Liar Loans - - Fraud at all levels
I am going to devote this page category to Mortgage Fraud. From my experience I have observed that there are four categories of Fraud in this arena from most senior and damaging to more common and petty. These are:
1. Overall Investor Fraud. Fannie Mae, Freddie Mac and larger investors well knew the risks that were being taken with oddball sub prime loan products, reverse mortgages and the much talked about bubble and should have had better prediction of the now obvious consequences once the bubble burst. What were they thinking? For now, we can hope that it was just stupidity, but in the months to come it would be wise to really look at this and sanction those who got off the hook easy. Without this Stupidity/Treason at this level the rest simply would not have happened. Maybe we would have all had to tighten our belts and work first before we reaped our rewards but it would not have been at the expense of our grandchildren’s children. I would like to see more exposed to the public in this category and more sanctions and penalties assessed on those who profited greatly while in oversight positions.
2. Servicers. Most banks and lending institutions were acting more as servicers than actual lenders. Loans were made by Chase and B of A and Countrywide but most of these were sold on the secondary market within a few days to a month and the lending institution then donned only the hat of servicer, being out none of the actual purchase money. Here is where much of the more consequential fraud occurred. If Loan Officers were completely honest and didn’t try to bend their internal underwriting systems, what would today look like? (You’re right - it would look like a lovely day at the end of 2008 - nothing remarkable or special regarding mortgages).
For years now lenders have switched over to “Automated Underwriting Systems”. [Underwriting is an industry term to describe the Lenders exercising of due dilligence to ensure that the buyer can actually make the payments on the loan they are applying for. Part of this is ensuring the property exists and is properly appraised for the value of the loan] Here’s an example of what happened. A Senior Loan Officer, Tammy Lish, of JP Morgan Chase wrote a memo for Loan Officers under her which is quoted below:
“Zippy Cheats & Tricks…”
If you get a “refer” or if you DO NOT get Stated Income/Stated Asset findings…
Never Fear!! ZIPPY can be adjusted (just ever so slightly)
Try these steps next time you use Zippy!
This goes on to tell them what Zippy needs in order to approve a loan. Here is a copy of the actual memo.
3. Home Purchasers were often scammed into getting ‘liar loans’. Many Home Purchasers went along with Loan Officers when trying to qualify for loans and knew that the Loan Officer was ‘fudging’ their internal underwriting system but played along because the Loan Officer sounded like this was done all the time and was perfectly alright. (It was done all the time but wasn’t perfectly alright). Right now everyone’s fingers are pointing. Lenders and Investors are pointing at the borrowers who ‘lied’ on their loan application and borrowers are pointing at the Loan Officer and bottom line is when borrowers get to the closing table they frequently have not read or even seen many of the documents they now have to sign. With hundreds of documents to sign and initial it is very rare that anyone sits there and makes the notary or title officer or other agent sit there for hours while they read and understand every document word for word. (But they should have.)
4. Real lying, cheating, stealing, scoundrels. Boy, at the tail end of the bubble the entire population wanted this bubble to continue to be going up. It actually broke at the end of 2005 but lots of bubble gum and band aids were applied to make things continue, both with the Government/Feds, with Lenders, with Sellers and Buyers. Preying on this then came in a bunch of dishonest scammers who bought up an apartment building and divided it up and put together intricate promises and a package showing the amazing place this was going to be once Phase III or IV was completed. Many condominiums were sold with outlandish offers. These hungry scoundrels, dishonest ‘developers’ associated themselves with dishonest loan officers (who loved to Cheat their internal underwriting system and were even honored by their lender boss for this with designations of ‘Senior’ Loan Officer), dishonest Realtor/Attorney and Title, who knew this complex wasn’t even qualified legally to develop through to Phase III or IV, not having permits or zoning or some such. One dishonest developer had their staff roll in kitchenettes into the room about to be appraised - in order to show it was ‘completed work’ so that it would pass the appraisal and loan would fund, with no intention to actually complete the work.
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