Mortgage Fraud and Real Estate Values in Miami and Coral Gables

posted on February 25th, 2010 filed under: Real Estate News

According to the Miami Herald, “[i]t should come as no surprise that the Financial Fraud Enforcement Task Force kicked off the first of its mortgage-fraud summits in Miami.”  No doubt they came to Miami for a “summit” because they wanted to see firsthand what a moldy foreclosure looks like, not because it’s sunny and warm here in February.

The subject, however, is serious.  If you’re an honest person who wants a place to live in Miami or Coral Gables, the recent history of rampant mortgage fraud poses a continued challenge to your financial security.  Many homes for sale are still priced too high relative to fundamentals such as incomes, rental costs and historical rates of appreciation.  To what extent is the market still overpriced because of phony mortgage money?

There’s no way of telling for sure, but the problem is real.  According to the Herald, one fraud ring bought properties through their own mortgage brokerage, flipping the properties to one another for higher and higher prices until they ran out of funding, leaving the lenders with $7 million in losses.  More commonly, mortgage brokers, motivated solely by quick fees and in contempt of borrowers’ ability to pay, fed loans through the financial system, supporting higher and higher sales prices until the bubble burst.

[youtube]http://www.youtube.com/watch?v=6khYSTqHrqM&feature=PlayList&p=D40AA770D39E1068&playnext=1&playnext_from=PL&index=2[/youtube]

With phony lending came higher prices.  With the end of phony lending, prices have fallen.  But how can you tell whether those artificial effects have been washed out of prices in the Miami or Coral Gables neighborhood where you’re thinking of buying a home?  If major institutions like Citibank don’t really know what they have on their books because the loans were products of mortgage brokers’ imaginations, how can you be sure what you have in front of you now?

You can’t.  Fraud and phony lending goosed prices throughout Miami and Coral Gables, not only for the subject homes but for all other properties in the surrounding area.  And there’s no way to know for sure that the last drop of bogus pricing has been wrung out of the system.

To protect yourself, follow defensive buying practices.  Focus on fundamentals.  Do area incomes, rents and historical rates of appreciation support the price you’re being asked to pay?  If not, you might become another injured bystander.

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posted by // This entry was posted on Thursday, February 25th, 2010 at 8:39 pm and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.

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