Washington Mutual Mortgage Operation Encouraged Fraud And Misrepresentation As Part Of Push To Produce Profits

30 12 2008

 

If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

 

http://www.nytimes.com/2008/12/28/business/28wamu.html?_r=1&hp=&adxnnl=1&adxnnlx=1230591825-HlE0eyNm%20w8Xjj6qqNdoOg&pagewanted=print

As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer. Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

“I’d lie if I said every piece of documentation was properly signed and dated,” said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest — all involving drugs.

While Mr. Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.

“In our world, it was tolerated,” said Sherri Zaback, who worked for Mr. Parsons and recalls seeing drug paraphernalia on his desk. “Everybody said, ‘He gets the job done.’ ”

At WaMu, getting the job done meant lending money to nearly anyone who asked for it — the force behind the bank’s meteoric rise and its precipitous collapse this year in the biggest bank failure in American history.

Interviews with two dozen former employees, mortgage brokers, real estate agents and appraisers reveal the relentless pressure to churn out loans that produced such results. While that sample may not fully represent a bank with tens of thousands of people, it does reflect the views of employees in WaMu mortgage operations in California, Florida, Illinois and Texas.

According to these accounts, pressure to keep lending emanated from the top, where executives profited from the swift expansion — not least, Kerry K. Killinger, who was WaMu’s chief executive from 1990 until he was forced out in September.

 

Between 2001 and 2007, Mr. Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.

During Mr. Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

“It was the Wild West,” said Steven M. Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. “If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

‘If Ms. Zweibel doubted whether customers could pay, supervisors directed her to keep selling, she said.

“We were told from up above that that’s not our concern,” she said. “Our concern is just to write the loan.”

The ultimate supervisor at WaMu was Mr. Killinger, who joined the company in 1983 and became chief executive in 1990. He inherited a bank that was founded in 1889 and had survived the Depression and the

savings and loan

scandal of the 1980s.





Georgia Mortgage Fraud Scheme Included Augusta Lawyer

29 12 2008

Mortgage fraud is now estimated as costing Americans $4 billion to $6 billion annually, according to the FBI.

  • In the Augusta area, there have been several prosecutions, including one scheme involving a lawyer. William O. Key Jr. was eventually caught and prosecuted in federal court. He had to surrender his law license after his guilty plea.
  • He admitted he schemed with mortgage brokers Robert C. Thigpen and Erich J. Haskell, defrauding banks and the government through the Department of Housing and Urban Development. Mr. Key, in his role as the closing agent, was in on the deals, part of a half-million-dollar loss in foreclosures.
  • Mr. Key’s illegal dealings went further, according to court documents. He assisted in a huge Atlanta-area mortgage fraud scheme that involved nearly two dozen people. He was able to have his federal prison term trimmed to 12 months by testifying in that case for the federal prosecutor.

    Mr. Key might have been involved in fraud long before he appeared on the FBI’s radar, however. Several years before his indictment, fraud allegations were raised in a civil lawsuit against Mr. Key.

    A Richmond County Superior Court lawsuit was filed by Theodore Murray and Adie Andrews in 2002. It was dismissed the next year with a confidential settlement agreement. According to the lawsuit, Ms. Andrews owned property in Warren County, Ga., the title of which was free and clear. Mr. Murray bought a $57,992 trailer home to place on the property. He made a $2,000 down payment to the dealer who had sent him to Mr. Key for financing, according to the Superior Court documents.

    Mr. Key arranged a deal that included false claims that the purchase price was $88,200 and that Mr. Murray made a $29,301 down payment. The government documents also failed to disclose Mr. Key’s connection to the mortgage company that is owned by his wife, according to court documents.

    Mr. Murray was put in danger of losing the trailer home if he didn’t pay off the 30-year total loan payment of $267,870. Ms. Andrews was in danger of losing her property because the loan was secured by a lien attached to her property at Mr. Key’s insistence, according to the lawsuit.





“Rogue Builder” Duped JP Morgan Chase Into Making Mortgage Loans In Mortgage Fraud Scheme

27 12 2008

“…the suit alleges that Percudani, Chase Manhattan Mortgage, Stroudsburg appraiser Dominick Stranieri and several others engaged in widespread fraud by selling homes in Monroe County at inflated prices through several of Percudani’s companies, including Raintree Homes, Why Rent? and Chapel Creek Mortgage…”

 

 

“…Chase Manhattan Mortgage, a division of JP Morgan Chase, denied the allegations, claiming that Percudani was a rogue builder who duped Chase into making the loans. Chase also argued that after being alerted to the alleged scam, it reduced the principal on more than 200 mortgages in 2002 after appraisers hired by Chase determined many of the homes were sold for as much as $50,000 more than their true value…”

http://www.mcall.com/news/local/all-b3_5chase.6720064dec26,0,5613229,print.story

 

A U.S. District judge has called for an attempt at a negotiated settlement and delayed the trial related to the federal lawsuit that alleges more than 100 home buyers were defrauded by JP Morgan Chase Bank and a Poconos developer.

Originally scheduled for February, Judge Christopher Connor rescheduled the trial to June 1, 2009, after a mediation session with retired Judge Diane M. Welsh was scheduled for Jan. 28.

The mediation was ordered by Connor after he delivered a strongly worded opinion filed in October saying the ”record supports the conclusion that the Chase defendants” aided the alleged scheme by Tannersville builder Gene Percudani to sell homes at inflated prices.

