THE MORTGAGE CRISIS IS NOT JUST ABOUT ABUSE BUT CRIME

What if NBC’s “TO CATCH A PREDATOR” program really did turn its sensationalistic gaze on predatory lenders? It would be consistent, wouldn’t it, with all the true crime shows that dominate the airwaves? And they wouldn’t have to commission new graphics or a a title either.

You would think they would want to get ahead of the Courts and the State Attorney Generals who will, one day, be prosecuting what I call the “Subcrime scandal.” After all, it’s a story with billions of dollars missing, millions of victims, and perhaps the whole global economy at stake.

It may never happen and not just because NBC’s parent company GE is a big lender. Its more. because in-depth investigative journalism seems to have been displaced by all the celebrity pandering.

Stories like this don’t just follow the money—a key axiom of reporting…but they are about money and the way big-time white collar crime works. They are about sleaze merchants in suits, big time investors who routinely violate laws and expect their master of the universe status to guarantee they will never get caught. A recent survey on Wall Street found a majority of those quizzed believe something is only wrong once you get caught.

We have seen a whole rogue’s galley of these corporate thieves go down in recent years. We have read about the Enrons and the WorldComms and seen the perp walk of big time CEO’s like Miliken and Kazlowski before they face justice. They are not bailed out. They are jailed out.

Part of the problem is you really do need subpoena power and teams of investigators and accountants to take apart their phony ledgers and deceptive sales spiels. In the Bush years, tax cuts are going to the rich while the IRS is browbeating the middle class.

Many of the people who should be investigating the mortgage criminals have themselves taken money from real estate lobbies and financial institutions or been working for the industry in some way. We saw how Democrats, for example, caved on the so-called bankruptcy reform bill.

It’s not so hard to get a handle on the story. Start with some of the disgruntled employees of those mortgage companies who were just dumped from some of the best paying jobs in their lives after the companies imploded because of their own shady practices. Many are ready to talk if only to expunge their own consciences. The rats are off the sinking ship and know how leaky it was.

There are frauds to be found an every level including mortgage servicing frauds that are designed to steal people’s homes.

“Not too many years ago, if you borrowed money to buy a house or a car, you visited your local bank. Assuming you were approved, the money came from your bank and the follow-up (the “servicing”) was handled by that same bank. If you had a problem, you knew who you could speak with and where to find him or her. The system worked pretty well. But only greed could cause a seemingly good system to go awry. And the heart of all greediness is Wall Street, of course.

Realizing that these loans were a good investment for the banks, Wall Street decided to figure out how to take a piece of the pie. And hence the mortgage backed security was born. By buying in bulk various mortgage loans, Wall Street could take the role (and the lions share of the profits) of the bank without the inconvenience of opening branches. Banks, in turn, could keep lending endlessly, just as long as they kept refilling the pot by selling off the old loans and lending anew. And just to give you that homespun feeling (and to earn the banks a few extra dollars) your local bank would continue collecting your payments and forwarding them on each month – essentially lending a familiar brand name and adding a warm and fuzzy feeling to this anonymous multi billion dollar Wall Street enterprise.

It all seemed well enough – invisible, in fact – until the horror stories that have recently begun to emerge. And more are coming. Behind the wall lurks an empire of greed mixed with incompetence and lack of concern. And why should you care? Because every loan you take out – car loans, mortgages, personal loans – might very soon belong to someone else, located thousand of miles away from you and sometimes with the very worst of intentions. Your local banker will now make his decision not based upon his or her own criteria but based upon his ability to sell your loan to someone else. And if those anonymous loan-buying monoliths decide that they are no longer enamored with, for example, your type of small business loans, or mortgages in certain neighborhoods ...well you might be out of luck no matter how stellar your payment history or credible your need.”

“These are not "predatory lenders." These companies do not loan money. They operate in the lending  industry after-the-fact. They take on a function that a lender doesn’t want - the backroom functions of  handling payments, escrow accounts, annual statements, dealing with borrowers, collections, etc. The  perpetrators of the loan servicing scam acquire the servicing rights to loans that other companies have  already made. (Loans that were deliberately constructed by predatory lenders are ideal for processing  through servicers that specialize in aggressive collections or rapid foreclosure processing, but the loan  servicing scam can be operated against any mortgage loan if the servicer acquires the rights from the lender.)”

