The BBC has an article regarding how the FBI has arrested 406 individuals with whom are suspected to have committed mortgage fraud. While I agree that lying to customers is wrong and should be punished at a civil, potentially criminal level, I disagree with the final quote of the article.
“Mortgage fraud and related securities fraud pose a significant threat to our economy, to the stability of our nation’s housing market and to the peace of mind to millions of Americans,” said Deputy Attorney General Mark Filip.
Mortgage fraud does not pose a significant threat to our economy. The Federal Reserve System is a significant threat. It caused the housing boom, and subsequently, caused the housing collapse. By dropping the interest rate so low, the Fed spurred nonsustainable growth in the housing (and investment) market. Everyone saw housing as a great investment, because it was a great investment. Housing Demand shot up because the supply of money shot up. Then, once they realized their mistake, they jerked the interest rate up. Well, now all of those great investments are no longer great investments. Some people used mortgages that make strong business sense to use if there is significant growth in the housing market, like there was. Well, those tools really hurt their owners once the Fed starts raising interest rates dramatically. Well, 3-4 years later, after an interest rate roller coaster ride, we are left with a housing market collapse, people blaming mortgage lenders for their own choices (read mistakes) and bureaucrats trying to pin the whole thing on a scape goat (read mortgage lenders).
To summarize, the Fed caused the housing boom. The Fed caused the housing collapse. Having the money supply controlled by bureaucrats is a destiny of failure and inflation. Will we learn? Probably not, unless all 300 million Americans read (and agree with) this blog, which we know won’t happen.