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So overwhelming is the urge to purge those who were hailed as heroes in the last cycle (mortgage brokers/lenders who "helped" the poor buy homes they couldn't afford) that government prosecutors are insufficient (see Ohio's Attorney General) and we now have self-appointed bounty hunters riding to the rescue.
--S. Osborne
 
The genesis of  EWFF’s forecast relates to an understanding of manias and the gullibility of a society that is gripped by one. In the heat of the moment, when passions for a certain asset class are rising fast, everyone is convinced that they are about to make a killing and  all sense of financial scrutiny goes out the window. So now, as the housing market cools, lenders, particularly those that favored loans to riskier subprime credits, find that fraud is growing at an alarming rate.

According to the Mortgage Asset Research Institute reports of mortgage fraud rose 30 percent for loans made in 2006 compared with those made in 2005. But it also noted that it might take three to five years to uncover the full extent of fraud. Our guess is that the number rose as the bubble burst and people slowly started to regain their sensibilities with respect to housing values. The number of fraud cases reported to the F.B.I. soared from 7,000 in 2003 to 35,000 last year. Don’t forget, 2006 was still a year of transition. The snowball will only get bigger because whereas undetected fraud helped inflate prices; revelations about its prevalence causes law enforcement to work harder to catch mortgage cheaters. The boom in fraud cases, for instance, “prompted the Mortgage Bankers Association to ask the House and Senate Appropriations Committees to dedicate $31.25 million in funds over the next five years for the F.B.I. and the Justice Department to combat mortgage fraud.

"The industry was in denial as to the extent of the problem for a long time," said the chairman of a company that provides lenders with mortgage fraud insurance and training. The problem was so prevalent that three house wives with a little bit of legal experience and an eye for what was going on around them in the neighborhood could see it. But for years, they couldn’t get the authorities to pay any attention to their claims. One was accused of being a “bored housewife.”  “Nobody at that time understood what mortgage fraud was,” she said of the late 1990s. The problem, the women said, is that, for a long time, they couldn’t find “a victim” – a firm that was losing money because of fraud. The issue is expanding fast now because prices are falling. More declines mean more losers and more fraud which creates more declines. In this way, one of the greatest victim-less crimes of all time is slowly morphing into the biggest financial disaster most people will experience in their lifetimes. "I think when people realize the full scope of mortgage fraud out there, they're going to find that it is substantial with a capital S," said one fraud squad member. That’s S as in GSC, or Grand Supercycle peak, which will indeed be a big surprise. Of course, mortgage fraud is jut one result. It’s burgeoning presence in the housing sector reflects that while it may be slow in arriving, it will ultimately make itself felt just about everywhere.