Housing Policy

Because What Could Go Wrong With Fake-Identity Condo Purchases In 2008?

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One of the horribly fascinating things about following the real estate market from 2006 until, well, today actually, has been watching how long the body managed to keep running and twitching after the head was blown clean off.

McConville, a name you can trust.

Calculated Risk highlights a new development in a fun swindle uncovered last year by VoiceofSanDiego.org. As late as 2008, more than a score of greedy buyers and multiple careless lenders in San Diego got taken for more than $12 million in a series of overpriced-condo purchases. The convoluted deal, in which the buyers lent their good credit records for too-good-to-be-true purchases (which apparently included an expectation that some other party would be making the monthly payments), was organized by a Bay Area adventurer with the on-the-nose name of McConville (Baron von Shysterberger apparently having recused himself). The gist, from a 2009 story:

Over the next several months, [Jim] McConville's team arranged for Jenkins to obtain five mortgages. The loans were used to purchase five condos in Escondido in March and April last year, four for $337,000 and one for $370,000, while other similar units in the same complex were listed or sold for much less.

McConville had already agreed to buy those five condos for $187,560 each from the project's developers. The difference allowed McConville's company to collect more than $120,000 out of each of the five transactions after paying the developer, according to the developers' records.

But, Jenkins and five other buyers said, he never made good on his promises. McConville didn't pay the $10,000 per condo for their identities, they said. After making no more than three of the mortgage payments on Jenkins' units and those of several other buyers, McConville quit paying, the buyers said. The defaulting loans left the buyers to deal with ruined credit, the lenders to absorb more toxic loans, and North County neighborhoods to brace for more foreclosures.

[…]

Over the course of several months last year, McConville picked up at least 81 condo conversions from distressed developers and orchestrated their sale to more than 20 buyers who'd rented him their identities, according to a review of hundreds of public and private records and interviews with lenders, developers, former McConville employees, and six of the more than 20 buyers.

By arranging purchase prices well above market value, McConville was able to pay off the developers and capture what the developers' records state as more than $12.5 million.

The performance by then-government sponsored enterprises Fannie Mae and Freddie Mac was exactly as heads-up as you'd expect:

[Real estate appraiser Todd] Lackner had already tried to sound the alarm as the deals were closing throughout Sommerset Villas and Sommerset Woods in Escondido and Westlake Ranch in San Marcos earlier in 2008.

He submitted a report to Fannie Mae and Freddie Mac warning them not to buy any of the loans and alerting them that the deals seemed to indicate potential fraud.

Lackner received a form letter back from Fannie Mae. "Thank you for you (sic) inquiry," the e-mail read. "In order to better assist you, your email has been forwarded to the appropriate party here at Fannie Mae. Please be assured that it will be handled properly and we will responded (sic) appropriately."

But that was the last he heard from the company, even after he followed up with a phone call. Freddie Mac, on the other hand, called him at 8 a.m. the next day and soon sent an investigator to San Diego to review Lackner's documents.

Lackner was on to something. But despite those warnings, dozens more condos sold over the next several months to the buyers who listed that same Baumberg address. The loans on those condos likely sold to Freddie Mac or Fannie Mae. If the units make it all the way through foreclosure, it'll be known for certain which one — Fannie or Freddie — bought the loans.

The news today: These bad loans have cost you $7.8 million to date.

The one bright point is that Fannie and Freddie, which since their September 2008 bailout have been government-owned rather than government-sponsored, may be able to prove fraud and send some of these loans back down to the original parties, many of whom no longer exist. Calculated Risk's discussion describes how the GSEs are trying to get many banks to absorb more losses on bad real estate loans. As the magnitude of real estate losses grows larger than even interplanetary interventionists can handle, the government and its public/private excrescences may have to consider a revolutionary idea: that the risks and rewards of a deal should be limited to the people who willingly participated in the deal.

NEXT: Sensible "Cyber War" Preparation, Or Just More Government Snooping?

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  1. Freddie Mac and Fannie Mae were designed to blind the market to the risk of marginal loans. They were designed to correct the “failure” of the market to make enough residential housing loans to people with marginal credit. They were designed to get something for nothing. Why did anyone think this plan would turn out well?

