Over the weekend, I was hard at work on Bailout Nation. I wrote these paragraphs on Sunday:
"Mortgage brokers became very creative at working the system for evaluating mortgages. They kept track of the various standard and adjustable mortgages available from different underwriters. They astutely identified the "easier" banks, and steered applicants there.
And those were the legitimate brokers. Unfortunately, the unregulated mortgage industry seemed to attract all sorts of unscrupulous players. Unlike the stock market, mortgage brokers require almost no licensing or training in most of the country. After the 2000-03 stock market crash, many retail brokers found themselves looking for a new line of work. Some had simply tired of the daily market grind, while others where under investigation, suspended, or even permanently banned from the industry.
Many with "hard-sell" phone pitching experience found a ready and waiting home in the mortgage industry. A YouTube video (since pulled) from 2005 showed several mortgage brokers working the phones in a scene that looked like it came from the movie Boiler Room. Aggressive salesmanship, cold slamming, up-selling were all common. Many mortgage borrowers have claimed they believed they were buying a fixed rate mortgage when they were sold a higher commission, adjustable-rate mortgage — with a significantly higher reset payment."
I was wondering if I wasn’t being too harsh on these brokers — after all, they all weren’t corrupt criminals , and I am sure many are honest hard working folk.
Then I read this in the Miami Herald:
Gary Kafka, former body builder with a long rap sheet and violent
past, wrote millions of dollars in mortgages in South Florida without
ever applying for a state license.Fresh out of prison after serving time for bank fraud, he never went
through a criminal background check before selling loans. He never took
a competency exam.He never had to…
There are 3 articles in the series; 2 are already published.
Here’s some more stunning details
Ex-convicts active in mortgage fraud
Thousands with criminal records work unlicensed as loan originators
• From 2000 to 2007, regulators allowed
at least 10,529 people with criminal records to work in the mortgage
profession. Of those, 4,065 cleared background checks after committing
crimes that state law specifically requires regulators to screen,
including fraud, bank robbery, racketeering and extortion.• More than half the people who wrote
mortgages in Florida during that period were not subject to any
criminal background check. Despite repeated pleas from industry leaders
to screen them, Florida regulators have refused.• Confronted with a growing epidemic of
mortgage fraud — Florida now has the highest rate in the nation — the
number of license revocations declined over the last five years,
leaving borrowers at the mercy of predatory brokers.• During the peak of the housing boom,
the Office of Financial Regulation ignored a state law enacted in 2006
that compelled it to perform nationwide criminal background checks on
applicants. That failure allowed people convicted in other states —
and in federal court — to peddle loans in Florida without any scrutiny.• Regulators allowed at least 20 brokers
to keep their licenses even after committing the one crime that seemed
sure to get them banned from the industry: mortgage fraud.
The entire series is a brutal takedown of the mortgage origination and brokerage industry. Its a must read work . . .
Funny, there was no mention of any Predatory Borrowing . . .
~~~
>
Sources:
Thousands with criminal records work unlicensed as loan originators
MATTHEW HAGGMAN, ROB BARRY and JACK DOLAN
Miami Herald, July 20, 2008
http://www.miamiherald.com/static/multimedia/news/mortgage/originators.html
Ex-convicts active in mortgage fraud
JACK DOLAN, ROB BARRY and MATTHEW HAGGMAN
Miami Herald, July 20, 2008
http://www.miamiherald.com/static/multimedia/news/mortgage/brokers.html
Part 3 tomorrow
It get’s worse, this “reality” show concept came out just as the bubble was starting to burst. Look at this idiot, he actually thinks it was Gordon Gekko who originally said “Greed is good”
http://www.myspace.com/loansharkz
OT:
I haven’t checked downstairs but I am surprised no one has said anything about Dick Bove getting sued by BankLantic(or is it BankAtlantic?). Good luck to the bank on being successful in that. Do they really want to open their books to Bove in this thing?
these stories, about Felonious Mtg. Brokers, are stale..they are now being trotted out to justify the massive new regulatory arm that is on the FedRes’ wish list. (funny, though, they couldn’t afford to keep publishing M3 in ’06, but..)
we better start understanding: PsyOp (s) because, if we don’t, even the Cane won’t help..
