Sorry it took me so long to get back to this topic. I presume we are talking about the systemic fraud I've mentioned from time to time when discussing subprime mortgage lending.
The fraud play in the subprime mortgage lending origination departments - retail and wholesale - was that from the top to the bottom, the players paid no heed to the underwriting rules.
My perspective as a title agent is from the bottom. I'm the last person in the chain. Title agents and attorneys witness the interplay between the loan originator and the borrowers. We also see the final lending underwriting conditions. Those title agents and attorneys who refused to fudge facts and tried to report bad acting to a higher level found in most cases, loan processors, underwriters and management saying "just do it". I believe this is really why the subprime lenders prefer notary signing agents. The signing agents are more likely to be ignorant and less likely to really understand what's going down at the table.
I know that due diligence suffered in subprime, but what really galls me and what I see as such a rude affair is the total disregard for the minimal standards lenders agreed to when they sold the paper.
You have mortgage lenders selling high risk paper and telling analysts that it at least meets such and such minimal guidelines then the lender's origination network takes those guidelines and throws them out the window by faking the numbers and engaging in team spirit fraud.
That's systemic fraud - whole subprime departments from top to bottom supporting each other's bad behavior in the name of volume, coaching the willing borrowers and just fudging the data of the unwilling borrowers.
These folks regularly and systematically defrauded their employers. The employers made reps and warranties to the secondary market and the rest is history. It might have been easier to stand on the corner and throw money away.
Can we avoid this moving forward? Yes, reinstate qualified human "in house" quality control with real teeth. Good quality control with regular audit selections would have caught the crap early. We know how to do due diligence, we just have to decide that it's important.