The Mortgage Mess: In the Eyes of an Account Executive

The following is a guest post from the staff at The Truth about Mortgage:

As the mortgage fiasco continues to flare, more questions are being asked as to how things got this bad, and who is to blame?

To give you an idea of how things operated, and to some extent still do in the mortgage industry, read the excerpt below from an undisclosed Account Executive who worked for a wholesale lender in California:

A typical day began by firing up the computer and checking e-mail.  After responding to e-mails and checking phone messages, it was time to start cold calling and selling product. 

That’s where everything changed rather abruptly from what was considered a normal sales job to what was seemingly a mixed-up, quite fraudulent way of doing business.

Our job was basically to serve as a middleman, speaking with brokers who secured financing for their clients, the homeowners.  We worked for the lender, offering a slew of financing options to get the deals closed.

Brokers we spoke with would ask for maximum rebates up to 3.5% or more of the loan amount, often stuffing borrowers who couldn’t afford their rent into million dollars homes.  Usually by way of option-arms which carried 1% minimum payments and negative amortization.

If there were any problems qualifying, and there always were, the broker would come up with a way around it.  Walls came down with a little bit of arguing or creativity.  Nothing was really seen as a complete barrier, just a bump in the road that would take some clever maneuvering to get around.

Most of the borrowers we came across were “self-employed” with businesses that often couldn’t be verified, usually computer service companies or vague investment companies.

If you called the “business line” to verify employment you’d usually get a personal voicemail message on the borrower’s cell phone.  Not too convincing for a borrower stating $25,000 gross monthly income.  For that type of money you’d expect a secretary, a physical office, or at least a professional voicemail message.

But that wasn’t the worst of it.  Once these loans somehow got approved, brokers would send in fake CPA letters that confirmed their so-called employment, handwritten VODs (Verification of Deposit) that claimed the borrower had hundreds of thousands of dollars in assets, and fake rental contracts to prove past rents to verify the borrower could support a larger mortgage payment.

The fraud was rampant, typically prevalent from start to finish on nearly every loan that hit our desk.  It got to the point where it wasn’t even surprising, if not customary.

I suppose things were so “golden” back then that you wouldn’t question things as much. Think stock market boom in the late 1990s where everything dot com went to a share price of $100 or higher.

Home prices were appreciating so rapidly that lenders and secondary investors didn’t really care who was buying homes and how they were being financed.  It was this general lack of foresight that has led us to yet another housing meltdown.

It’ll be interesting to see how bad things get, and what measures will be taken to ensure this doesn’t happen again.  So many homeowners got into bad situations while lenders announced record profits and greedy brokers got rich and never looked back.

Comments

[Teri]

I had a well respected broker friend ask me for a fake CPA letter. I was not impressed. (I am a CPA). I wouldn't touch that with a 10-foot pole and am even more glad today that I didn't. But yes, even the most honest, well-meaning broker just might give in to these tactics. I really trust this guy and don't think he is a bad guy overall, but he found it easy to justify. I think he asked me to stretch the truth on a common client as well - that they had been in business for a full 2 years. I think in his case it was more truth stretching than rampant lying, and he truly made sure in general his clients didn't get in over their heads - he was not a big subprime or ARM loan pusher. BUT all the same, in the name of commissions he clearly was easily able to blur the line of ethics. In the midst of good times, people forget how risky a new business is, etc. To him what was not a big deal really could have been putting his clients at risk.

I can only imagine how rampant this must have been at the subprime level.

[Scott]

Really interesting story. I'm sure things were a lot worse than this, but even the above mentioned fraud is enough to land someone in jail.

Good thing you didn't provide a fake CPA letter, especially since the broker is the only one who really profits from it!

[Marc Brinitzer]

"Brokers we spoke with would ask for maximum rebates up to 3.5% or more of the loan amount, often stuffing borrowers who couldn’t afford their rent into million dollars homes. Usually by way of option-arms which carried 1% minimum payments and negative amortization."

This is criminal and these bastards should be jailed. I have been in the mortgage biz for 20 years, and it really pisses me off to see the cocky young ex cell phone sales guys sticking it to the consumer and earning 4 points rebate.

On the other hand, consumers have been gambling with cheap money on bigger and bigger homes, hoping for big windfall profits. Let's not feel to sorry for those who pretend that they really believed that 1% rate was fixed for 30 years. That's wishful thinking at best.

[Marc Brinitzer]

"Brokers we spoke with would ask for maximum rebates up to 3.5% or more of the loan amount, often stuffing borrowers who couldn’t afford their rent into million dollars homes. Usually by way of option-arms which carried 1% minimum payments and negative amortization."

This is criminal and these bastards should be jailed. I have been in the mortgage biz for 20 years, and it really pisses me off to see the cocky young ex cell phone sales guys sticking it to the consumer and earning 4 points rebate.

On the other hand, consumers have been gambling with cheap money on bigger and bigger homes, hoping for big windfall profits. Let's not feel to sorry for those who pretend that they really believed that 1% rate was fixed for 30 years. That's wishful thinking at best.

[db]

@Marc:

AND, unfortunately for people like me we'll assume you're guilty by association. I walked away from one of those slick talkers and the mortgage he was trying to sell me because as much as I hate looking at numbers, I knew he was getting me into a situation I didn't fully understand or like.

(I'm simple that way -- I understand the concepts of 20% down and fixed term mortgages -- when they start doing lots of gyrations to get me to be able to afford the house they've already lost me because it's way too complex for me to anticipate the negative implications. Or at least that is my mindset. At least I know my weakness and so I guard myself from making a bad decision.)

Anyway, now I'm scared off of thinking mortgage brokers are going to be honest with me and look out for my interests.

DB