Rodney Hixon is an ordinary guy trying to make an extra buck or two on the side, and why not? Living in the state of Michigan has never been more financially challenging, so when Rodney discovered that he could buy up slum properties In Kalamazoo with ’stated income’ mortgages that didn’t require him to show any proof of his assets or salary, he jumped at the chance.

Hixon, currently describes himself as ‘a former real estate agent’ who makes ‘a couple thousand dollars a year as the coach of Mattawan High School’s girl’s lacrosse team’. He was the ideal candidate for the creative ’stated income mortgage’ that became so very popular during the housing boom that preceded the sub-prime bust. As a former real estate agent he knew the area, knew the mortgage companies and their policies, knew the ropes, knew he could do it.

So, when a person wants to invest in real estate, the idea basically is to buy low, sell high, right?

Wrong!

In the past 15 months 38 of Rodney’s investment properties went into foreclosure, and it came to the attention of some Kalamazoo city officials that he had overpaid for each of the properties. In fact, Hixon had overpaid alot. On his 38 most recently foreclosed properties, Hixon paid between 2% and 375% over and above the city’s tax-assessed value, for an average purchase price on Hixon’s investment properties of 68% above SEV. Profits (for the seller) on Hixon’s 38 foreclosed properties (all of them in slum neighborhoods) topped out at $2.7 million.

On one property alone, Hixon saw a 1,837% appreciation in the short three years before the home went into foreclosure. That home, at 722 Egleston Avenue in Kalamazoo, sits in one of the cities most distressed areas and sold for $8,000 in December of 2002. Hixon purchased it in October of 2005 for $155,000. It went into foreclosure in June of 2007.

Hixon’s investment properties are all listed as rentals but few were ever rented, not even briefly. Most sat vacant from the date of sale right up to the date of foreclosure.

The FBI is currently investigating Hixon for mortgage fraud. They suspect that he might have been involved in a scam that goes like this:

A real estate agent, an appraiser, and a ’shill’ buyer purchase a slum property at many times its city-assessed tax value and take out a 100% mortgage on ‘creative’ terms. The shill buyer and the seller then divide the substantial profits amongst themselves, defaulting on the mortgage almost immediately, leaving the mortgage company or lender holding a bad debt on a property worth a fraction of its selling price.

The FBI would probably already have charged Hixon with something if it weren’t so horribly backlogged with similar cases occurring all across the United States. According to figures printed in the Kalamazoo Gazette, in 2002, the FBI investigated 5,623 cases of mortgage fraud that resulted in $293 million worth of losses for lenders. In 2006, the FBI was busy investigating 35,617 cases of mortgage fraud with losses totaling over $946 million. Figures currently available for mortgage fraud in 2007 are topping out at well over $1 billion, and by all accounts, at this point the FBI is not able to keep up with the number of claims in 2008.

In fact, as the chart above shows, the FBI is having no small amount of trouble just adjusting its tables and figures on this topic fast enough. You can look at other tables on mortgage fraud cases by year along with pending cases by year at the FBI’s own website, but that report hasn’t been updated since 2005.

Reading about Hixon, who tops the current list in Kalamazoo of foreclosed property owners, I couldn’t help but wonder what the real scope of this problem is, how deep it goes, and how much of it is institutional versus individual. Lenders often buy back their own foreclosed properties because it makes their books look a little bit better. (That is possible through some magical accounting process that I confess I do not entirely understand… sorry! If you do understand it, feel free to enlighten me here by posting why that works for them!) My question is this:

What (besides the law) would prevent lenders from doing the same thing Hixon is doing so successfully right in my home town? They would have to operate through a shill or third party and rip off some other lender of course, but how can we know that isn’t exactly what is happening as we speak? Kind of a very, very high stakes version of ‘hot potato’ and the one left holding the potato goes under. What a game! It makes Monopoly look positively warm and fuzzy!

Just ask Anthony Mozillo of Countrywide about those kinds of games. Countrywide is such a mess right now it doesn’t even have records that show how deep the mess is, and the records it does have, nobody can quite understand. Fewer and fewer employees remain to even look for those records, and I have no doubt that at some point everyone is going to just throw up their hands and exclaim, “Oh, nevermind!”

Honestly, I don’t want to rain on Hixon’s parade. He just got married after all, and he swears that everything he did is on the up and up and it’s all been very heartbreaking for him, losing all those homes. At least he has a sweetie now to soften the crushing blow.

I don’t know who he’s marrying, but if I were her, I’d want a separate bank account and a pre-nup.

In blood.