“A proven winner in combat and peacetime, PSYOP is one of the oldest weapons in the arsenal of man. It is an important force protector/combat multiplier and a non-lethal weapons system.
Psychological Operations (PSYOP) or Psychological Warfare (PSYWAR) is simply learning everything about your target enemy, their beliefs, likes, dislikes, strengths, weaknesses, and vulnerabilities. Once you know what motivates your target, you are ready to begin psychological operations.
Psychological operations may be defined broadly as the planned use of communications to influence human attitudes and behavior … to create in target groups behavior, emotions, and attitudes that support the attainment of national objectives. The form of communication can be as simple as spreading information covertly by word of mouth or through any means of multimedia.”
http://www.psywarrior.com/psyhist.html
~~~
BR: Um, your blase attitude towards massive private sector fraud and governmental incompetency screams of complacency
Nothing to see here folks, move along, its all stale stuff!
Really — massive criminality on a huge scale, over a trillion dollars in losses, and you think this is a psyop operation?
The children were allowed to play without adult supervision, and they burned the house down. Guess what comes next . . . ?
Mark, Give me a break
NPR’s This American Life did a very good segment on the sub-prime mortgage debacle. Covers the mortgage brokers as well.
Oh dood, it’s like you’ve discovered a whole new genre of porn — disgusting financial rotteness we all disapprove of, but want to hear all the details about. It merits some production values, like a map of the state with foreclosures and felon locations, and a scene-setting beach photo (with incidental cleavage). That would be a perfect mix of marts, charts and tarts.
That’s very interesting that there were a handful to dozens [BR: not a handful — 1000s] of people with a criminal background selling mortgages but within that statement is an implication they are guilty? So, if one spends time in the pokey, are they to remain unemployed for the rest of their life? No second chance?
Were those people also selling all of the mortgates to the Chinese, Middle East, Indian, Russian and European real estate booms as well?
“Unlike the stock market, mortgage brokers require almost no licensing or training in most of the country…………”
It was the licensed Wall Street professionals that created this mess. That will become ever more clear as more shoes drop. Maybe we should have those mortgage brokers run Wall Street. It might be a step up on the ethics scale.
Oh dood, it’s like you’ve discovered a whole new kind of porn — the disgusting tale of financial rottenness we all disapprove of but want to know the ugly details about. All it needs is some graphics like a map of foreclosures and felon locations, and maybe a scene-setting beach photo, with some incidental cleavage. Marts, charts and tarts. Who could want more?
Hi Barry;
A little beside the point but …..
Please, can someone illuminate why Pimco’s Mr. Gross is saying the Fannie & Freddie bailout is great and wonderful and must proceed? I am but a child in these matters. Or perhaps many of us great unwashed are about to lose all or any remaining respect for this gentleman’s analysis – or should I say, opinions. Is this just a simple “greed over intelligence” politique, or am I missing something? Appreciate anyone’s insight.
JJ,
Just a guess, but this Bloomberg story may help.
The money quote:
Truly amazing – I think I’ll bookmark this and hand it out whenever someone makes the argument that individuals are more to blame for taking the loans than for the companies that originated the loans. Not that some individuals aren’t to blame – but you have to remember that there was no requirement that the brokers give the people the loan other than greed.
I’m highly dubious of a claim that there are thousands upon thousands of criminals out there selling mortgages and that we somehow want to pin lax lending standards -THAT ARE THE RESPONSIBILITY OF BANK CEOS – for the housing mess.
And, if someone could provide a list of people convicted of something more than a DWI – and there is little way to prove this given your thesis is that they didn’t even run a background check so how would anyone know there are thousands of criminals involved?
Then, I have to go against everything our form of justice espouses and believe all of these mythical thousands of people are guilty at everything they undertake for the rest of their lives.
This is very unlike you to post something like this. This is a Wall Street problem.
bdg123
he’s in total denial and becoming part of the problem by overlooking the real reason for this mess. Why has he not addressed the farce of short-sale “limits”?
I totally expect this (and the other posts) to be removed in a few minutes time
Ciao
MS
~~~
BR: No, just the ones that make it clear you haven’t read the post . . .
