Mortgage Fraud: Sub-Prime Mortgage Brokers

In recent discussions in various threads, I have made special note of the role that sub-prime mortgage brokers played in the current economic crisis facing our country.

According to Richard Bitner, author of the book, "Confessions of a Sub-Prime Lender", Mr. Bitner states that between the years 2003-2005, more than 70% of all brokered loan files submitted for initial review were somehow deceptive, misleading, of fraudulent:

www.fcic.gov...

As I have stated repeatedly on these forums, banks are NOT mortgage brokers. A sub-prime mortgage broker is not regulated by state or federal regulators like a traditional bank. The mortgage broker holds no deposits. The role of a mortgage broker is to solicit potential borrowers for residential mortgage loan applications, and submit these loan applications for funding through their various funding sources. Mortgage brokers are also typically involved in the actual closing of the loan itself, along with a title attorney.

At the height of the mortgage crisis, brokers operated in a highly unregulated manner, as Mr. Bitner's testimony above describes.

According to Bitner:

- Nearly three out of every four sub-prime mortgages originated by brokers were misleading or fraudulent, and brokers utilized various tactics to trick lenders and borrowers.

- Brokers used creative financing techniques to turn unqualified applicants into qualified borrowers.

www.lendingsanity.com...

How did mortgage brokers commit mortgage fraud?

- Submitting inflated property appraisals
- Inflating a borrower's income on the loan application
- Doctoring a borrower's credit report
- Using fake or false information on loan applications

You can find a good primer on the different types of mortgage fraud here:

en.wikipedia.org...

and the FBI's most recent report regarding mortgage fraud:

www.fbi.gov...

According to the FBI, "Mortgage Fraud" is defined as "the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan."

Here is the key: On these forums, we here a lot of anger against the banking industry, and against banks in general. However, we somehow seem to miss the fact that the main reason why so many banks have failed in the past couple of years is because these very banks were deceived and defrauded by sub-prime mortgage brokers.

Wall Street investment banks - such as Goldman Sachs - as well as ratings agencies are also to blame for packaging up these sub-prime loans and selling them in bundles to investors as AAA investments.

Who was defrauded by the epidemic of mortgage fraud? Banks.
Who were the main perpetrators of the fraud? Sub-Prime Mortgage Brokers and fraudulent borrowers.

Food for thought...Comments, questions welcome.

Some large banks were subprime [defrauding] lenders.

Wells Fargo listed among top subprime loan makers

By NEAL ST. ANTHONY, Star Tribune
Last update: May 6, 2009 - 9:35 PM

Wells Fargo, the nation's largest mortgage company, was the
eighth-largest maker of subprime mortgages in recent years and among the 25 biggest players in the subprime market that imploded in 2007 and 2008, spurring the government to inject hundreds of billions of dollars into U.S. banks, according to a nonprofit research group.

The Center for Public Integrity, using data from lender filings made under the Home Mortgage Disclosure Act, listed among top subprime lenders Countrywide Financial Corp., Ameriquest Mortgage Co., New Century Financial Corp., Wells Fargo, J.P. Morgan Chase, Citigroup and WMC Mortgage Corp., a unit of General Electric. They were among "enablers that bankrolled the type of lending that has threatened the financial system," the center said.

The center reviewed government data on nearly 7.2 million high-interest or subprime loans made from 2005 through 2007, from the peak to the collapse of the subprime boom. The center said the top 25 originators of such loans accounted for nearly $1 trillion of the $1.38 trillion in subprime loans made during that period.

The center, a nonprofit, independent, research and news agency founded in 1990, specializes in investigative reports that affect the public purse.

In a prepared statement Wednesday, Wells Fargo dismissed the research report.
. . .

www.startribune.com...

Wells Fargo DID have a huge subprime lending unit. I remember hearing a lady who was involved in it until she finally got fed up & left.

Wachovia bank went under, in large part because it purchased World Savings [of California] which was writing streams of subprime mortgages that were scandalously rife with every kind of fraud & shenanigans.
Wachovia didn't do the due diligence to see that World Savings was an empty soap bubble waiting to pop, before paying an unwarranted absurdly high price for it.
Wachovia was in all certainty a reasonably sound bank that went under solely for their stupid unknowing purchase of World Savings.

As for all the banks that were bankrolling this stream of sh;t,
They either were knowingly involved or criminally negligent for not knowing or in denial of what they didn't want to know.

Clearly with Wells Fargo it was a subprime fraudulent lender.

One has to wonder how much these banks knew about the 3rd party loan originators. Was that just a means of making it seem like their hands were clean, at least in terms of intent? Plausible deniability?

What went on at 3rd party loan originators was wildly criminal.
Most of the time they bald face lied to borrowers, although in some cases borrowers were prodded into lying on applications by these same 3rd party loan originators.

On a personal note,
if your mortgage agreement(s) is a hundred or more pages it is probably that long because they don't want you to read it.
Especially the rat-trap, surprise clauses that the sales people never told you about. Or that the sales people rationalized away with phrases such as, 'You can just re-finance' or 'You can turn around & sell it'.

You will notice the US government has done NOTHING to curb this kind of consumer abuse.
CYOAF - Cover Your Own [Backside] First

You have to read all contracts, & understand them well before you sign. If there is anything you don't understand ask some independent, non-connected expert, not the sales people who will lie ruthlessly.

A really important note:
Banks WANTED SUBPRIMES, even over prime mortgages,

Why?

Because they paid higher interest.

But they [insanely? crookedly?] neglected to take into account the higher default rates of subprime, which is WHY they pay higher interests.

