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COVID Stimulus Fraud at Center of Housing Inflation, Study Finds

A second University of Texas study found 1 in 6 Paycheck Protection Plan loans to be fraudulent, while U.S. Small Business Administration data declared that 91 percent of all PPP loans were forgiven by being converted into grants.
Neil Campbell
Neil lives in Canada and writes about society and politics.
Published: June 22, 2023
PPP COVID Stimulus Fraud Drove Housing Inflation University of Texas
A file photo of a for sale sign near commercial property in Texas in 2017. A new study released by the University of Texas at Austin found that Paycheck Protection Plan stimulus fraud correlates to an almost 6 percent increase in prices in the housing market. (Image: Justin Sullivan/Getty Images)

Central government stimulus programs included as a component of COVID-19 pandemic) measures are widely known to have been defrauded to the tune of tens of billions of dollars.

Now, University of Texas at Austin researchers have discovered a correlation between fraud and the significant inflation of housing prices.

A June 22 article by The Wall Street Journal reported that researchers from the university’s McCombs School of Business had discovered that zip codes that were known to have a high density of Paycheck Protection Program (PPP) fraud also had an average house price 5.7 percent higher than low-fraud zip codes in the same county “even when controlling for a range of other possible factors.”


The study also found that “people who received fraudulent loans were significantly more likely to purchase a home during the program than those who got the money legitimately,” the Journal remarked.

The McCombs team has produced a campaign of damning research against the PPP. In August of 2021, the school made headlines in Texas when it reported that as many as 1 of every 6 PPP loans were “questionable,” the San Antonio Express News reported.

The “questionable” batch amounted to a remarkable 10.8 million individual contracts worth more than $76 billion.

People with a criminal background were 3.5 times more likely to open PPP loans than normal loans, the study also found.

‘Processing fees’

At the core of the problem appears to be a “fintech” companies that were paid a processing fee for administering loans.

The matter has been covered all along and was more recently reported on by The Washington Post in December 2022 where it stated that one such firm, Blueacorn, collected $1 billion in fees while running a corporate policy that ignored warning signs of fraudulent loans and allowed operators to even take out loans themselves.

Fintech companies again found themselves in the crosshairs of McCombs researchers in the latest piece, where the Journal stated, “The government used traditional banks as a conduit for money but also turned to fintechs after industry groups said they could speed up the process.”

The segment of non-traditional fintechs ended up distributing upwards of 80 percent of PPP loans, the Journal said based on previous studies by McCombs.

Fraud discovered in the housing price study was found to be locale specific, “Illinois’ Cook County, where Chicago is located, saw suspicious loan rates around 30%, compared with 10% in New York County, which consists of Manhattan, and Los Angeles County,” the Journal said.

The team earmarked problem loans as “suspicious” based on some fairly elementary criteria, such as if a non-registered business applied, multiple loans went to the same residential household, or if they claimed a payroll much larger than their industry usually commands.

Fraud and the change in social conditions to conducting formerly normal business in an online-only format as a result of COVID measures is not isolated to America and its particular handout scheme.

In February, Canada’s The Globe and Mail reported that virtual mortgage signings had been at the root of a rash of mortgage fraud conducted by “imposters linked to organized crime” in Toronto, one of the most inflated areas in all of North America.

The scheme went so far that criminals began taking out mortgages on houses they did not own, using loopholes in the pandemic’s digital transaction protocol.

But it evolved to even fraudulently selling homes they had leased.

“Once a fraudster gains access to a home by taking on a lease, a different set of imposters pretending to be the homeowners puts the property up for sale. In one recent case, for example, criminals were able to sell a Toronto condo while the owner was in China, and sell it for $970,000,” the article stated.

Majority of contracts forgiven

But more concerning for the American Paycheck Protection Program stimulus and the amount of fraud McCombs states it has uncovered is that the outright majority of the contracts have been openly forgiven.

In October 2022, NPR reported that, based on data from the U.S. Small Business Administration, which is a government agency, 91 percent of all loans in the $800 billion stimulus round had been converted into a grant.

“The SBA expects that figure to grow to nearly 100% as more forgiveness requests are processed this fall,” NPR added.

In a January interview with NPR, University of Texas at Austin finance professor Sam Kruger bluntly stated, “The PPP program seems to have resulted in billions of dollars of fraudulent loans that have ultimately turned into grants.”

Kruger’s comments were in response to the following segue by host Sacha Pfeiffer: “To qualify for a loan, you just had to say you thought you needed it and to get it forgiven, you did not have to prove the money was necessary. So that meant not only did people get loans they didn’t truly need, it also attracted scam artists.”

Secondary host A Martinez made light of Kruger’s comments, asking, “And is it just me, Sacha, or did he sound a little testy?”

“He sounded testy to me, too. I would say he definitely was. And so was an SBA official in the Biden administration named Patrick Kelley,” Pfeiffer replied.

In a February study co-authored by Kruger, the paper countered the argument that it was crucial to the economy to get stimulus funding into the hands of struggling businesses amid lockdown mandates, and thus the gains of saving businesses outweigh the losses from lax fintech lending fraud.

“However, this urgency mainly applies to the initial rollout of the program, and potential misreporting increased over time with particularly high rates in the last month of round 3 (25.0%), even after the Office of the Inspector General for the Small Business Administration (SBA) flagged PPP fraud as a concern in October 2020,” the authors wrote.

They added, “Several of the FinTech lenders with the highest suspicious loan rates are new lenders who did not start making PPP loans on their own until round 3.”

Moreover, citing other published studies, Kruger and other researchers found that any potential gains from PPP came at an inordinately disproportionate financial cost to taxpayers.

“Second, regarding the efficacy of the PPP, Chetty et al. (2022) show that the PPP increased employment at participating firms by only 2% at a cost of $377,000 per job saved, and Autor et al. (2022) find costs of $170,000 to $257,000 per job retained,” they stated.

But they noted some other published studies, to the contrary, claimed that more than 18 million jobs were saved at a cost of only $28,000 per head and that even marginal delays to PPP disbursements led to a decrease in business and a higher rate of closure.