I think that many of the crooks being caught today started "borrowing" from their escrow accounts when the business was booming.  When there is a lot of new business (and money) coming in, it is easier to hide the theft.  When the business slowed down, and the new money wasn't coming in fast enough, they started to get caught.

But, you are right.  It seems pretty obvious that this is not right, and there is always a paper trail that will get you caught (evenutally). With the sums of money usually involved in these cases, I'm always a little surprise that the underwriter didn't detect the shortage in the escrow account sooner.  Either I'm not understanding how they managed to fake their audits, or the underwriters aren't doing as good a job as they used to.