    Owing to their size and government backing, neither institution had the same incentive to investigate possibly fraudulent loans as would a local bank. Neither did they have the scope of local knowledge necessary to detect fraud. However, thanks to the institutions willingness (indeed their raison d’?tre ) to buy up loans that local banks deemed to risky to keep on their books, they suppressed the normal anti-fraud wariness of the local banks. When banks knew that the GSE would buy almost any loan off of them, they lost the financial incentive to stress test each loan.

    When will we learn? You can’t trick the market. All you can do is forestall the day of reckoning and make the inevitable rebalancing that much worse.

    1. Good Morning reason!

    2. They thought it would turn out well for a couple of reasons. First, many people in government and in general are just stupid. They honestly think that people don’t get home loans because they are minority and not because they don’t have the means to pay the thing back. Someone like Barney Frank or the left wing Democrats in Congress honestly believe that the only reason some people are poor is because they have been denied the opportunity the rest of us have. And giving them a home loan and allowing them to achieve the “dream of home ownership” is a way to get them out of poverty. The idea that poor people are poor because of they don’t have money and can’t pay back such loans escapes them. And don’t even think of trying to explain to them the second order effects of artificially raising housing prices by handing out loans without any basis in credit worthyness. That is about four orders of magnatude above their pay grade.

      Second, some people are just crooks and didn’t care. Once Fannie and Freddie became a place where people like Jamie Gorlick could go and make millions for doing nothing, there was no stopping it. Even if they had realized something was wrong, no one was going to stop those kinds of political payoffs.

      1. the left wing Democrats in Congress honestly believe that the only reason some people are poor is because they have been denied the opportunity

        Some probably still believe that, but most are cynical enough (they are politicians, after all) to use the race card/class war as an election tactic. When you’re in the business of granting favors, expropriating wealth, playing games with people’s lives, and you have a willing and agreeable electorate hoping to cash in on your schemes, you’ll always have a job in Washington. Until recently, anyway. Maybe November, 2010 will be different…

        1. They really as much as anything lack imagination. They honestly can’t conceive of the economy being anything but good or there ever being long term consiquences to their stealing. It is not that they don’t care as much as it is they can’t really comprehend how the whole thing could go belly up. They always figure that nothing will happen if they just steal a little this time.

          1. Well, they have a lot riding on the scam. They might, in a rare instance of introspection, confess the truth to their inner souls (if they have souls) but they can never, ever admit it to the public.

    3. Why did anyone think this plan would turn out well?

      Turned out great for me.

  2. His first choice of name was McLovin’, but he figured that would arouse suspicion.

    1. That was my first thought too.

      1. How about the classic “Larson E. Whipsnade”
        (pronounced, of course, with an adenoidal accent)

  3. As the magnitude of real estate losses grows larger than even interplanetary interventionists can handle

    I, for one, welcome our new risk management overlords.

    1. I don’t trust overlords. They reanimate singing zombies. At least the lyrics were approved by the anon bot . . . lol lol lol.

  4. As the magnitude of real estate losses grows larger than even interplanetary interventionists can handle

    Uh, what does the Silver Surfer have to do with this, Tim?

    1. I was thinking more along the lines of Decepticons, but then I am in a Michael Bay sort of mood today.

      1. I am in a Michael Bay sort of mood today

        Completely and without hyperbole, you are worse than Hitler and Stalin combined.

      2. You should check out Bay’s Twitter Page.

        1. “Jogging, bursting into deafening roars every 5 seconds. Children running away. I think its the wolf pack following me thats scaring them.”

          Yes. YES.

          1. What do you have against bullmastiff owners?

            1. Completely and without hyperbole, they are worse than Michael Bay and Roland Emmerich combined.

          2. It’s Michael Bay we’re talking about, so he has to have two pages. I guess he can’t concentrate so much awesomeness in one location. Safety of the universe at stake . . . or something.

            Well, I would definitely say that I’m my biggest influence.

            1. Well, I would definitely say that I’m my biggest influence.

              I thought Ed Wood was his biggest influence. Poorly shot with incoherent editing, massive plotholes, violating basic rules of filmmaking at every turn, Wood is Bay’s spiritual father.

              1. How much money did Ed Wood’s movies make? Say what you will about Bay, he knows how to put butts in the seats.

                And it’s more than a bit ironic that Reason was falling over itself to praise “Buttman” John Stagliano and his milk enema porn as the work of a courageous entrepreneur, while they diss the work of Bay as playing to the lowest common denominator.

