The news about the nation's foreclosure scandal has been coming fast and furious, fueled by tales of backdated documents, false affidavits and "rocket dockets" that push families into the street.
A former employee with one of the nation's largest lenders testifies that he signed off on 400 foreclosure documents a day without reading them or verifying the information in them was correct.
Ex-employees of a law firm that serves as a "foreclosure mill" for major lenders describe a workplace where speed -- not accuracy or justice -- trumps all. "Somebody would get a 76-day foreclosure," one recalled, "and then someone else would say, 'Oh, I can beat that!'"
Shocking stuff. But surprising? Not for anyone who's been tracking the recent history of the mortgage machine. Just about every corner of America's mortgage industry has been blemished by significant levels of fraud over the past decade.
Forged Signatures, Fake W-2 Forms
On the front end of the process, for example, many mortgage pros used "boiler-room" salesmanship to peddle loans to borrowers who didn't understand what they were getting and couldn't afford their loans in the long run. To make these deals go through, some workers forged borrowers' signatures on key disclosure documents, pressured real estate appraisers to inflate home values, and created fake W-2 tax forms that exaggerated loan applicants' earnings.
At Ameriquest Mortgage, one of the companies I focus on in my new book about the subprime mortgage debacle, The Monster, this sort of cut-and-paste document production was so common employees joked that the work was being done in "The Lab" or the "Art Department."
Here's a snippet from the book, from a passage about Stephen Kuhn, a young Ameriquest salesman who eventually became distraught about the things he had to do to earn his living:
The pressure to produce began to get to Kuhn. After he became a branch manager, he saw a bigger picture of how Ameriquest was treating its customers. Many nights, he had to drink a twelve-pack of beer to get to sleep. He asked for a demotion. He wanted to go back to being a salesman.
Even that didn't work for him. He felt trapped. To hang on to his job, he had to put borrowers in deals that sank them deeper into ruin. One of his customers was a veterinarian who was having tax problems. The IRS was threatening to close down his business. Kuhn arranged a loan for the veterinarian that "had no benefit whatsoever. It was a terrible loan." Another customer was a small businessman, the owner of a Chinese restaurant. Kuhn put the man into a stated-income loan that raised his payments by $200 a month, even though he was struggling to keep up on his existing mortgage. "He was desperate," Kuhn said. "So I was told to take advantage of him." Kuhn said a supervisor ordered him to cut and paste documents to make the loan go through, telling him, "It's a three-hundred-thousand-dollar loan. Get it done." The borrower was facing foreclosure on his existing mortgage, so Kuhn forged his mortgage history so it looked like he'd never been late on his mortgage.By the summer of 2003 Kuhn couldn't take it anymore. He told his manager he was having trouble dealing with things, because he thought Ameriquest's rates, fees, and business ethics were terrible. Soon after, on a day when Kuhn was out sick, his manager left him a cell phone message telling him it would be in everyone's best interest if Kuhn and Ameriquest parted ways. Kuhn called back and asked why he was being fired. The only answer the manager would give him, Kuhn said, was, "I think you know."
Kuhn was far from alone, at Ameriquest and other lenders around the country.
As the Center for Public Integrity documented in its 2009 investigation, "Economic Meltdown: The Subprime 25," many of the largest financial institutions in America were key players in the subprime market -- and many of them had to make payments to settle claims of widespread lending abuses.
Little was done to stop the bad practices when they were happening. Former Federal Reserve Chairman Alan Greenspan would later explain to CBS' 60 Minutes: "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late. I didn't really get it until very late in 2005 and 2006." The Fed took no action even when it became aware of the problems, he said, because "it's very difficult for banking regulators to deal with that."
With federal officials pushing a soft approach to policing the mortgage market, it was left to the states to do what they could to try and rein in the worst practices. A coalition of state authorities dug into Ameriquest's tactics, eventually forcing the company to agree to a $325 million loan-fraud settlement.
States Again Take the Lead
Now that a fresh scandal has emerged in the mortgage industry, the states are once again taking the lead in confronting the problem. At least seven states are investigating questionable foreclosures.
On Wednesday, Ohio Attorney General Richard Cordray sued Ally Financial Inc. and its GMAC Mortgage division, claiming that workers at the company had signed and filed false court documents in an effort to "increase its profits at the expense Ohio consumers and Ohio's system of justice." Cordray called the alleged misconduct the "tip of an iceberg of industrywide abuse of the foreclosure process."
Now the question becomes: How forcefully will federal officials intervene? Key members of Congress are pushing U.S. Attorney General Eric Holder and current Fed Chair Ben Bernanke to investigate. Holder said at press conference Wednesday that "we are aware of the charges that have surfaced in the newspapers in the last couple of days, and we are looking at them."
