Ooh la la...now things are really starting to get interesting...

Yesterday, the Washington Post ran a story on what’s being referred to as “one of the biggest mortgage fraud cases in history.”

The mastermind behind the scheme was one man, Phillip Hill, from Atlanta, Georgia. And it involved “400 fraudulent loan applications; nearly $100 million in mortgages; and 120 closing attorneys, appraisers, mortgage brokers and others who prosecutors say were in on the scam.”

Basically, Hill and the others involved hunted down short-term loans from friends and acquaintances, mainly pulled from Atlanta’s elite crowd. With these loans, the fraudsters bought houses and then transferred them to “straw buyers” - fake loan applicants who are paid for the use of their name and credit information to obtain a home loan.

The Post continues: “The ring used inflated appraisals and other doctored papers, and took out big mortgages that allowed it to repay the short term loans and pocket hefty sums.”

While this scheme was highly elaborate, it was also highly effective - that is, until Hill got busted. Before he was caught though, it is estimated that Hill’s personal gain was $14.5 million.

And it doesn’t stop there...think about the effect that these inflated home prices had on the other homeowners in the neighborhoods Hill hit. He never had any intention of actually living in the homes that he purchased
- and most ended in foreclosure, driving down the value of the other homes in the neighborhood.

So right now, honest homebuyers are being hit hard by schemes like these. They refinanced their homes, and when they refinanced they were told the inflated price...but now are finding that their home is not worth quite that much. And they still owe every penny. Take the case of one of Hill’s victims. He bought a home in 2001 for $213,000. Hill started flipping them at around $400,000. All of the units were foreclosed - and now these homes are selling for $130,000.

“It [inflated home appraisals and mortgage fraud] happens everywhere and anywhere,” said Anne Fulmer, vice president of Interthinx, an anti-mortgage fraud company. “If the true scope was discovered, I think it would cause a major crisis.”

*** China’s trade surplus almost doubled in the first quarter, widening to $46.4 billion - up from $23.3 billion in 2006.

“Obviously, the U.S. consumer isn’t finished buying flat screen TV’s from Wal-Mart!” EverBank’s Chuck Butler, told us. “Not as long as the credit card companies keep sending out credit cards to every Tom, Dick and Harry that may or may not have the wherewithal to pay back what he borrows, without even a hint of a credit check!”

This is not helping matters, as the United States took their complaints to the World Trade Organization yesterday - and China’s commerce ministry said that the case will “severely damage” trade relations between the two countries.

Uh-oh...looks like trouble in paradise.

*** Now for a commodities update from everyone’s favorite Maniac Trader, Kevin Kerr:

You can blame it on wet weather...cold weather...snow...and the ethanol craze - but the volatility in U.S. crop prices is certainly here to stay for a while.

In addition to problems with the weather, “farmers are facing higher and higher costs associated with corn, such as expensive seed and fertilizer,” said Kevin, in a recent MarketWatch column. “And now in southern states, opting to plant corn means irrigation costs come into play.”

“Mother Nature is not being cooperative and that could be foreshadowing for what could be a very rough weather season. Ironically, the biggest fear is that due to wet conditions, crops will go in late, and then this summer drought and high heat will kick in.

“That could be a double whammy of terrible conditions for farmers. The drought predictions are backed up by the La Nina effect, the same weather conditions that could create violent hurricanes in the Gulf again.”

One thing is for certain: The grain markets and ethanol demand are not going away anytime soon - and for investors there is a lot of money to be made in this sector right now.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.