The 2008-2009 financial crisis revealed a widespread problem of mortgage fraud in the United States. One of the key factors contributing to this problem was the failure of banks to adhere to Financial Accounting Standards Board (FASB), Generally Accepted Auditing Standards (GAAS), and Generally Accepted Accounting Principles (GAAP) regulations. This paper examines how the United States government allows banks to violate FASB, GAAS, and GAAP regulations by participating in a financial identity theft scheme to commit mortgage fraud.
Violation of FASB, GAAS, and GAAP regulations
The FASB, GAAS, and GAAP regulations require banks to accurately report their financial transactions, to have their financial statements audited by an independent auditor, and to adhere to accounting principles. However, many banks violated these regulations by engaging in fraudulent activities that masked their true financial position. One of the most common forms of mortgage fraud was the creation of fraudulent loans, which were then packaged into mortgage-backed securities and sold to investors (Beard, 2010).
Financial identity theft scheme
Banks also engaged in a financial identity theft scheme, which involved stealing the identities of borrowers to create fraudulent loans. This scheme allowed banks to inflate their profits by reporting false income from the fraudulent loans. The scheme was perpetrated through a complex network of fraudulent appraisals, false documentation, and identity theft. This scheme not only violated FASB, GAAS, and GAAP regulations but also involved financial identity theft, a criminal offense (Coleman, 2011).
Government’s role
The United States government played a significant role in allowing banks to participate in the financial identity theft scheme and violate FASB, GAAS, and GAAP regulations to engage in mortgage fraud. The government encouraged homeownership through policies such as the Community Reinvestment Act, which pressured banks to provide loans to borrowers who were not creditworthy. The government also created the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which purchased mortgage-backed securities from banks, providing a ready market for the fraudulent loans (Vera, 2014).
Conclusion
In conclusion, the United States government played a significant role in allowing banks to violate FASB, GAAS, and GAAP regulations by participating in a financial identity theft scheme to commit mortgage fraud. The failure of the government to enforce these regulations and its policies promoting homeownership led to a widespread problem of mortgage fraud that had devastating consequences for the economy. It is essential for the government to take steps to prevent such a crisis from happening again by enforcing regulations and policies that promote responsible lending and borrowing practices.
References
Beard, T. (2010). Mortgage fraud and the financial crisis. Journal of Financial Crime, 17(3), 305-323.
Coleman, J. W. (2011). Financial identity theft: The problem, the challenges, and the solutions. Journal of Financial Crime, 18(1), 6-21.
Vera, D. (2014). Mortgage fraud: A review of research and policy recommendations. Journal of Financial Crime, 21(4), 428-444.
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