According to the Joint Economic Committee of the U.S. Congress, the most important cause of our current housing bubble was a massive credit expansion. An overly accommodative U.S. monetary policy from the second quarter of 2002 through the third quarter of 2006–when compared with the Taylor Rule–encouraged financial institutions to expand credit aggressively by reducing their short-term funding costs.

At the same time, according to the Joint Committee’s latest report– The U.S. Housing Bubble and the Global Financial Crisis: Housing and Housing-Related Finance [warning: pdf file]–stable inflationary expectations and the exchange rate policies in the People’s Republic of China and other Asian economies restrained long-term U.S. interest rates. Our housing prices soared as low long-term interest rates further encouraged the already strong demand among consumers for housing, while financial institutions enthusiastically supplied the necessary residential mortgage credit.

In plain English, a combination of government policy blunders and private sector miscalculations and mistakes underlie the inflation and deflation of the housing bubble. Fair enough, but I still say real estate fraud played a significant role in our current housing crisis, and for evidence of this one needs to look no further than to the financially lethal cocktail of risky high-rate mortgages and naive borrowers in many neighborhoods across central Ohio.

A wave of residential housing foreclosures during recent years has pushed property values down for the first time in decades, a new Columbus Dispatch analysis has found. The newspaper, which does an outstanding job of reporting on real estate and mortgage fraud, analyzed three years’ worth of HMDA (Home Mortgage Disclosure Act) data for more than 1.3 million mortgages executed across Ohio between 2004 and 2006. The Dispatch’s new series examines the toll of high-cost refinancings as well as the disproportionate impact on minorities, including African Americans.

From Bill Bush, Rob Messinger, Doug Haddix, Mike Wagner, Jill Riepenhoff, and Geoff Dutton of the Columbus Dispatch:

Mortgage meltdown: Think you’re unaffected? Think again

Sunday, June 1, 2008 3:26 AM

Virtually everyone is suffering from a mortgage hangover.

Even homeowners who never have missed a payment.

Even people who already have paid off their mortgages.

Even renters.

The financially lethal cocktail of risky high-rate mortgages and naive borrowers has taken a toll in many neighborhoods across central Ohio. A wave of foreclosures during recent years has pushed property values downward for the first time in decades, a Dispatch analysis found.

Thousands of families have lost their dream homes. Their neighbors, surrounded by orange foreclosure stickers and for-sale signs, have seen their homes lose value as abandoned houses blight their communities. And many renters have been pushed out of their homes because of their landlords’ problems.

The worst might still lie ahead.

Interest rates are scheduled to jump this year and next on another round of high-rate mortgages, known as subprime loans — typically adding hundreds of dollars to monthly mortgage payments.

“Subprime is going to destroy neighborhoods,” said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. “It’s hurt more people than it ever helped. It encouraged a culture of recklessness by everyone.”

To measure the damage and the looming challenges, The Dispatch has investigated the effects of the mortgage meltdown.

The three-day series kicks off today.

Read the Columbus Dispatch series by clicking on any of the links below (or simply start by clicking here):

• June 1, 2008: Tax appraisals factor out foreclosures
• June 1, 2008: Tax relief not coming as house values slide
• June 1, 2008: Bursting bubbles: Risky Mortgages deflate home values as entire neighborhoods pay the price
• June 2, 2008: Risky refinancings deepen financial hole
• June 3, 2008: Color of money: Lenders more likely to give minorities costly loans
• Interactive graphic: Get a closer look at surging refinancing, risky mortgages and falling property values

Dateline NBC aired “Thief of Hearts” last night–a one-hour profile of noted real estate and mortgage fraud con artist, Matthew Cox. Unfortunately, the entire balance of the show focused not on the problems, warning signs, and societal issues associated with real estate and mortgage fraud–a crime that can only be described as a runaway cancer that is eating away at our floorboards. No, in typical big media fashion, NBC chose to position Cox as a ‘Don Juan’ who stole women’s hearts while attempting to overcome some sort of inferiority or superiority complex by stealing millions of dollars and the identities of close associates and “friends.”

The truth is that Matthew Cox and his known accomplices–namely, Rebecca Hauck, Alison Arnold, and Amanda Gardner (all of whom were interviewed for the piece)–literally ruined people’s lives and damaged entire neighborhoods, all in the name of greed and corruption. (To her credit, Alison Arnold turned herself in, served time in prison, and is now paying off a stiff penalty for her part in Cox’s schemes.)

Rather than focus on the damage Cox did or God forbid, the warning signs of real estate and mortgage fraud, NBC Correspondent Keith Morrison took his viewers on an hour-long journey that touched solely on Cox’s artistic ambitions, dyslexia, ability to woo women, and his writing (Cox wrote a novel called The Associates with a plot that closely resembles the time he spent committing real estate and mortgage fraud).

It’s not as though the producers of Dateline NBC were unaware of my efforts and those of my colleague Rachel Dollar in educating the public about threats from real estate and mortgage fraud. In early December of 2006, Joe Kraynak, a writer who worked with Rachel and me on the book “Protect Yourself from Real Estate and Mortgage Fraud” (to be published by Kaplan, this August, 2007), emailed the following message to the producers of Dateline NBC:

‘To Catch a Predator’ gave me an idea for another series centering around a sting operation. I’m currently co-authoring a book with the top two mortgage/real estate fraud experts in the nation–Ralph R. Roberts and Rachel Dollar. Ralph works alongside law enforcement to catch real estate con artists and educate industry professionals. I think a documentary complete with sting operations would be intriguing. Check out FlippingFrenzy.com and www.mortgagefraudblog.com. I can also provide you with additional contact information for Ralph and Rachel. Please let me know if you need additional information.

