The New York Times is reporting that in several cities officials can’t keep up on mortgage fraud investigation cases.

The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said.

…

“I don’t think any law enforcement agency can keep up with mortgage fraud, because it’s such a growth industry,” said Chuck Cross, vice president of mortgage regulatory policy for the conference of state bank supervisors, an organization of regulators and bankers. “There’s too many cases, not enough agents.”

Mortgage fraud covers crimes like false statements on mortgage applications and elaborate “flipping” schemes that involve multiple properties and corrupt appraisers, title companies and straw buyers.

In one common flipping plot, someone buys a house, has it appraised for more than its true value and sells it to a straw buyer for the inflated price, pocketing the difference. The straw buyer lets the house fall into foreclosure, leaving the bank with the loss.

Why wouldn’t banks go after any money from the straw buyer? If the laws are written so you can simply walk away from a house without having to pay anything back, then we’re likely to see more and more fraud schemes revealed.

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Financial Times has a nice op-ed that discusses how despite liquidity injections from the central banks, commercial banks still can’t manage to straighten their mess out. (the full article was available earlier, but now requires free registration to be read in its entirety)

The combined central bank injection of liquidity last week was impressive. Still, more than five months after the interbank market froze, banks’ thirst for cash seems unquenchable. The central banks have done everything they can to keep financial markets orderly. They took the risk of feeding the moral hazard beast and what did they achieve? So far they have avoided the much-feared “Big Crunch”, but the end of the tunnel is not yet in sight. The time has come to ask the harder question: do commercial banks get it?

What are they drinking? We have an idea.

Obviously, shareholders do not like the dilution of their stakes, but this is what shareholding is all about. If a company has suffered, or is about to suffer, heavy losses, its shareholders will have to bear part of the trouble. Delaying tactics prolong the misery without solving the problem, which will not go away.

Shareholders have no problem enjoying immense profits during good times. It’s nice to see someone point out how delay tactics have no real effect in solving the problems. We’ve heard many delay tactics proposed for the mortgage markets such as bailouts and temporary rate freezes, but ultimately they have no effect on solving the problem.

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In our last post, we hinted at some discussion that this bubble is bigger than anyone had expected. After a weekend skiing in Utah, the KoolAidMan still couldn’t get away from Real Estate!

Throughout the day, several people had been discussing Real Estate. In the lodge restaurant, there was a table of three or four Realtors on their weekend ski adventure, enjoying their lunch and talking about how much money they made in the past few years (who openly talks about how much money they make?) and how things just keep going up and up. Later in the day, on more than one occasion, discussions were overheard with things like “I bought my PC (Park City) house in 98 for $250K and now it’s worth $1.5M. I’m trying to sell it now and that’ll be my retirement!”

We’re at a point where we’ve never been in history; we’re in uncharted territory. Who knows what’s going to happen. The only thing that is certain is that people are still drinking Kool-Aid and only listening to what they want to hear.

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Apologies to our regular readers who came here and didn’t see any new material in almost a week. The KoolAidMan was on another mini-vacation, hitting the slopes in Utah for an adventurous weekend, returning with a minor cold that required some additional recovery time.

One observation the KoolAidMan made, just by looking and listening, was that the housing bubble we’ve grown to love is much bigger than most people imagine. Stay tuned later in the week for the exact details.

Today is one of those days where there’s some mainstream news that makes this post’s title worthy of sharing the name of this site: DRINKING IS BELIEVING! CNN is reporting that Wall Street analysts are living in a fantasy land (and drinking the fruity red liquid).

Maybe Wall Street analysts are more honest and less compromised than they were pre-SarbOx, but recent events show that they’re still awful at their most important job: predicting bad news. They haven’t lost their habit of falling in love with the companies they cover and refusing to face unpleasant realities until everyone else has already done so. Now, eight years after they were inflating the bubble, we again have to question whether analysts do retail investors any good.

The latest evidence: Analysts have only just discovered that corporate profits in the fourth quarter aren’t going to be nearly as strong as they had supposed a month or two ago.

Drink, and ye shall believe! In other news, Morgan Stanley is writing off more losses and reporting a first quarterly loss ever.

Morgan Stanley posted its first quarterly loss ever Wednesday and stunned the rest of Wall Street by taking additional $5.7 billion mortgage-related writedown, while announcing a $5 billion cash injection from a Chinese state-run investment fund.

If you’re interested in setting up a site to track the mortgage and real estate loss writedowns by the big banks, email me and I’ll be glad to help you get it up and running!

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