“But it gets worse. For those lucky enough to be granted the loan for which they have applied, the selling off of that loan means that other people are now in control of their financial destiny. And these loan purchasers have a profit motive that has little to do with winning your repeat business. They don’t even want to know you. These loan buyers are divided up into two parts, known as the the “A” and the “B” piece buyers. The “A” buyers are generally anonymous investors with little interest in the day to day affairs of lending money. They get a lower return in exchange for their “safe” senior position. The “B” piece buyers (also known as the “Special Servicers”) are the high rollers, the high-yield profiteers. They are predators. And they are a very big part of what is terribly wrong with this equation. Loan documents are slowly being tailored to their needs, to include new fees and charges and rights in the so-called fine print. The more onerous the terms, the greater the opportunity to profit from the unsuspecting borrower. “

These practices were common, even pervasive in industry where every scam and sheme is carefully thought out. In some states, State Attorney General are going after some brand name firms like Ameriquest. You may remember them from their superbowl ads legitimizing their practices. They are now out of business, gone, busted, and sold to Citi-Bank. But there are still legal settlements being imposed on them

Example: A $295 million Settlement Fund has been established to provide restitution payments to certain Ameriquest borrower

 This Web site provides information about the States’ January 2006 settlement with Ameriquest Mortgage Company (the “Settlement”). On this Web site you will find detailed information about the Settlement and who may be eligible to receive restitution payments, as well as answers to frequently asked questions.

They include the people who thought they were getting something for nothing and thought they were scamming the lenders. (That’s like the casino gamblers who always think they will beat the house but rarely do), We need to read the stories of the scammers who are literally stealing peoples homes. Please see an excellent series in the Chicago Tribune about their perfidy.

According to writer Alan Gabor, the number of people suckered into subprime loans may number as many as TEN MILLION. And these people are pissed and want to be heard but the business press is barely touching the surface of their stories.

"Those ten million families who finally got that home loan through the sub prime market makers on Wall Street who hawk junk bonds just as quickly as they can hawk junk mortgages, a product which has already developed into a multi-trillion dollar a year trading market, are all having a difficult time sleeping at night.

While the debacle continues to unfold, millions of homeowners may never again obtain credit in this country, impacting the economy for a long time to come…perhaps as long as a decade.

Those damaged borrowers are thoroughly fed up and sick and tired of the government, the banking system, and the crooks on Wall Street who keep sucking the lifeblood out of America’s economy. They want nothing more to do with debt, bankers, Wall Street or even the American government. They simply drop out and go into the underground economy. And the powers that be can do nothing about it. When you have more than 10 million people with bad credit defaulting on loans over a two year period you have some serious problems on the horizon for the global economy."

And let's hear from the people who fought back and found the Courts working in collusion with lenders and helping them foreclose on their property even when they don’t own it. Listen to people like Jack Wright of Dallas Texas who tells his whole story on the www.MSFraud.org website:

"In April 1997, I was alleged to be in default on my mortgage and the mortgage company, claiming to be the true party in interest (the owner/holder), was going to foreclose.

I was not in default and had all the documents to prove it. After one year of the mortgage company’s refusal to correct their accounting errors, I was forced to file a law suit to protect my home from an illegal foreclosure.

For the next seven (7) years (costing me more than $2 million in legal expenses and lost wages), I watched the court[s] repeatedly grant judgments in favor of the mortgage companies. These errant judgments were granted without either mortgage company presenting a scintilla of evidence to support their allegations and in stark contrast to my preponderance of evidence and material facts."

In the end he lost his home and can’t afford to fight any more in the courts. There are many sad and depressing stories like this that will anger the public if and when they hear them

These scammers targeted their own class and community. Henry K Lieu writes on Asia Times On Line charging many investors were defrauded because these corrupt practices were never disclosed;

It is now clear that material information about the true condition of the financial system along with material information of the financial health of major US banks and their financial-company clients has been systemically withheld, over long periods and even after the crisis broke, from the investing public who were encouraged to buy and hold even at a time when they should have really been advised to sell to preserve their hard-earned wealth. The aim of this charade has not been to enhance the return on the public's investment, but to exploit the public trust to shore up a declining market and postpone the inevitable demise of wayward institutions."

Who are these “wayward institutions?” We are talking about some big, well-known institutions, brand name banks and investment firms, the hoi paloi of Wall Street. Many were deeply implicated along with the regulators and rating services who did nothing and, in effect, colluded with and covered up criminal ponzi schemes and worse.