                1. The commenters here piss on Bay. In case you haven’t figured it out, we’re different than the people who write the actual magazine. If you want to try to find me writing praise for Stagliano’s work, try the search button up and to the right. And good luck, because I never did such a thing.

                  Additionally, I don’t recall them praising Stagliano’s work so much as defending his right to create it.

                  For the record, I’d rather watch The Rock or Armageddon than enema pr0n. If I had to sit through Pearl Harbor, I’d want to know how long the enema pr0n lasted.

  5. McCONville’s CON involved CONdos in EsCONdido?

    You’re CONning me aren’t you?

    1. Si!

      1. I don’t get it.

        1. …Bank’ers don’t get it.

  6. … he never made good on his promises. McConville didn’t pay the $10,000 per condo for their identities … The defaulting loans left the buyers to deal with ruined credit….

    In other words, the con artist they were helping run a con ended up conning them, too? My heart bleeds for them.

    1. Like the flim-flam man always told me, you can’t cheat an honest man.

      1. You can cheat an honest man, but why bother when there are so many of you crooks out there.

    2. Don’t worry too much; they’ll be okay once those nice Nigerian princes come through with their share of the oil money.

    3. It’s a bit dated, but check out The Grifters.

  7. Off topic –

    Radley’s not around today so I figured “Why not post a link* about outrageous LEO conduct?”

    Just helping Reasonoids get their hate on.

    * While I’m quite aware that the colunist I linked to is a whiny liberal state worshipping douchebag, I’ve no reason to doubt the stories he relates.

  8. “As the magnitude of real estate losses grows larger than even interplanetary interventionists can handle, the government and its public/private excrescences may have to consider a revolutionary idea: that the risks and rewards of a deal should be limited to the people who willingly participated in the deal.”

    ha, as if

  9. Twice I’ve tried to link to Bob Heberts NY Times op-ed today. Both times I got this message.

    Your post (#1600318) has been marked as spam by a third-party spam filter. If this is a mistake, please email webmaster@reason.com.

    What the fuck? Over.

    1. http://www.nytimes.com/2010/03…..rbert.html

      It previewed ok. Haven’t read the comments yet, not sure if I want to.

      1. www dot nytimes dot com/2010/03/06/opinion/06herbert.html

    2. Dammit Jsub, who do you think you are Balko?

      Now Im pissed off.

      1. That reads like an Onion piece.

        Except it isn’t.

        Hard to outdo reality.

    3. URGE TO KILL RISING

    4. Let me guess: it’s about duckies and bunnies…

      …getting shot by cops.

      1. OK, those stories are horrific. But what’s with the obsession in the article about markers being erasable?

        1. I think it’s to drive home the point that no permanent damage was done to school property, thus making the officers’ actions that much more reprehensible.

    5. A Bob Herbert filter!

      Why would you need one?

    6. Twice I’ve tried to link to Bob Heberts NY Times op-ed today.

      Nice try, JsD, but I happen to know no human being in history has ever tried to link a Bob Herbert column, even once.

      1. Whaddayamean? I always read Herbert when I want to know what the lowest IQ quintile is thinking.

    7. Wait… Hit & Run has a spam filter?? Has anyone told Anonymity Guy?

  10. “In order to better assist you, your email has been forwarded to the appropriate party here at Fannie Mae.”

    We’ll get our best Nigerian prince working on this.

    1. We already have our best Kenyan prince working on this.

  11. “As the magnitude of real estate losses grows larger than even interplanetary interventionists can handle, the government and its public/private excrescences may have to consider a revolutionary idea: that the risks and rewards of a deal should be limited to the people who willingly participated in the deal.”

    Why should we start now? But at least we know who is behind this chicanery now – Aliens!!!

  12. My dead friend Ron tried to get me to go for a scheme like this.

  13. It really is surprising to me that more attention hasn’t been paid to fraudulent mortgage brokers and borrowers…

    I’ve heard ratings agencies taken to task, the investment banks, the lenders themselves for giving people loans, everyone it seems except for the fraudulent mortgage brokers and borrowers who are actually the people most responsible for the credit crisis…

    And much of that activity happened in 2003 and 2004, which might mean that the ol’ statute of limitations may be coming up–certainly, if the government through the Fed, Fannie, AIG, et. al., doesn’t already know which mortgage applications contained fraudulent application information, then they damn well should!

