Here in the BuzzPost, we’ve been sounding the horn over the prevalence of mortgage fraud in recent weeks — witness an earlier discussion of Ambac’s education on the matter — and yesterday’s Wall Street Journal picked up a strong, smelly scent. (You know, the same one that’s already got insurers and investors up in arms?) From the WSJ, a mention of the obvious:

Unhappy buyers of subprime mortgages, home-equity loans and other real-estate loans are trying to force banks and mortgage companies to repurchase a growing pile of troubled loans. The pressure is the result of provisions in many loan sales that require lenders to take back loans that default unusually fast or contained mistakes or fraud … Countrywide Financial Corp., the largest mortgage lender in the U.S., said in a securities filing this month that its estimated liability for such claims climbed to $935 million as of March 31 from $365 million a year earlier. Countrywide also took a first-quarter charge of $133 million for claims that already have been paid.

Calculated Risk picked up the story as well, calling it “the bagholder battles.” Very apropos, in our eyes. More than a few HW readers have asked us to comment on the rep and warranties issue that underlies the WSJ story, and our only real take on it is that this activity has been going on for some time now. It’s just that the press is finally picking up on the scent. The business of “reverse due diligence” — hiring slueths to dig through loan files, in the hopes of identifying a reason not to pay on a claim or to push a loss back to the bank that sold the loan — has been booming for over a year now. And it really shouldn’t be surprising, either. Given the broad-scale failure of much of the private-party mortgage market, it’s pretty much inevitable that insurers and investors will do what they can to ensure their bottom lines get hit as little as possible; it’s really no different than attempting to make a hazard insurance claim, for those who have been through that sort of wringer before. The only difference here is two fold: one, we’ve got a whole hell of a lot of loans to parse; and two, more loans than most might want to admit have the word “fraud” written all over them. Which is either a saving grace or damnation, depending on which side of the fence you happen to be on.