But banks didn't care, because loony ratings agencies would give triple A ratings [the very highest] to any kind of garbage they bundled together in a 'mortgage security' & they would just unload it on some other sucker.

Subprime mortgages paid higher fees, bonuses & rewards, because of bank preferences.
They were giving subprime mortgages to people completely qualified for a prime mortgage, because they wanted subprimes so badly.
And because no one & i mean NO ONE was watching, these were loaded with impossible terms & completely unsustainably by the people borrowing, even if the economic crash might not have happened.

I am angry at the banks for both knowingly & irresponsibly recklessly sponsoring & even doing these subprime rattrap mortgages.
They engineered & bankrolled it.

I am angry at all the sleazy 3rd party loan originators who took all their dirty bonuses & closed up shop, never to be traced again.

And i am angry that American consumers could be SO stupid & so inattentive in a vicious, dirty American style market system.

And it all scares me, because maybe i won't be paying attention carefully in the future & this or something else equally bad might suck me into it.

Or even if i don't personally get hooked in it, i will have to live with global economic devastation & higher taxes to pay to bailout the very authors of some new mess.

[edit on 17-5-2010 by slank]

Some large banks were subprime [defrauding] lenders.

Yes, some were. But I think the real question is: Who originated the actual sub-prime loan? Who was the loan officer? Did he work for a bank, or did he work for a sub-prime mortgage broker? I think that's the key question.

A lot of the banks that bought the sub-prime paper never originated the loans. Whether these same banks were growing too fast, incompetent, or just unaware probably depends on the particular bank in question.

A lot of these sub-prime loans were funded by banks - yes, agreed - but another third party such as a mortgage wholesaler (such as Taylor, Bean, & Whitaker) or a sub-prime mortgage broker actually originated the loan. All the bank did was provide the funding dollars.

Wachovia bank went under, in large part because it purchased World Savings [of California] which was writing streams of subprime mortgages that were scandalously rife with every kind of fraud & shenanigans.

Perfect example. Wachovia lost their shirt on that acquisition. I would call that acquisition pure stupidity on Wachovia's part.

They either were knowingly involved or criminally negligent for not knowing or in denial of what they didn't want to know.

Or, quite possibly, they were defrauded by sophisticated sub-prime mortgage brokers. Or some combination of all of the above. I really don't have a sense as to how sophisticated the mortgage fraud was. If I had to guess, I would think that the banks either turned a blind eye to the fraud, or were just plain incompetent and naive. Or, they were competent, but were outsmarted by the sub-prime mortgage brokers that originated the loans. I really don't know.

One has to wonder how much these banks knew about the 3rd party loan originators. Was that just a means of making it seem like their hands were clean, at least in terms of intent? Plausible deniability?

From the bank's perspective, it was cheaper. You didn't have to hire a mortgage loan officer at the bank and pay him or her a salary, pension, etc. Instead, you just bought paper from a third party. No fuss, no muss. Bad decision!

What went on at 3rd party loan originators was wildly criminal. Most of the time they bald face lied to borrowers, although in some cases borrowers were prodded into lying on applications by these same 3rd party loan originators.

Yep.

Banks WANTED SUBPRIMES, even over prime mortgages, Why? Because they paid higher interest.

According to Bitner, it was the Wall Street banks that were driving the underwriting criteria - stating this is what kind of loans our investors want. I don't think it was the retail banks - It was Wall Street in the driver's seat calling the shots.

Or even if i don't personally get hooked in it, i will have to live with global economic devastation & higher taxes to pay to bailout the very authors of some new mess.

How many Americans have seen their house lose 40-50% of its value in the course of the past few years? A lifetime investment gone up in smokes.

And how long do you think - if ever - real estate prices will be back where they were just a few years ago? Decades? A century? Who knows?

The thing that is so troubling is the total lack of both awareness & response on the part of public &/or elected officials.

Ameriquest was notoriously fraudulent in mortgage origination,

Ameriquest, founded by Arnall as Long Beach Savings in 1979, has faced off with consumer activists, regulators and private litigants in a series of disputes over its lending practices dating to 1996.

www.consumeraffairs.com...

Despite these fraudulent activities going on for more than a decade,

the Congress in its [lack of] wisdom instigated the Commodities & Futures modernization act of 2000 & Bush's 'Zero down payment initiative' in Feb of 2004.
The first had to make Credit Default Swaps explicitly unregulated, because many [most?] states would have regulated this trash as the gambling it was.

And as if there weren't screwy enough mortgage practices going on in 2004 they opened up the can of worms to pour it into a much larger can of wormy insanity. No Doc, Low Doc, Ninja loans.

Collective insanity is the same as personal insanity, it just has repercussions on a vastly greater scale.

[edit on 18-5-2010 by slank]

Don't kid yourself, the Banks truly did not care. All the Banks care about is having the documents to complete the package, so that they can bundle it up and sell it at a discount rate to investors in mass.

The Banks certainly could have eliminated the fraud with due dilligence, and were even aware of fraud in many cases, but simply did not care, as long as they could amass a loan package with the proper documents to bundle it up and sell them on Wall Street.

Little crooks are thought of quite fondly when they feed big crooks.

Little crooks that feed big crooks, provide a layer and level of deniablity and insullation for the big crooks.

The banks knew exactly what was going on.

It all went down exactly as they planned, right on up through the bailouts to the huge debt, they have passed onto the governments, who have given up their sovereignty to the Reserve Banks that manipulate the whole scheme from the top of the pyramid.