[quote=EconProf]One would think the financially interested party–the bank–would really like to know about this. Let them have the facts. They have a lot at stake in minimizing their loss, so should have the incentive to act accordingly.
Of course, this assumes they are economically rational…….[/quote]
If we were in a rational market, the lenders would be very actively chasing fraud. Why are they not chasing fraud? Because the government has sent signals to all and sundry that they will pick up the tab if mortgages are not repaid. If you’re a bank, and you make $2 in fees for every $100 of fresh loans, and your losses are paid by the govt, why would you stir the wrath of your paymaster by going after frauds and deadbeats? Barney Frank and Chris Dodd would subpoena you to appear before their committees, and question why you are holding up the free flow of credit.
