Summary:
Mortgage fraud has become a wide-spread problem in today’s society. Some would even label it as the ideal “white-collar” crime to commit. For a period of time, the crime has been exceedingly popular due to its lucrative nature and the fact that the fraud is not easily detectable. Back during the North-American real estate boom a few years back, banks were eager to hand out mortgages and were very lenient with their terms. Someone with no steady income could easily secure a mortgage for a house. Many ordinary folk were swindled into taking out a mortgage to purchase a house which they were told would be sold later for profit. In the end; the perpetrator walks away with the dough, the buyer is in debt, and the bank is stuck with an overpriced house.
Connections:
The connection my article has with the text is the Generally Accepted Accounting Principles (GAAPs), the various financial statements involved in the world of business and by extension the financial position of an individual or business. Nowadays, in an economic downturn, financial institutions are careful in their procedure of securing a loan. They wish to make sure that they have a way to recover their money should they need to do so. To my knowledge, the authorization of poorly secured mortgages is not directly violating any of the accounting guidelines. However, it is still ridiculous that individuals without steady jobs would be able to take out a mortgage to buy a house. The banks went wrong when they neglected to thoroughly look into the financial position of the individual requesting a loan before granting it. With such an obvious loophole, it was only a matter of time till someone choose to abuse it.
Reflection:
In my opinion; all institutions that handle substantial amounts of money, including banks, should be required by law to follow the guidelines set out by the generally accepted accounting principles. In the case of my article, Robert Manuel Moniz of Montréal gained approximately $5.0M C.A.D. from his scheme. If the bank had been more careful with their procedure of authorizing the mortgage requests, this would likely not have happened. The bank loses the money but in the end, it is us ordinary folk that gets hit the hardest with scams like these. Financial institutions will pass off their loss to users to their service in the form of higher interest rates and service charges.
I do not think that by following the generally accepted principles would actually prevent frauds like this from occurring. GAAP are just guidelines for accountants or a business to follow, therefore they are not law and would not have as much authority or impact as to prevent frauds from happening. However, I do believe and agree with you that all institutes that handle substantial amounts of money should set more strict guidelines before lending out large loans. One example would be for one to have around half of the amount of money they’re borrowing for a mortgage loan before actually being able to get the loan. If this is the case, people would not only have to pay less interest, but it would also decrease the bankruptcy rate mentioned in this article.
ReplyDeleteI disagree with the way you connect loans from banks to GAAPS. GAAPs are accounting guidelines, for accountants to follow, when they are doing accounting. Lending money to people is not accounting. Accounting is recording, summarizing, and classifying the transactions made during a specific period therefore producing the financial statements. In addition, you have not explained Robert Manuel Moniz's story very well. How did he make $5.0M from his scamming scheme? Was he selling houses? If he was, the buyers were obviously out of their minds if he made that much money. Another point I want to state out is that it is false to say buyers were swindled at the thought of the house being sold for profit later on. As you can tell, house prices amplified dramatically over the past few years. Technically, the estate agents were not lying about being able to sell the houses for a higher price in the future. The question is, how much did the buyers buy it for? Besides, do you not think that it is absurd to go buy a house, something you can not afford, without the assistance or opinions of other people? Did you not thoroughly examine the house if it is actually the amount listed? Yes, I agree that the agent is partly responsible, but I still think it is the purchasers fault. In conclusion, the bank is the one to suffer the consequences. The consumer did obtain a house in the end after all while the bank sits there with no money coming in.
ReplyDeleteRobert Manuel Moniz of Montreal is the fraud victim and he is innocent of the alleged criminal charges please go to his website for more info: www.robertmanuelmonizfraudvictim.ca
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