While a lot will be written about the U.S. government’s takeover of Freddie Mac and Fannie Mae, very little is likely to be said about the role real estate and mortgage fraud played in the run-up to the takeovers themselves.

With real estate fraud still labeled by the FBI as the “fastest-growing white collar crime,” and with a high percentage of mortgage loans containing overwhelming evidence of fraudulent claims, one would think that now would be the time that interviews with Treasury Secretary Henry M. Paulson Jr. would touch upon the F-word. Sadly though, it’s business as usual at all of the national media outlets covering this story. It’s as if they don’t even know to ask about real estate fraud, which of course is utterly insane:

At the very beginning of the current mortgage meltdown and resulting foreclosure epidemic, a small group of people–myself included–pointed out the true main cause of this mess–fraud. Most people I talked with either didn’t understand or disagreed, including a lot real estate professionals and–not surprising–members the national media. Most still think today’s mess had more to do with irresponsible lending on the part of consumers, the popularity of poorly conceived mortgage loan products, and a long overdue market correction in property values.

The truth then as it is now, is that fraud is at the very root of the problems we’re experiencing.

Unfortunately, getting the national media or the real estate and mortgage industry to admit to this fact is nearly impossible. For the national media, it appears to be too easy for them to just tell the story as it is being fed to them by the government (in other words, they’re either lazy or don’t have the resources to dig just a little deeper). And for the real estate and mortgage industry, well, they just have too much to lose by admitting the truth. If fraud is a proven contributing factor to a borrower’s defaulting on a loan, the mortgage lender is required to buy the bad loan back from Fannie Mae, Freddie Mac, or the Wall Street Firms who sold the loan to investors.

Fraud has been and continues to be so rampant that acknowledging its role in this mess would lead to the mortgage banks having to buy back billions of dollars in bad loans, which they simply cannot afford to do.

The current state of denial about fraud is only making the problem worse. Until the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and the real estate and mortgage loan industry all wake up and admit to the problem, the fraudsters will be free to continue in their ways with no thought of the future mess they’re causing.

Senior White House officials, along with top brass from the Federal Reserve, met earlier this evening with executives from Freddie Mac and Fannie Mae and reportedly told them that the U.S. government is preparing to place the two government sponsored enterprises (GSEs) under federal control. The plan, as outlined by The New York Times, would place both companies into a conservatorship, which means that their boards of directors and top executives would be replaced and shareholders would almost entirely be wiped out, but that the GSEs would continue operations with the federal government standing behind their debt.

Fannie Mae and Freddie Mac are privately owned but publicly chartered, and are considered critical to the stability of the U.S. housing and mortgage markets. Their current troubles have threatened to worsen the bursting of the housing bubble, which along with significant levels of fraud, has led to a surge in foreclosures.

The U.S. Treasury Department and the Federal Reserve recently took steps to increase confidence in both organizations, including granting them access to low-interest loans and removing the prohibition on the Treasury to purchase the GSEs’ stock. Despite these efforts, in the last year alone, publicly held shares of Fannie Mae and Freddie Mac have fallen more than 75%.

Just last week, Fannie Mae announced that the company’s chief financial officer, Stephen Swad, was being replaced by David C. Hisey, and that former Executive Vice President of Capital Markets, Peter Niculescu, would take on an expanded role as the new Chief Business Officer to replace Robert J. Levin, who is retiring as Executive Vice President and Chief Business Officer. The company also announced Michael Shaw would be appointed as the new chief risk officer and Daniel Mudd, the company’s embattled president and chief executive officer, would remain in place after a vote of confidence from the Board of Directors.

Tonight’s news of a government takeover comes just hours after the Mortgage Bankers Association released its latest National Delinquency Survey, which shows that the rate of U.S. home mortgages overdue or in foreclosure rose again in the second quarter. Among mortgages for one- to four-family homes, nearly 10% are currently at least one month overdue or in foreclosure.

From The New York Times:

Just five weeks ago, President Bush signed a law to give the administration the authority to inject billions of dollars into the companies through investments or loans. In proposing the legislation, Treasury Secretary Henry M. Paulson Jr. said that he had no plan to provide loans or investments, and that merely giving the government the authority to backstop the companies would provide a strong shot of confidence to the markets. But the thin capital reserves that have kept the two companies afloat have continued to erode as the housing market has steadily declined and the number of foreclosures has soared.

As their problems have deepened — and the marketplace has come to expect some sort of government rescue — both companies have found it difficult to raise new capital to absorb future losses. In recent weeks, Mr. Paulson has been reaching out to foreign governments that hold billions of dollars of Fannie and Freddie securities to reassure them that the United States stands behind the companies.