Did PPP Fraud Spike the Housing Market?

Who’s to blame for inflated housing prices? It might just be pandemic fraudsters.

New research suggests that fraud related to pandemic-era Paycheck Protection Program was so widespread that it spiked housing prices, according to a new study released on Thursday by researchers at the University of Texas McCombs School of Business. That may just explain your new neighbor in the fancy house down the street who vaguely refers to themselves as an entrepreneur.

The Big Extort

Some $800 billion worth of uncollateralized, low-interest loans were distributed as part of the PPP, roughly $117 billion of which was sent to fraudulent claims, according to a previous study from some of the same researchers. And fraudsters were way more likely to purchase new homes with PPP loans than those who secured PPP loans legitimately, the new report found.

The misuse of funds was so widespread that, even when controlling for other factors, the study found housing prices in ZIP codes with high instances of fraud were nearly 6% higher than those in low-fraud areas. So much for victimless crimes. Mad? First, blame the crooks. Then, the UTA scholars suggest, turn your ire toward fintechs:

• While the government first turned toward traditional banks to distribute PPP loans, the fast-moving fintech firms quickly became the primary middlemen for the program — and were ultimately involved in over 80% of PPP loans.
• But those fintech firms took a fast-and-loose approach to the quality of loan recipients, the researchers said, making it far easier for fraudsters to get their hands on cheap cash.

Too Fast, Too Furious: “There were a handful of fintechs that grew very, very quickly,” Samuel Kruger, McCombs assistant professor of finance and report co-author, told the Wall Street Journal. “All of their incentives are toward just churning out as many loans as possible…it looks like a lot of these lenders did the bare minimum, if that, in terms of diligence.” And it doesn’t stop at housing. Fraudulent loans could have led to car and luxury goods price inflation as well, the researchers said. Joe Biden, “greedflation” purveyors, and wage-hike-demanding workers — you’re officially off the hook.