NBC had the perfect opportunity to educate and inform an alarming number of people on the dangers and warning signs associated with Real Estate and Mortgage Fraud. Instead, it only added to the problem by sensationalizing Cox’s efforts.

There are only a small handful of newspaper reporters who truly understand the intricacies and problems associated with real estate and mortgage fraud. David Jackson of the Chicago Tribune is one, and Geoff Dutton of The Columbus Dispatch is another. From Sunday’s online edition of The Columbus Dispatch:

Big deals send up red flags
Sales of 14 upscale homes at well-above-market prices raise suspicions of flipping

The peculiar but tempting offers sometimes came a year or more after homeowners planted for-sale signs in their front yards.

Interested buyers suddenly appeared, proposing to pay hundreds of thousands of dollars more than the asking price for houses in some of central Ohio’s elite neighborhoods, including Muirfield Village and Tartan Fields.

The catch: the sellers must agree to immediately refund the difference between the asking price and the sale price.

At least 14 such deals worth more than $11 million have closed since spring, and the offers continue. Rather than celebrate, some suspicious real estate brokers, lawyers and title agents advised sellers to reject the offers and walk away from the deals.

Some called the FBI and the Department of Homeland Security, because most of the buyers were Middle Eastern.

“We turned down five of them,” said Bryan Wing, executive vice president of CV Perry Builders. “Believe me, in this day and age, we could have used it.” Others couldn’t resist.

The elusive buyers who could be located by The Dispatch offered little if any explanation. The real estate professionals, two of whom have troubled track records, wouldn’t discuss the sales in detail. Bankers holding the mortgages wouldn’t talk, and neither would FBI or Homeland Security officials.

Geoff Dutton is one of the most thorough and detailed reporters covering real estate fraud today. The above is but just a small part of an amazing article. Trust me, it’s well worth the read.

Back in mid-January of this year, I sent a letter to every states’ Attorney General to warn them about a credit enhancement scheme that’s gaining in popularity among some mortgage and real industry professionals. As Geoff Dutton writes in this morning’s online edition of the Columbus Dispatch, “Companies such as Creditlauncher.com and Seasonedtrades.com have transformed a common white lie in the real-estate industry into a full-fledged business.” Wondering what the common white lie is that Dutton’s referring to? From that letter I sent out in mid-January:

According to their website (http://www.creditlaunchers.com), Credit Launchers can add the name of a consumer applicant on Credit Launchers’ own credit accounts and allow them to reap the benefits of a drastically improved credit rating that they did not earn themselves. Through aggressive Internet-based advertising, this company markets its services in every state in a manner that specifically intends to deceive lenders and consumers alike.

I tip my hat to Geoff Dutton and his editors at The Columbus Dispatch. Every newspaper in the country should be covering this story, as should each and every real estate industry trade publication and website. In fact, if you’re a regular reader of my blog, you’ve probably already noticed that I also wrote about this very same issue as recently as last Tuesday (click here for that post). In the meantime, from this morning’s Columbus Dispatch:

Having trouble qualifying for a mortgage? There are a slew of tricks for padding your credit score, and a horde of companies peddling them. Internet companies are advertising a new tactic, a controversial service that is the latest twist in the murky world of “credit repair.”

It’s an open secret among real-estate professionals that prospective home buyers with marginal credit can improve their credit scores by persuading someone with good credit to add their name as an authorized user on their credit card — even if they have no access to the card. By piggybacking on someone else’s credit history, loan applicants boost their own credit score. Real-estate agents and loan officers sometimes recommend it. Local seminars have promoted the trick. And now, thanks to the Internet companies, you don’t have to rely on a friend or relative.

For a fee of several hundred dollars, the companies offer to add your name to a “seasoned” credit card, one with a history of timely payments. For several thousand dollars, they will add your name to multiple cards for a bigger boost.

Government officials and consumer credit counselors say legitimate methods for improving your credit score are free but take weeks or months. These experts recommend against paying for alleged shortcuts designed to fool the automated credit-scoring process. The blunt assessment of Steve Baker, the Midwest director of the Federal Trade Commission: “We’ve never seen a legitimate credit-repair company.”

In Ohio, a growing number of people are turning to them and feeling ripped off. Complaints to the attorney general about credit-repair companies have been on the rise, records show, including one filed recently against Creditlauncher.com by an industry watchdog.

“It’s very, very wrong,” said Ralph Roberts, a real-estate guru and best-selling author based in Michigan, who filed the complaint in Ohio. “They’re manipulating the system.”

Click here to read the entire Columbus Dispatch article. While the article itself is not as in-depth as I feel it could be, it’s a good start, and it shows once again–as I pointed out in a blog posting a few weeks back–just why the state of Ohio is out in front when it comes to providing across-board coverage of real estate and mortgage fraud-related issues.

I hope more and more newspapers and real estate trade publications start to cover this story as well. In fact, if anyone from the media happens to land on this post, and would like more information about this developing story, please contact me at editorial1 at ralphroberts dot com. I’d be happy to share a press release we’ve developed on the topic of credit enhancement/credit card piggybacking, which is also available on PR Newswire by clicking here.