. Oh yes, I know companies are fined – big deal. I’m talking here about individuals paying the consequences. There have been notable exceptions: Ivan Boesky, Michael Milken and Martha Stewart come to mind. Yet where are the little guys that made this mortgage mess possible – the ones who knowingly allowed borrowers to fabricate income for example?

Since nothing much has happened to mortgage brokers in the last two years, I suppose I will be disappointed. However, with the newest revelations about individuals knowingly signing false affidavits as part of the foreclosure process, I am once again forced to ask the question: where is the arrest warrant?

Take for example, Jeffrey Stephen of GMAC Mortgage LLC. Assuming the allegations are correct (see for example STOPA Law Blog) I think Mr. Stephen should be arrested for false statements to the court. (I’m not a lawyer, so I don’t know the correct terms – the point is lying to courts is clearly illegal—that’s why they have to sign affidavits.) To the extent Mr. Stephen’s direct supervisor knew he was signing affidavits without proper verification, he too should be subject to legal repercussions and termination at the least. If at some level within the GMAC hierarchy someone really didn’t know what was going on, that person should also be fired for incompetence – they should have known.

Will this happen? I’m not holding my breath.

~ Jim

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