Subprime Fiasco Fed by Fraud

Certainly, lots of honest, innocent people got duped into signing loans they couldn’t pay and now need help with their adjustable-rate loans, as President Bush is now proposing.

But a surprisingly large number of them, it turns out, not only can’t pay but never intended to — because they’re common thieves.

Fraud committed both by shady loan brokers and by devious borrowers, combined with poor underwriting, may account for up to 25 percent of subprime mortgage defaults made last year, reports Fitch Ratings, which analyzed a sampling of defaults.

The 2006 vintage of subprime mortgages performed much worse than expected, even when taking into account risky products and falling home prices, the rating agency notes.

In the latest report, U.S. retailers' sales rose just 2.5 % last month. The slowest-growing holiday shopping season in five years. Shoppers spent less per person on Black Friday than a year ago according to the National Retail Federation.

Sales at stores open more than a year fell 2 percent as shoppers cut back after a Thanksgiving weekend of price discounts said UBS. Goldman Sachs analysts lowered profit estimates last week for 2008 for 12 retailers

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The ignominious group is infamous for early payment defaults, or loans that went bad in less than a year, sometimes less than a few months.

After examining 45 subprime loans, the rating agency said it found at least the appearance of fraud or misrepresentation in almost every file, problems which largely could have been caught with proper lending procedures.

[Editor’s Note: Special: A Bubble on the Verge of Bursting.]

Problems included occupancy misrepresentation, suspicious credit reports, miscalculations of debt-to-income rations, and questionable incomes.

“Products such as 'no money down' and 'stated income' mortgages appear to have become vehicles for misrepresentation or fraud by participants throughout the origination process,â€