Federally-regulated institutions should not be held responsible for the actions of unrelated third parties of whom they are not in control, and for whom they may be one of many counterparties.
The MBA knew that mortgage origination fraud was even more epidemic in loans arranged by loan brokers. The MBA's answer was that it was critical to establish that even federally insured banks had a free pass when it came to creating financial systems they knew would produce endemic fraudulent originations by their networks of loan brokers. The officers controlling the fraudulent banks could get the loan brokers to do the dirty work, become wealthy from the resultant endemic fraud, and have complete deniability and immunity from being prosecuted even though they created the loan brokers' perverse incentives to commit endemic fraud and then gutted the bank's underwriting and suborned its controls to assure that the bank would largely approve the broker's fraudulent loans. It was the perfect crime.
A more fraud-friendly policy would be hard to devise than that the MBA pushed. In fairness to the MBA, the trade associations representing the lenders and the secondary market purchasers of loans were equally committed to stopping any prohibition on liar's loans even after MARI reported that their fraud incidence was 90%.
MBA members who were not federally insured (the great bulk of its membership) typically refused to make criminal referrals when they discovered mortgage fraud. An honest lender would make superb criminal referrals. The MBA did not support the FBI's effort to require mortgage lenders to file criminal referrals when they discovered likely mortgage fraud. The MBA designed it fraud report system to not identify the perpetrators in order to ensure that the FBI and the DOJ could not use the information to identify, investigate, and prosecute mortgage frauds. The FBI could not have chosen a worse anti-mortgage fraud partner than the MBA.
The FBI's 2010 report is a Tea Party fantasy due to the MBA's con. It reports only on the vastly smaller and less damaging mortgage frauds by lower social status individuals who exploited the fraud vulnerabilities that the officers controlling the lenders created when they gutted their underwriting and suborned their internal controls to make it possible to make hundreds of thousands of bad loans pursuant to the accounting control fraud "recipe" for a lender. The FBI report ignores the twin massive control frauds by mortgage originators that drove the financial crisis and led to endemic fraud in the sale of fraudulently originated mortgages to the secondary market. The MBA has conned the FBI in 2007, and the FBI has remained conned. The result is that the FBI operates under a faux definition of "mortgage fraud" in which it is conceptually impossible for the banks and their controlling officers to be criminals. The FBI is treating even the Nation's most fraudulent mortgage lenders as the innocent "victims" of fraud by primarily low social status customers who often lack any financial sophistication.