Fraud and the Bubble

In a past life, I helped with the database integration of one of the first commercially successful neural net credit card fraud detection systems. I learned a lot there about how fraud artists think and operate.

I wonder what percent of the mortgage equity loans were sent south of
the border as remittances prior to default and foreclosure?

There are lots of ways to get money out of a bank. One of the best ways to rob a bank is to own it–or work there. What we saw with credit card fraud, is that folks would come to the US, often from Nigeria or the Far East, and bring with them either complex social networks(in the case of the Nigerians) or ability to operate substantial factories producing counterfeit credit cards back home (in the case of Chinese Gangs).

Credit card fraud tended to take a fair amount of work for modest returns. I would suggest that if folks are willing to set up multiple fake ID`s and manufacture a credit history for maybe, $5-10K in return, they`ll do a lot more to such $50K-$100K in real estate equity loans out of a bank.

When I worked in credit card fraud, we had fraud gangs operating in every major bank. One fraud gang operative that got arrested was a very gregarious and nice looking man who worked 10 feet from me–and got arrested a few months after I left that job. I was told by the experienced investigators that fraud gangs had infiltrated every major bank, every major credit bureau and ever major regulatory agency.

Some of the more involved operations included features like introducing a shy programmer at a large bank to a “girl to good to be true”–and her friends heroin and crack. That programmer walked out the bank a few weeks later with a tape that cost that bank $10 Million.

I would suggest organizations capable of doing that sort of thing can do quite a lot more. That might include even developing subdivisions where the specific purpose is to funnel money out of a bank-and giving equity loans to people that aren`t even citizens–and are willing to cooperate because they know they can leave the country when the hammer drops.

When that kind of pattern is established, there are a lot of folks who might be playing follow the leader. All they know is that they have a paper profit and they can send money to trusted relatives back home. Current US bankruptcy laws essentially mean their credit rating could be messed up for life–but would they really care if they are retiring to a nice house in a warm country with people they love?

When I was working in this business, banks typically hid substantial fraud losses. Banks also typically hide the fact that they are hiring foreign nationals visa programs like H-1b(one way is by hiring “body shops”) to manage key financial resources.

This makes it all very hard to figure out what is going on precisely. However, it is clear that many of the companies getting bailouts in recent years have been intense users of H-1b and similar programs and it is clear the big areas of mortgage defaults have been destinations of a very high level of immigration. I think we need a lot more in depth investigation of the connection here than has been done to date.