A lot of frequently credible publications have been pumping out drivel lately blaming borrowers for the ever-widening foreclosure fraud scandal. Fortune Magazine has the latest of these blame-the-borrower narratives. It would be nice to be able to dismiss this kind of nonsense as mere journalistic laziness, but at this point in the crisis, blaming the borrowers is an act of willful ignorance.
The Fortune scribe resorting to this grotesque journalistic vice is Fortune's Duff McDonald. McDonald's argument? Pretty lousy. He openly acknowledges that he hasn't done his homework:
"I find it very hard to process the notion that the onslaught of foreclosures in this country does not have more to do with a failure of conservative financial planning than with some insidious criminality by lenders . . . . I'm amazed that the country has congealed into the belief that every single borrower who signed a mortgage document has an escape hatch that somehow puts blame on their lender when they can't pay their debts . . . . I am at a loss to understand how so many individual homeowners signing loan documents for debt they could ultimately not afford were somehow the victims of a crime."
Four years after the subprime meltdown began, Duff McDonald still hasn't bothered to investigate fraud in the selling of mortgages. I'm getting pretty tired of writing this statement: In 2004, the FBI warned of an "epidemic" in mortgage fraud, 80 percent of which is committed by lenders. There was an entire Congressional hearing devoted to fraud at Washington Mutual. Loan officers and mortgage brokers are perfectly capable of falsifying a borrower's loan application, and they're perfectly capable of telling a borrower they're getting a great 30-year fixed-rate mortgage while selling them a subprime mortgage with exploding payments, adding a zero to the value of the house, or anything else. That's fraud, it's illegal, it happened all the time, and it was perpetrated by handsomely paid financial professionals.
To be clear, this does not mean that "every single borrower who signed a mortgage contract" should be eligible for unlimited government giveaways. But to be equally clear, I haven't seen anybody make that argument, and I don't know why anyone would. It was an $8 trillion housing bubble—there are plenty of scuzzy borrowers out there, like the 20 percent from the FBI statistic.
Do Americans buy big, ugly, expensive things? Yes. Does that mean banks who defraud and deceive people should be let off the hook? No.
The document fraud currently being uncovered in foreclosure proceedings represents just a tiny fraction of the legal mess that bankers have made for themselves. Any half-decent investigation into the document troubles in the securitization of mortgages is very likely to show that investment banks routinely defrauded their investors. Any investigation into the sale of mortgages to borrowers is all but certain to show that banks routinely defrauded homeowners.
McDonald also throws in a pretty sad defense of JPMorgan CEO Jamie Dimon's wonderful "sense of ethics," glossing over all the horrible things JPMorgan did under Dimon's watch. JPMorgan is currently hiring thugs to illegally break into people's homes. The bank issued over $30 billion in subprime mortgages during the housing bubble. It bribed public officials into fleecing their own communities. It may very well be the case that Dimon is a better guy than other big finance execs. That's not saying much.
The entire piece reads like a stereotype of the captured-financial-journalist-in-awe-of-his-subjects. Which is disappointing, because Duff McDonald frequently writes good stuff.
