No wonder he was suspicious

Thanks to the invaluable Craig Newmark of NC State's economics department, we see there might be a reason to cut bankers some slack (but not their customers):

Four years after the crash, most financial institutions still aren’t equipped to find evidence of fraud in the toxic loans crippling their balance sheets. So they outsource the job to Digital Risk. The company’s CEO, Peter Kassabov, calls Digital Risk the “watchdog of the financial world.” .... Kassabov’s recruits tend to have underwriting experience; many are refugees of the housing bust. One such hire was George Zimmerman, the man who killed Trayvon Martin in February (Zimmerman says he acted in self-defense). At the time of the shooting, Zimmerman worked as an auditor at Digital Risk, and before that, he was a mortgage broker.

The company spends about $10,000 to train each new employee in the art of fraud prevention and detection. Credit reports are pulled; ex-spouses are contacted; Digital Risk’s proprietary software is deployed. Once problems are uncovered, clients can try to recover money. (Say Digital Risk finds evidence of fraud among mortgages that have since been sold to an investor. The investor can use that evidence to force the bank that issued the mortgages to buy them back.) The information that analysts dig up unsettles [Frank] Alpan. “There’s nothing you can hide,” he says. “This is why auditors are so paranoid.”

And fraud is in evidence in copious quantities, such as;

...the case of a grocery-store manager in New Jersey who paid $120,000 for a home whose value then jumped to $220,000. Over the course of a single day, the manager took out five home-equity lines of credit. A week later, with half a million dollars in his pocket, he walked. The scheme is called shotgunning, and Alpan sometimes wishes he was unscrupulous enough to have done it. “I could have been a millionaire,” he says, snapping his fingers, “just like that.” 

....Alpan scowls as he plows through the files. The infinite variety, as well as the sheer tonnage, of bad behavior has clearly affected him. Among the thousands of fraudulent loans he has audited, the only common denominator is deceit. “It’s not just lawyers and pastors and CEOs who lie and scheme. It’s nurses and schoolteachers, too,” he says. “Everybody’s guilty; no one’s up to any good.”

Like [George] Zimmerman, Alpan used to work on the other side of the industry, at a firm that sometimes handed out loans to the undeserving. Not that its loan officers were in any position to pass judgment: some had been fired from previous jobs for sexual misconduct; others were alcoholics struggling to pay child support. Most were skilled at bullying borrowers into signing. When one man didn’t have the gas money to come in and sign papers, an officer drove the papers to him. One Digital Risk employee came from a brokerage whose in-house motto was “Copy, paste, cut, delete. We’re not done until the loan’s complete!”

All of which was missed in the ratings of the mortgage backed securities by the tri-opoly of Moody's, Fitch, and Standard and Poors during the housing boom. After all, if you had a privilege bestowed on you by politicians, would you be in any hurry to rain on their parade's bandwagon (affordable housing)?