Real Stories from the 'Loan Abuse' File Cabinet
How much will the current mortgage liquidity crisis cost? Answer: no one knows for sure. The problem with asking such a question is context. Are we talking about losses incurred by investors in subprime bonds, shareholders who invested in now-defunct publicly traded lenders, mortgage bankers that lost money by originating and servicing loans? Really, what are we talking about here?
The meltdown in the "nonconforming" market (subprime, alt-A, payment-options ARMs) has caused losses wide and far. Lots of numbers are flying around, flowing out of the mouths of industry experts who are spewing out loss estimates faster than an auctioneer can shout "sold!"
Then there's the consumer. Depending on who you believe, two million to seven million homeowners could lose their primary residences over the next two years. Trillions in "home equity" could be wiped out. Then again, maybe not. But let's drill down to the mortgage experience - where the consumer obtains a loan from either an LO or a broker. Over the past three months I've been interviewing mortgage professionals, asking them about abuses they saw in the market place. Below is a sample of what I've heard. It's told in their words, some of which I edited for brevity and grammar. The mortgage professionals are identified by their initials only.
* JM: "In 2004, I had one account executive tell me to use the interest-only program for my borrowers so they could qualify for a bigger house, the Realtor would make more commission and I would be paid more based on the higher loan amount."
* BG: "I am a contract loan processor and have been in the business for many years. I currently support several different brokers who, in turn, are approved with many lenders for purchase and refis. A couple of months ago I started getting totally amazed when the AEs at the lenders started offering to self-fraud the files being submitted. Specifically, they were offering to provide CPA letters to verify self-employment for the borrowers and/or rent/mortgage verifications when needed. I have had loan officers suggest these activities but never the direct contacts at the lenders."
* FF: "At my former shop, we ran a lot of subprime purchases. One of the snags we would run into, especially with younger borrowers, was that we might have a FICO that met guidelines but the borrower didn't have enough trades or the depth of trades required by the guidelines. I remember in the spring of 2006 one of the big subprime companies began using collections and charge-offs as trade lines. Imagine, using defaulted credit to establish creditworthiness."
* ME: "I've seen in the past - and am still seeing - account executives push stated and option-ARM products down the broker's and LO's throat. Talk about entrapment. They have always offered more YSP on 'exotic' products than fixed products."
* RD: "If you wanted to compete with Argent, you had to book 600 FICO stated-income grounds keepers saying they made 10K per month and we knew they bought CPA letters for $60 - and these were 100% LTV loans. They did it all day long. If you raised your hand and said, 'We're not booking loans like this' you were considered a 'non-team player' and ostracized."
* DN: "I did purchase assignments at New Century. If you found something wrong, Wall Street would just offer less for the loans. At a purchase shop in Santa Ana every loan had fraud in it. I lasted there three weeks and left. The fraud was so easy to detect, but wholesalers did nothing. They thanked the broker for his business. Amazing. Most of these loans were alt-A hybrids, stated income - but they all had 'A' paper credit scores." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/