It’s not the prior convictions I’m worried about. I’m looking forward to thousands of NEWLY MINTED felons….
BR,
Is this post intended to imply that mortgage industry problems were caused by criminal activity?
It seems to me the causality more likely runs the other way. Money for nothing and chicks for free has always tended to attract a certain type of person. That fast buck types were attracted to a booming mortgage market isn’t at all surprising.
I wish I could remember the name of the mortgage company but I heard their advertisement on the radio this morning.
No down, 100% home financing. 30 year fixed rate. Over the phone approval. FHA approved. Bad credit? No problemo.
I’ve heard the ad before. If I hear it again, I’ll try to pay better attention.
Do you people actually bother reading the post and the articles before posting your moronic comments?
MS or BDG, BR is not limiting blame on this debacle to the type of people he highlights in this thread.
I don’t see reason to “disagree” with BR here.
t’s wht h dsn’t r hs nt ddrssd s th ss hr. Cntnsly ffrng p th “t’s th mrtgg brkr’s flt” jst msss th whl pctr…..nd ths s “th BG PCTR” sn’t t??
gss t s f y nly gr tht t cn b plcd t th ft f th mrtgg bnkng ndstry…srry bt tht’s nt “TH BG PCTR” nd h knws t.
h’s jst btchy bcs clld hm t fr slppy pst rlr tdy.
C
MS
I think BR is just pointing out the rampant fraud (and in many cases by those with criminal records) and lack of any standards or licenses that was a big part of this mess. Of course it’s systemic Wall St problem, but BR is just reporting this one component to a wider problem, so let’s all chill here.
Michael – I normally find your comments interesting, but you seem to have gone off your meds. Covering one part of a topic does not require covering or recovering the other areas. That’s why they are called posts and not books. Jumping to “welcome to USSR” is just plain silly.
Time for Mike Shumacher to get his own blog.
Thank you Chris!
Today, I unpublished one Flame war a commenter had with himself (he agreed with me, and told me what a dick I was for doing so).
Another thread that it was readily apparent the posted had not read beyond the headline — not my post, not the referenced article.
Lastly, someone who accused me of anti-semitism for failing to delete spam comments fast enough.
Seriously, people — READ THE POST, AND THE REFERENCE MATERIAL BEFORE COMMENTING.
Plenty of good fraud and criminal references here:
http://www.mortgagefraudblog.com/
>> For the record I never called you a name but hey if you want to make things up that’s just fine with me. You have quite an ego
MS, I haven’t been privy to the deleted notes but I don’t think BR said *you* did.
C’mon, MS. I’d like to “second” Lostinthewoods’ comment. I enjoy reading your often pointed remarks. But, today, I’m having trouble relating to your posts.
BR: Um, your blase attitude towards massive private sector fraud and governmental incompetency screams of complacency
My point is that these ‘stories’ of malfeasence are of Yesterday. That is, for sure, it is a Carcass that no longer hunts. There are, still on the Hoof, those that remain Kicking– some, actively, begging/threatening the Congress for, yet, more power with which to control, and destroy, at whim.
These Institutions–including the Federal Reserve– are Opaque to us. There is nothing ‘Representative’ about them.
They are, by their very design, repugnant to the very definition of Liberty, and bear no semblance to any tale we heard of them in School.
We are witnessing the wholesale Looting, Latin American-style, of our Nation, and We are being Charged, at Retail prices, for the pleasure of it.
Or, we can take a different Charge, that, to Relight our Spirit of Inquiry and Assay the mettle of Ourselves and that of our Representatives. Personally, I think we’ll find One, not ourselves, wanting.
Yes, a conviction for fraud should keep you out of any job requiring handling non-trivial money or requiring the trust of others; they’re not handed out for coming to school with non-matching pants, it’s a fair assumption that a convicted fraudster has engaged in patterns of fraud for a long time before getting caught, and needs pretty spectacular proof of reformation before he can be considered honorable.
I have great difficulty accepting the need for mortgage brokers, it seems like a field where fast talking gets you fast money and lands your client in the shit, and that’s the sort of field which should require ten-year apprenticeships, exemplary disciplinary records, and some kind of process whereby you can be struck off and obliged to pay compensation to clients who end up beshatten.