The White House announced Thursday afternoon that President Obama would not sign a bill that some consumer advocates worry would make it harder for homeowners to fight fraudulent foreclosures. The legislation would generally require state and federal courts to recognize notarizations made by a notary public in any state -- and require courts to recognize electronic notarizations.
Congress and other powers in Washington failed to get the facts and act the first time around -- when lenders were engaged in a frenzy of predatory lending. The foreclosure scandal is a second chance for lawmakers and bureaucrats to prove that they can ferret out the truth and take action.
Michael Hudson is a staff writer with a nonprofit journalism organization, the Center for Public Integrity, and author of The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis (Times Books, October 2010).
Follow Michael W. Hudson on Twitter: www.twitter.com/michaelwhudson
Big finance currently comprises over 40% of GDP. The jobs it creates are mostly stressful, low paid, and unethical. People at the bottom of the pyramid mostly mindlessly shovel paperwork, shovel fees, shove (really bad) products on people who don't want them (or else they get fired), and then, the collections people take over and pile fees and fees on top of the base level bullying.
Another friend spent much of his first month working collections for a big bank in the restroom crying before he finally quit. When I worked in the call center of a major bank, I had a sales goal of nearly $1 million a month--in customer service! (People called complaining about the horrendous, slippery fees, and we were supposed to sell them credit cards and CDs in three minutes while NOT refunding anything.) I quit after going to the ER from my desk with chest pains.
This is all business as usual. It isn't new.
Omar Ross, a former Ameriquest loan officer I quote in my book, told me: “I don’t think there’s a day that went by that I wasn’t told I was going to be fired. I was told I was going to be fired at least two hundred times.” Supervisors, he said, stayed on him even as he became one of the top producers in the company, beating his monthly quota for selling loans and making lots of money for the lender. “They would tell everybody: ‘Omar did ten. How come everybody else can’t do ten?’
Then in private they would turn around and say: ‘Why can’t you do more? You’re slacking. You’re capable of doing more.’ ”
Yes I still remember the constant threats of being fired. My sales goal was $75/month (to not get fired) when I started and near $1 million when I left. It was just as you say--the more you sold, the more they expected you to sell. The bank failed in late 2008, for all that. I'm glad I'm not there anymore.
When Ronnie Raygun signed the Garn-St. Germain Act (that de-regulated the Savings and Loan Industry in the United States) in a Rose Garden ceremony (October 15th, 1982), it was merely the final yank that fully opened the gates of Financial Hell upon the American People. Soon, the various state S&Ls went on a dergulation kick as well.
Twenty-eight years later...we are looking at the frruits havested when Garn-St. Germain planted the seeds baxk in 1982. None of them are any good (reeking and rancid), all of them destructive to whoever ingests them.
It's going to take more than at least four years to repair all of the damage done.
And we are only seeing the fisrt act of American Tragedy...much more to come.
Check out "Inside Job" by Stephen Pizzio, Mary Fricker, and Paul Muolo to see the genesis of the wreckage caused by Garn-St. Germain (Though out of print, you can find it at a good used book store). It's published by McGraw-Hill.
And watch "Glenngary Glen Ross," starring Jack Lemmon, to see how a real-estate boiler-room operation worked back in the 1970's.
--RKJ
Take a look at what happened to the REIT's between 2007 and 2009. Also, ask a realtor whom you trust to take you through the machinations of the Federal Reserves with its heavy hand in changing the appraisal industry's SCOPE of WORK rules in 2006, which became effective in Jan. 2009 to allow non-appaisers to set values on property where banks had to have a balance sheet "friendly" appraisal given the Fed's madate to handle risk management without delay and limit the effects of the expected massive number of sub-prime foreclosures.
The banks must sell their loans in order to get more capital to lend.
They sell 100% of their mortgages that are underwritten with Fannie Mae standards to Fannie Mae, the bulk of the rest, which equates to about 98% of all loans, get sold directly to investment packagers, so they lost no money;
Fannie Mae sold them to Wall Street to get more money to buy loans from the banks, so they lost no money;
Wall Street packaged all of them, Fannie Mae and non Fannie Mae, and sold them to REITs, so Wall Street lost no money;
REITs insured the packages with AIG for 150% of their value, so not only did no one looses any money, but someone made a bundle of money on the insurance overage payment;
And, the American public paid AIG, a foreign corporation, REPEAT, American tax payer money was used to pay a foreign corporation for their loses.
Why? Most short sellers DO NOT want to sell their home they want to stay (if the payments were affordable) thus they are not looking for a new home absent being forced to sell short. Under Fannie and Freddie rules when they do sell short they are FORBIDDEN from BUYING for 2-5 years. Thus in Florida alone perhaps 500,000 to 1 million homes are artificially on the market and that same 500,000 to 1 million buyers are NOT in the market
The solution: Fannie and Freddie fund the transaction costs of converting short sales into debt-for-equity swaps (please see http://fixhousing.blogspot.com which explains how).