    If the estimates I’ve heard are anywhere near the truth, there should be thousands of convicted mortgage brokers in jail already. …and spending the money to convict fraudulent mortgage brokers–that’s one use of emergency funds all taxpayers should be able to agree on.

    1. “… there should be thousands of convicted mortgage brokers in jail already …”

      Agreed.

  14. Fightin’ in a basement presents a number of difficulties. Number one bein’ that yore fightin’ in a basement. You don’t gotta be Stonewall Jackson to know you don’t wanna fight in a basement.

    1. Bawn Jorno!

    2. Fanny and Freddie’s buying habits of late resemble nothing so much as…fightin in a basement. Arrive uh dare chee.

  15. Hopefully Barney Frank won’t hear about this guy, or he’ll end up getting him a job at the FHA.

  16. Schemes, schemes and more schemes. Never ceases to amaze me.

    Jess
    http://www.total-anonymity.us.tc

  17. We have to bail out these bad loans, if you’re neighbor’s house is on fire you don’t let it burn just to teach him a lesson, we’re all in the same boat, blah blah blah etc. etc. etc.

    1. If your neighbor’s house is on fire, you help him put it out. If a whole neighborhood is on fire, you set up cordons and ignite explosives to create a fire break.

  18. The convoluted deal, in which the buyers lent their good credit records for too-good-to-be-true purchases (which apparently included an expectation that some other party would be making the monthly payments)

    These people were victims! What other possible explanation could there be?

    1. Kind of like the “victims” of Bernie Madoff. Anyone greedy and dumb enough to believe that Madoof could produce way above market returns for decades without being a crook himself really doesn’t deserve much sympathy. There is a old phrase “you can’t cheat an honest man” that people seem to have forgotten these days.

  19. John-

    There’s also this oldie-but-goodie:

    “If it sounds too good to be true, it probably is.”

  20. I don’t know ANYBODY dumb enough to sign on to this kind of a deal. Where do you find people this stupid?

    In the cocktail bar of your country club?

    1. We have a whole society of self entilted stupid people. People really don’t think they need to work to get rich, just buy real estate. I know lots of people who told me I was stupid for not buying a house in the 90s and 00s. The fact that I didn’t have a lot of income and had other debts to pay never seemed to matter to them. All that mattered to them was that there was free money to be had. The idea that that money wasn’t free and that someday real estate prices might stop going up never occurred to anyone.

      1. John-

        I have a friend who is a “victim” of a minature Madoff scheme here in Massachusetts. A total of 40 or so “investors” got left holding a collective bag of approximtely $9.5 million.

        The funniest thing is that one of the “victims” is an acquaintance of my friend. I met her at a dinner party my friend and his wife hosted. The acquaintance wined all night about how someone like her, who graduated summa cum laude from Georgetown and who earned an MBA from Harvard, could get scammed by a guy who barely graduated form high school.

        John, honest to God, I thought of Joe when I told this woman that, “apparently, your Ivy pedigree was no match for this guy’s GED.”

        Joe and I had a running battle about Ivy grads.

        1. Joe was the worst elitist ever. Apparently they don’t teach common sense at Harvard Business school. I think Madoff was so successful at conning people because he appealed to their vanity. People like your friend really want to believe that smart people can somehow walk on water and defy the laws of reality and the market. Think about it for a moment. If you honestly believe that something as complex as national healthcare would be better run if it were placed in the hands of the right smart people, why wouldn’t you believe that someone could beat the market year after year?

          1. I fully believe that someone can beat the market year after year. I just dont think I have any way to figure out who they are. After all, there is a 1/1024 chance that you will beat the market for 10 straight years by random luck. I cant distinguish between that guy and the skill guy.

            And that is where the elitist ego comes in. They think they can.

    2. There’s a sucker born every minute.

  21. McConville/MacConville is an anglicized version of the Irish surname Mac Conmhaoil [mock kunn vweel] centered on the Armagh, Down, Louth area of north east Ireland known as Oirghialla or Oriel. They are a proud and ancient sept, I hasten to add.

    The “Con” element, so ironic in the story, means “hound” [c?] in Irish and is quite common in older Gaelic surnames.

    A rare anglicized variant, ‘McConwell’, would have been even more suitable in this case.

    Shysterberger, I would hazard, derives from Scheisseburger, an inhabitant of the town of Scheisse, the meaning of which becomes apparent to every English speaker after just a moment’s thought.

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