If that means you end up with deeply risk-averse bankers, and so people can only get 3x income mortgages, and so most houses won’t cost more than 3x average income because nobody will set an asking price which would require an impossible mortgage, so be it.
In Colorado there was simply NO licensing for mortgage brokers. It was more difficult to get a license to sell used cars than a job originating mortgages.
Gee, what a surprise that there have been a “few problems”
And yeah, it’s not “dozens” it’s thousands…and thousands.
I know someone who worked as a mortgage broker in Orlando at the height of the bubble. He told me that as part of their sales training, he was told to rent the movie Boiler Room and watch it.
The name of the company he worked for started with the letter c and ended with wide.
Unfortunately it’s still happening. I’ve been in the lending business for over 25 years in California. Today while having lunch with one of my investors he told me that his company has at least 15 loans that they have funded and there is no property. The whole file is a total scam. Escrow title and appraisers don’t exist. Someone has walked away with approx. 10mm. Making that kind of money you can afford to pay off alot of people.
And Wachovia is only now getting around to shutting down their wholesale lending department, while Bank of America is shying away from guarantees on Countrywide’s bond debts.
If I were a foreign bank that had bought securities backed by this “gar-bahg,” I would sue these state regulatory agencies for negligence, at a minimum. Citizens of Florida should sue for breach of fiduciary duty, at a minimum.
If you were a foreign bank or government, would you ever buy US mortgage backed securities again, especially after reading this story?
“We are witnessing the wholesale Looting, Latin American-style, of our Nation, and We are being Charged, at Retail prices, for the pleasure of it.”
What about the American style of looting Latin America for more than 200 hundred years.
Have you heard what the CIA and its boys have done down here?
Read first, offend later.
I intended to mean: as Latin America has been looted. Also, do note that I am, above, using the present tense.
This: “What about the American style of looting Latin America for more than 200 hundred years.”
see:
http://www.wwnorton.com/college/history/ralph/resource/latiname.htm
Florida wasn’t even purchased until 1819, if you have better info, let it fly..
I’m not sure if it’s a good time to get a mortgage, maybe hard money loan will work better.
Mortgages are not easy but people need to refinance or purchease real estate, look at real estate prices.
Cheap, cheap, cheap
“Despite repeated pleas from industry leaders to screen them, Florida regulators have refused [to screen for criminal background check]”
Refusing to do the job you’re paid to do? How about investigate that? Interesting things could be uncovered.
• “Confronted with a growing epidemic of mortgage fraud — Florida now has the highest rate in the nation — the number of license revocations declined over the last five years, leaving borrowers at the mercy of predatory brokers.
• During the peak of the housing boom, the Office of Financial Regulation ignored a state law enacted in 2006 that compelled it to perform nationwide criminal background checks on applicants. That failure allowed people convicted in other states — and in federal court — to peddle loans in Florida without any scrutiny.”
Again, one has to wonder about criminal wrongdoing or colossal incompetence.
“Regulators allowed at least 20 brokers to keep their licenses even after committing the one crime that seemed sure to get them banned from the industry: mortgage fraud.”
The cherry on the sundae.
Hey BR, can you give us your take on Angelo Mozilo? I’m very curious as to what your opinion is on this guy?
I ask specifically this morning because Ken Langone and some other equally arrogant guy were just on Squawk defending Mozilo, essentially painting him as a hero for building such a great company, and alleging the NY Times is using him as a scapegoat.
My own thoughts would beg to differ. What are yours, please?
Mozilo deserves to do Fed time for his crimes against society. His selfish pushing of mortgages he knew couldn’t be paid had no other end than foreclosure and death of the economic system – which, incidentally, the rest of us must clean up. His amorality and self-righteous arrogance are profound.
I am shocked that there is anything resembling a debate over this repugnant character.
Who exactly do you think will be paying his company’s bonds? U.S. TAXPAYERS.
He didn’t create a company, he marketed a ponzi scheme. The loans he originated never had any chance of being paid back. They did, however, pay him handsomely.. and that always was the entire point.