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9 Criminology & Pub. Pol'y 633 (2010)
Mortgage Origination Fraud: The Missing Links

handle is hein.journals/crpp9 and id is 639 raw text is: POLICY ESSAY
Mortgage origination fraud
The missing links
M. Cary Collins
Bryant University
In the current work, Mortgage origination fraud and the global economic crisis: A crimino-
logical analysis, Nguyen and Pontell (2010, this issue) find three root causes of the mortgage
crisis that launched the Great Recession. First, fraud made easier by inadequate regulation
created the ideal climate for deceptive dealings in the solicitation, origination, financing, sales,
and servicing of mortgage loans. Second, indiscriminate use of alternative loan products, like
subprime and alternative A-paper (Alt-A) instruments-whether for those who easily would
have qualified for higher quality products or for those who should not have qualified for a
mortgage loan under any circumstances-were the earliest and most costly defaults in U.S.
housing history. Taking the first and second findings together, Nguyen and Pontell suggest a
compounding effect of one finding on the other.
Finally, Nguyen and Pontell (2010) argue that there is a lack of accountability in the
mortgage lending industry in the form of regulation, enforcement, and governing mechanisms,
which allowed for the rapid escalation of mortgage fraud. The absence of accountability, how-
ever, is symptomatic of a larger structural issue. In short, the credit industry is a labyrinthine
structure with numerous participating entities (e.g., borrowers, brokers, lenders, appraisers,
servicers, ratings agencies, and investment firms). This complex structure leaves the industry rife
with opportunities for fraud writ large. As Nguyen and Pontell point out, the credit industry's
compensation policies and practices ultimately were too far removed from the actual lending
In this essay, we first review the research and the market-based linkages to Nguyen and Pon-
tell's (2010) principal findings. We then analyze Nguyen and Pontell's recommended mortgage
lending industry changes, including (a) tightening loan qualification standards and redressing
loan origination compensation policies; (b) recognizing the potential for insider fraud and
using greater transparency, as well as stricter governance, to mitigate fraud likelihood; and (c)
Direct correspondence to M. Cary Collins and/or Peter Nigro, Department of Finance, Bryant University, 1150
Douglas Pike, Smithfield, RI 02917 (e-mail: ccollins@bryant.edu; pnigro@bryant.edu).
@ 2010 American Society of Criminology  633
Criminology & Public Policy * Volume 9 * Issue 3

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