Commercial Real Estate Finance

In Wednesday’s New York Times, this article spoke of a fraudulent scheme orchestrated by a mortgage broker to defraud banks.  The long and short of the story is that the culprits are alleged to have bought homes from struggling sellers, artificially inflated the prices of the homes, underwrote mortgages that buyers couldn’t afford, and then pocketed checks from banks, leaving the new buyers high and dry.  After reading this story, you might have similar questions to those that I had, such as:

1. How do you “artificially” inflate the values of homes? Isn’t there something called comparable sales?

2. If buyers with good credit couldn’t afford the mortgages, why did they apply for them? Why did they believe they could “get out of the deal” if it wasn’t documented somewhere as to how? (stupid questions)

3. While banks may not have done the appropriate due diligence on these homes, knowing that they would not be servicing them, why wouldn’t the buyers have, knowing they’d be responsible for the payments?

and the list goes on and on…until I remembered one thing.  These questions are good ones, but they shouldn’t matter. Why?  Because if anybody was paying attention, cared to be responsible, or was in any way doing their job, they would have performed the appropriate due diligence.  Instead they performed  “doo diligence,” you know, the kind you perform when you are a banker filing a mortgage application under the name “Schitt, Jack”.

After all, why should a banker check to even make sure the house even exists when they are just going to flip it into a big pool of securitized loans?  Why should a buyer ask why the value of the home they are purchasing is more than comparable properties bought out of default when they can remain silent and buy their dream home? Why should a Madoff investor closely examine or question their statement in a market that is losing 40% of its collective value when it says they are making 20% or more, consistently?  Hmm.  Beats me. If it ain’t broke, don’t fix it, right? Oh you say its broke now, and can’t fix it?  But, but…no fair! Mommy, the bad man took all my money!

The fact of the matter is that in the real world, when you fall asleep at the wheel and crash, you don’t get to blame somebody else for making you tired.  You suffer the consequences of your actions, and pray you don’t kill any innocent bystanders in the process. Its hilarious to me that only the perpetrators of a crime get blamed, when in fact, we should all be blamed for our collective colossal stupidity, ignorance, and unwillingness to take responsibility for our own actions.

I work for fees and commissions.  If I have a bad year and don’t make much money, there’s no “government” for me to approach to ask for a “bailout” in the form of a stable salary, nor is there anybody to sue or send to jail.  Its the choice I made, the risk I took, and I’ll live with the consequences, in good times and in bad.  Why is it that so many human beings have such a hard time doing the same?