Thursday, July 05, 2007


No wonder mortgage lenders want to avoid oversight and regulation - they're fucking crooks:

Testimony at a Senate hearing June 26 purported to detail how some mortgage lenders abuse customers. In an affidavit involving a Minnesota lawsuit against Ameriquest Mortgage Co., the nation's largest sub-prime lender, former account executive Mark Bomchill outlined what he said were practices at the branch office in Plymouth, Minn.

"I was taught and encouraged to close loans without regard to the customers' financial ability to make payments on the loan," Bomchill said. He said salespeople at the firm were encouraged to "engage in any conduct necessary to close the loan, to close the loan as quickly as possible and to maximize the loan amount."

Bomchill said Ameriquest taught employees to:

* Lie to borrowers about their credit scores.

* Tell customers they'd be refused loans elsewhere.

* Obfuscate and conceal prepayment penalties.

* Hide adjustable rates by calling loans "fixed adjustable."

* Conceal fees, interest rates and real monthly-payment amounts.

* Hide the fact that loan quotes didn't include escrow payments.

Ameriquest is a nonbank lender with no direct federal regulation. In January 2006, it consented to a $325 million settlement with 49 states, agreeing to overhaul its business practices.

The company's founder, Roland Arnall, was a major campaign contributor to President Bush, who appointed him ambassador to the Netherlands last year.

Arnall is now a target of a class-action suit that seeks to hold him responsible for illegal actions allegedly carried out by Ameriquest employees.

Notice the political connects, notice the lack of regulation and oversight.

These are related.

Ameriquest is not the only mortgage lender or mortgage broker to engage in criminal and/or unethical behavior. The entire mortgage lending business is rotten to the core. Here's more from McClatchy:

Congress must decide how best to bring brokers, who originated about 70 percent of so-called sub-prime loans over the past two years, under some form of federal regulation.

The Mortgage Bankers Association, in its latest report, found that during the first three months of this year about 15.75 percent of sub-prime adjustable-rate mortgages were behind on payments by 30 days or more.

That's an all-time high. And the figure is widely expected to grow. Experts predict that 1 in 5 sub-prime adjustable-rate home loans - as many as 1.5 million - will default by the end of next year. More than $2.28 trillion worth of adjustable-rate loans reset from 2007 to 2009.

Mortgage brokers are often the first link in the process of securing a home loan, so many borrowers think the brokers are working for them.

Wrong. No federal law says mortgage brokers have any fiduciary duty to borrowers, and with the exception of California, most states don't stipulate that duty either.

That's why brokers are front and center in the sub-prime debate. Federal law doesn't define whose interests they're supposed to represent: borrowers or lenders?

This was clear during a Senate Banking subcommittee hearing June 26. Sen. Robert Menendez, D-N.J., met silence when he repeatedly asked a panel of industry players whether they thought they represented borrowers.

Brokers work with lenders to offer home buyers a range of finance choices. But unbeknown to many borrowers, lenders give brokers financial incentives to steer home buyers into loans with higher interest rates, especially ARMs. Some such loan rates can spike up brutally high.

Such resetting loans - sometimes called exploding ARMs - constitute the overwhelming portion of sub-prime loans that are now delinquent or in default.

Absent clear laws to hold brokers accountable - as rules do for real estate agents and financial planners - abuses in the sub-prime mortgage market will continue, said Michael Calhoun, the president of the Center for Responsible Lending in Durham, N.C.

"It's like a football game. If you don't prohibit holding, you're going to have a lot of holding," he warned senators.


brokers are uniquely problematic because of lenders' reward systems. Typically a broker receives a fee or commission equal to anywhere from 1 percent to 3 percent of the loan's value as a reward for steering customers to a lender.

If a broker guides a borrower who qualifies for a lower-rate loan into a loan with a higher interest rate, which makes more money for the lender, the mortgage broker earns a higher bonus. This is called a "yield-spread premium."

Sometimes borrowers accept a higher interest rate in exchange for less cash down or for improvements such as landscaping done at the time a loan closes. Sometimes, borrowers are steered into unsuitable loans.

"Are yield-spread premiums abused? Absolutely. Do borrowers understand what they are paying in yield-spread premiums? The vast majority of time they do not," John Robbins, the chairman of the Mortgage Bankers Association, told senators.

Hearings have documented how brokers steer borrowers with weak credit into loans that reset and carry steep penalties if the borrowers try to pay off the loans before they reset. These make it difficult to refinance or pay off loans before they shift to punishing high interest rates.

Now some of my winger friends will say "Hey, brokers have a right to make money and if Americans are stupid enough to take out a mortgage without understanding the terms of the agreement, that's their fault."

To which I respond: Any industry - like the mortgage lending industry - which works as hard as it can to obfuscate the real terms of contractual agreements or the actual levels of interest, fee amounts, and monthly payments in order to get naive people to sign onto mortgages that it knows these people cannot afford (but by the time the defaults happen, the loans will already have been sold off to somebody else) is, as I said earlier, rotten to the core and must be subject to high levels of federal regulation and stiff penalties and jail time for industry heads and/or employees who break laws.

If said industry has paid off politicians and lawmakers (as Ameriquest has paid off Preznut Bush - and remember Bush also took shitloads of money from Enron), then said politicians must be a) shamed into not taking any more money from these crooks and b) forced to pay a political price for supporting corrupt businesses that exploit the people these politicians have pledged to represent.

This is the kind of political movement that Dems should jump on to show that they support the little guy over the big, corrupt mortgage lending business.

By and large, Dems are open to this. But of course there are also some Dems - like Joe Biden (D-Capital One) who have been bought and sold themselves by the banking, credit card or mortgage industries.

These Dems need to REALLY be publicly shamed into change.

Let the Repubs support the Robber Barons, the crooked mortgage lenders, the exploitive credit card industry.

I think one of the very worst things the Bushies have enabled was the bankruptcy bill, which precludes catastrophic medical emergency as an excuse for debt forgiveness. It's particularly poignant considering there are no consequences whatsoever for the Biffs and Scooters who inhabit the ruling class.

Can you believe the nonsense they spout about how the felony conviction will make life tough for this guy? With his connections?

I'd plead to be given a break, but I know better.
The fallout from all this is only just beginning. The brokers play a big part, but it is the lending institutions that are ultimately responsible. However, they won't pay the full price in most cases, as their highest risk has been sold of in tranches which are held by, well, no one really knows anymore.

No one knows what is going to happen, but the negative potential is enormous.
pt, I think my teachers pension plan (and nyc educator's too) is what holds some of the lowest tranches of the sub-prime loans. I suspect some other pension plans hold them too.

BTW, pt, I've been checking out some of these very cool economic blogs:
How do you shake someone's hand and look them in the eye and manipulate them into a loan that is likely to crush them financially?

nyc educator, I agree with you about the bankruptcy law. It really adds insult to injury. Who says there's no such thing as a class war? And we're losing...
It takes a special kind of scumbag to do that, abi, that's for sure. Of course, those kind of scumbags always exist, but when the gov't turns a blind eye to their malfeasance, that's when you really have a problem.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?