Yet more subprime fallout: Fraud, pressure tactics on appraisers and more

Yes, that's a bit of the laundry list of the subprime loan crisis, and its dirty laundry leading up to this point, with details here.

It includes shady mortgage brokers forcing appraisers, or trying to, to raise home prices; fraud committed on electronic documents; last-minute surprises (which, in my opinion, have been the modus operandi for a certain part of the real estate profession for years but have gotten worse); suspicious activity reports up 9 times since 2001 and doubled in the last year; and more.

Here's the root of the problem:

Unlike banks, many of which are supervised by federal regulators, mortgage brokers are regulated state by state. And state rules and licensing procedures vary widely. In about half the states, a single mortgage broker with a license can open an office staffed by an unlicensed sales staff, according Hagar.

Worse, bad mortgage brokers who are banned in one state can move to another relatively easily - without being detected by regulators in their new home state. Though many lenders maintain their own private databases of bad actors, what's needed is a national database to track the worst offenders, according to Capouano.

It's exacerbated by this:

Federal regulations do apply to so-called “conforming” loans sold to quasi-government agencies like Freddie Mac and Ginnie Mae. Loans insured by the Federal Housing Administration, the Depression-era agency set up to manage the world's largest mortgage fund, also carry strict guidelines.

But oversight of those loans has been getting looser, according to HUD Inspector General (Kenneth) Donohue. Beginning about a year ago, FHA began allowing approved lenders to keep their mortgage application files on site instead of forwarding them to the FHA, which now spot checks about 6 percent of those applications, he said.

“We live by the review,” said Donohue. “It's at that point - often we get tips and we have a hotline - but it's at that point that the referrals are made to us. So if you find a red flag in that loan file, it might take you back to a bad lender. You track it backwards.

“Do I think that a 6 percent review of the total universe is acceptable? You can only imagine how much you might be missing in the process,” he said.

Donohue himself said this could become like the 1980s S&L crisis. Problem was, other than the taxpayer bailout, it didn't hit middle-class families as much as this likely will.

Yes, it does sound alarmist, and I've been accused of being so, but this thing looks big.

And, what if gas prices do an inflation-adjusted 6 percent climb each of the next three summers? By 2010, real gas prices are up 20 percent in the middle of this mess. A 7 percent per year climb, compounded, puts us at a 25 percent overall hike.