What happens: The existing loan is converted to three pieces: a loan for 80% of current value (which will be current since the homeowner will pay) on the same terms as the original loan, a zero-interest loan for 20% of current value (essentially the current equity above the 80% loan), a PARTICIPATION interest in future appreciation
Immediate benefits: perhaps 2,000,000 homes exit the marketplace, and on those homes the mortgages will become liquid and performing in 13 months which helps the banks which wrote the loans
This is a BUSINESS solution to a business problem which has been corrupted by politics.
Commerce in the US would come to a screeching halt in 24 hours if out-of-state notarizations are no longer recognized in the courts.
If you think this veto is a good idea, let me present you with a real-life scenario.
Mr. A from Topeka, KS has rented a condo every summer in Myrtle Beach, SC. In January, the condo's owner calls Mr. A and says, "I'll give you a great deal if you buy my unit." They agree on a price, and Mr. A gets a loan from a bank in Myrtle Beach at a wonderful interest rate because he has sterling credit.
If Mr. A cannot sign the paperwork in an attorney's office in Topeka--the attorney being a notary--and overnight the docs to the SC bank, he would have to take vacation time and pay for lodging, air fare and meals during his trip to Myrtle Beach. You are looking at an additional $1,000 added to the cost of his closing. Not to mention, he might not be able to take vacation.
Disallowing an out-of-state notary probably cratered a perfectly good, legal and reasonable deal.
One presumes Obama knows this. Who benefits from his veto?
1) You need effective and well thought out REGULATION
2) You need effective and thorough SUPERVISION
3) You need strict and consistent ENFORCEMENT
The President, Congress, the various administrative agencies at the federal and state levels can promulgate as many new, voluminous, watered down, meaningless LAWS REGULATIONS as they choose. And, they may get sound bites to make the American public feel better. All of this effort will continue to be for naught. THere are plenty of laws, regulations, mores, and edicts on the books now. And these have done nothing to prevent the continuing calamnity.
Because, without SUPERVISION and ENFORCEMENT REGULATIONS are meaningless. This continuing debacle has exposed the absolutely glaring level of lack of SUPERVISION relative to REGULATION and the complete and utter lack of ENFORCEMENT.
Without SUPERVISION and ENFORCEMENT there are no real REGULATIONS.
Why re-invent the wheel when Canada seems to have a perfectly good workable system?
Very interesting.
F&F
I do not blame these home owners, they trusted the banks. We were all taught to respect banks and to trust their business practices. We we convinced my our leaders and slick ads and promotions that this was a good thing. We were encourage and duped into think every one in America deserves a home of their own, and why not? We were betrayed by these people. I will never ever trust a bank, invest broker or financial entity again! Unfortunately our parents who lived through the depression understood this, we however thought we were invincible, it would never happen to us!
How on earth do we tackle this monster? It seems like such a David and Goliath task to take on these giants. The more ground we gain the bigger the giant seems to get!
Greenspan is probably saying, "Who'd of guessed that they guys would scam that end of things, too?"
A true banker scam from start to finish. But many buyers did believe that prices would only go up.
People should be able to stay on as a tenant with an option to buy or a right of first refusal. Why make the family move?
There are no prosecutions because both parties were selling homeownership as part of the American Dream. Move to the suburbs and commute to work. Buy their gas and oil. Each person played their part in this suckers' game. No one in Washington can point thier finger at anyone else. The banks got bailed out but the buyers didn't. Halting foreclosure will only delay, not solve the problem, unfortunately. People need good-paying jobs, as Henry Ford observed.
1. People who have lost their jobs, and can't even afford to rent
2. People who are strategically defaulting, because the loan is so far underwater. They're busy buying another property and qualifying for that mortgage before the default shows up on their credit report.
I bet that picture it is also on a bus or a billboard someplace.
My concern is with the person who has been, and could continue, paying their mortgage, but would like a modification because they are currently underwater. Banks have scammed these perfectly good borrowers into deliberately going delinquent on their loans so they will qualify for modification. If the bank determines it is to their financial interest to foreclose rather than modify, they lose the borrower's modification paperwork and delay, delay, delay until foreclosure is inevitable.
What is wrong with mandating legal representation for every borrower in a foreclosure action paid for by the lender? If the bank did nothing wrong, the foreclosure could continue quite rapidly.
(that soon after surged from 5%-12% and pushed so many offf the cliff) But the Republicans wanted nothing of it. And in January of 2009 (after the bailout and loss of 3 million jobs in about 6 months)
were still defending those "products" of chopped up mortgages, worried such garbage would go
away.
There is now a commercial for fed-ex or ups with a song about Logistics. The size and scale
of this bubble, the dumming down of American and the Moronic ideology surorunding "free
markets" and the divisions perpetrated upon us by the Gas & Oil party that forgot to leave
Ayan Rand behind in Junior High School proves that divided we fall.
Give me a link or two.