If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]
Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).
I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.