On Campuses, professors and students are speaking out against sweetheart deals between the universities and credit card companies that gouge the students. Says In Debt We Trust Editorial advisor Robert Manning in Business Week:

"Universities are pursuing sweetheart deals with credit card companies, and offering up premiere marketing locations and student names and addresses for a big profit," says Manning, director of the Center for Consumer Financial Services at the Rochester Institute of Technology. "It's a clear conflict of interest."

This is just the tip of the iceberg. There are so many stories and so many cases. Once they start getting attention, this story will broaden out, and we will see a much deeper rot.

It is then that we can begin to fight for debt relief including a moratorium on foreclosures and the criminal prosecution of the profiteers. This time it is the big fish who could fry. It will only happen when an enraged public demands justice.

the number of people suckered into subprime loans

Just a nation of victims, we are.

Even if you're illiterate and don't understand the meaning of the word "adjustible", all you have to remember is the folksy aphorism "If something seems too good to be true, it usually is."

It’s not so hard to get a handle on the story. Start with some of the disgruntled employees of those mortgage companies who were just dumped from some of the best paying jobs in their lives

Great idea. After all, they are guaranteed to be completely impartial and have absolutely no motivation to lie to get back at their former employers.

Let's face facts: plenty of people borrowed more money than they should have and plenty of banks lent unworthy creditors more money than they should have.

This isn't criminal activity - this is simply a large group of people getting carried away and making poor financial decisions.

Additionally, the subprime "crisis" has nothing to do with the cases of Milken (not "Milliken") or Kozlowski (not "Kazlowski").

Milken got in trouble for selling high yield bonds too profitably. I wish I was joking, but that is literally what happened. He sold bonds to buyers who were not forced to buy them and who freely agreed to pay the selling price.

Kozlowski stole money from the company of which he was CEO.

What Milken's shrewd trading and Kozlowski's theft have to to do with subprime mortgages, I have no idea.

By buying in bulk various mortgage loans, Wall Street could take the role (and the lions share of the profits) of the bank without the inconvenience of opening branches. Banks, in turn, could keep lending endlessly, just as long as they kept refilling the pot by selling off the old loans and lending anew.

The suthor of this article has no idea what he's talking about. The first major mortgage bonds (collateralized mortgage obligations, or CMOs) were developed back in the 1980s to address a basic inefficiency in our nation's banking system -- i.e., the imbalance between banks in older regions like the Northeast and Rust Belt that had a lot of cash but were underwriting fewer mortgages and banks in fast-growing regions like the Southeast and West that had small cash reserves but a lot of demand for new mortgages.

This article is indeed full of hilarious stuff.

A Real Estate expert explained this to me this way:

Realizing that these loans were a good investment for the banks, Wall Street decided to figure out how to take a piece of the pie.

Translation: this unnamed "real estate expert" is angry because real estate lending was once a largely-closed shop with little competition. He enjoyed having a near-monopoly in which customers had few choices in borrowing. He loved selling 15% mortgages back in the 1970s.

Then evil Wall Street types got involved, confused consumers with all these different options, and the fat mortgage margins he enjoyed fell as consumers were deceived into paying only 6 or 7 or 8% on their mortgage instead of twice as much.

I’m not up to speed on derivatives but understand they could present a serious problem in our financial system.

You both appear to know more in your gut than most people posting here on FR. Mortgage scams, mortgage servicing scams, and illegal foreclosures are all interlinked. Watch the great DVD “In Debt We Trust.” If you really want to learn something about the lending industry and credit card industry. Most people just want to stay blissfully ignorant.

This is my favorite part:

He spent $2 MILLION in legal fees? How much was his house worth? And if the courts truly ignored his mortgage payment receipts, he should have hired better lawyers. There's something more to this case than one man being abused by "the system."

If you really want to learn something about the lending industry and credit card industry. Most people just want to stay blissfully ignorant.

Most people should simply read before signing, and not borrow beyond their means. (My two cents worth.) Maybe they should start teaching basic finance in the public skrool system.

I'm fully up to speed on them and know for a fact that they present no problems to our financial system whatsoever, and have actually been instrumental time and time again in solving many potential problems with our financial system.

That may be true, but they sure sound scary. :)

There are surely people taking losses on derivatives right now, but that's part of the deal. They have allowed our markets to act much more efficiently and are part of the reason interest rates have been so low for so long.

Great post. The packaging of mortgages has pushed borrowing costs down for borrowers, which is a good thing. Was subprime crap packaged and sold? Absolutely, but that doesn’t mean such packaging is inherently bad.

Reading columns like this just reinforces my opinion that most “journalists” can’t be trusted to either understand the issue they are writing about or to give an accurate assessment if they do understand.

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