Cow Dung in the Real Estate Industry

In my 26 years of mortgage banking, I held many positions. My two favorite ones were investigating mortgage fraud and monitoring our approved wholesale broker business for early defaults, early payoffs, fraud, etc. The brokers and real estate agents I came into contact with were hard working, ethical beings for the most part. It’s a hard business and can demand a full 24 hour day just to make sure you keep the clients happy and the deal stays with you and not your competition. Many of the other brokers and real estate agents, however, were Cow Dung.

The WSJ ran an article today regarding “buy and bail,” a not so new practice that is gaining in popularity with the housing downturn. Basically, the poor homeowner can’t afford their existing residence anymore since they elected stupid financing for it to begin with. But! They have maintained an average FICO score. So, they can shop for another new home, obtain financing for it and tell the new lender they’ll lease their existing one OR that the existing residence is pending sale. Then they close on their new home. Their actual intent is to just let the previous residence go back to the bank. Good riddance! Hasta-la-bye-bye!

The Cow Dung (read realtors) that assist in these transactions see it as a personal choice. Enter Linda Caoili, an agent in Sacramento, CA, who evidently spends her time and efforts in assisting these poor, strapped homeowners in successfully defaulting on their present mortgages (and makes money doing it):

“It’s just a business decision…If you’re upside down $250,000, why would you keep it? It just doesn’t make sense.”

Ms. Caoili is working with Ms. Augustine – a day care provider who was a first time homeowner and took out 100% financing for her $426,000 home purchase in November, 2006. Gee, I wonder, Ms. Augustine: Did you initially get interest only financing, on a stated or no income program with a marginal credit score to qualify for your $426,000 purchase? You operate a day care service out of your home. Hmmm, let’s see, what did you state as your income? How much can a day care provider make working out of their home?  Let’s look that last one up on

So now, Ms. Augustine has to find a new home fast using the “buy and bail” method before the lender catches on. Ms. Caoili will assist her in this endeavor and happily pocket her sales commission, knowing she’s made one more client all the happier. And. One more lender gets screwed by mortgage fraud.

Fannie Mae and Freddie Mac better tighten those underwriting standards fast.  Or they’ll be covered in Cow Dung.


1 Comment

Filed under Fraud, Mortgage Brokers, Real Estate Agents

One response to “Cow Dung in the Real Estate Industry

  1. I was a hedger and mortgage-backed securities trader for Freddie Mac back when they (briefly) hedged their securities offerings in the early ’80’s. At the time, Freddie was just changing over to a new way of packaging mortgages into various kinds of securities, with different risk and pay-out profiles. Prior to 1983, Freddie was not allowed to have a portfolio of mortgages- it bought mortgages, took a chunk of the yield for servicing (s & h) and packaged them as PC’s, which it sold to investment bank traders who bought for investors- often banks who wanted to manage their risk. Since then, Freddie has been holding larger and larger unhedged portfolios and has also apparently relaxed the standards for its loans- its standards used to be THE industry standard. I’ve been stunned to hear of the “no down payment” phenomenon. This was unheard of 20 years ago, or even 15 years ago when we bought our house.

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