Filed in 2002, the suit alleges that Percudani, Chase Manhattan Mortgage, Stroudsburg appraiser Dominick Stranieri and several others engaged in widespread fraud by selling homes in Monroe County at inflated prices through several of Percudani’s companies, including Raintree Homes, Why Rent? and Chapel Creek Mortgage.

The suit claims that Chase took part in the alleged scam by ignoring its usual underwriting guidelines in approving mortgages for Percudani’s customers, many of whom were people with poor credit from the New York area drawn to the Poconos by an advertising campaign that asked ”Why Rent?” and which offered new homes for as little as $1,000 down and mortgage payments of $685 per month.

But the actual payments were much higher and mortgages far more than the real value of the homes. Unable to sell or refinance their mortgages, many of the plaintiffs were forced into bankruptcy and foreclosure while others suffered financial hardships, according to the suit.

Chase Manhattan Mortgage, a division of JP Morgan Chase, denied the allegations, claiming that Percudani was a rogue builder who duped Chase into making the loans. Chase also argued that after being alerted to the alleged scam, it reduced the principal on more than 200 mortgages in 2002 after appraisers hired by Chase determined many of the homes were sold for as much as $50,000 more than their true value.

After six years of depositions, Connor said testimony from current and former Chase employees indicates that Chase officials knew about the scam, and even established unusual underwriting guidelines to approve the mortgages, many of which didn’t go into default until after they were sold by Chase to the secondary market, chiefly Fannie Mae and Freddie Mac.

A Chase spokesperson could not be reached for comment.

Percudani has denied the allegations. He closed his homebuilding businesses and now operates the Cherry Valley Golf Course near Stroudsburg.





Mortgage Brokers And Mortgage Bankers Pushed Subprime Loans To Borrowers Because There Was No Risk To Lenders As Loans Were Sliced Up And Sold Off Quickly

26 12 2008

Subprime depended basically on brokers who did not care whether the borrower could pay his loan because they got paid their commission at closing, on banks that also did not care much whether the borrower could pay since the loan was being sold off, on packagers of loans who cut and sliced the packages of loans so that some could be called AAA rated loans (generally called CMO’s).

http://seekingalpha.com/article/112297-was-subprime-lending-just-as-dishonest-as-madoff?source=email

 

 

Subprime is a specific type of transaction more generally called CMO’s (Collateralized Mortgage Obligations) and CDS (Credit Default Swaps). Subprime depended basically on brokers who did not care whether the borrower could pay his loan because they got paid their commission at closing, on banks that also did not care much whether the borrower could pay since the loan was being sold off, on packagers of loans who cut and sliced the packages of loans so that some could be called AAA rated loans (generally called CMO’s). They paid credit rating companies to put triple A ratings which could not possibly be justified with any analysis of the underlying package of loans. Finally, they paid credit insurance companies to give guarantees (Credit Default Swaps) that they would cover any default when the credit insurance companies did not have the financial ability to pay if called on to pay. To make it even better, everyone seems to have had the idea that real estate prices would always go up. Finally, we even had President Bush saying all this was good because we were increasing housing without looking at the inevitable results.

 

1.     Financial Results: There was never a history of the returns. Financial institutions and their sales representatives told everyone that this was an exceptional investment. They talked about a piece of paper that is “triple A rated “and “guaranteed by insurance through Credit Default Swaps.” While Madoff peddled dishonest results, here banks peddled a dishonest idea without any results.

2.     Public Explanation of the process: Salesmen only explained these were triple AAA rated investments “structured so that they could not fail.” Furthermore, there was an insurance guarantee just in case. When it all fell apart, we naturally got the obvious truth that the so called protection never existed in reality. When the problem was obvious, Merrill Lynch (MER) sold these triple A rated bonds with insurance guarantees for 22 cents on the dollar and most people said the real value for Merrill was only 5 cents on the dollar. Madoff’s explanation was no phonier than the banks explanation of the value of Subprime triple A rated with CDS guarantees.

3.     What kept the fraud going? While Madoff had to pay out early investors, this fraud did not even depend on really paying investors off. The only ones who really collected on this were the bankers who earned bonuses or a percent of the profits (which can be 40% of the transactions’ profits) when these subprime loan packages were sold. The finance community had never made so much money on an idea like this. Who was going to say that it would not work? Here is a clear case that the personal greed of the bankers led to their own demise and that of their investors. Probably anyone that wanted to cut back on the system was probably told to shut up. As a former banker, I know the pressures put on people. “X bank is making all that money. What is wrong with you?” If you try to say it is a bad idea, most people get run over by the system. Years ago, former Fed Chairman Greenspan said that he trusted the bankers to protect their own interests. He recently said in congress that he made a terrible mistake in this assumption. And in this simple mistaken assumption, we see a root cause of the problem.

4.     Professional Opinion: The personal interest of bankers led them to tell all their investors that this is a splendid investment. In this case, the professional bankers did a 20 times greater disservice to themselves and their customers than all of the Madoff salesmen.

 

 

 

 





Minnesota Mortgage Fraud Ring Convicted Of Lining Up Straw Buyers, Originating Fraud Mortgages, And Then Selling Properties At Inflated Prices

22 12 2008

“…Shinon Lindberg would allegedly recruit “straw buyers” for pieces of real estate. They had a third accomplice, a mortgage broker who would secure fraudulent loans, and then Scott Rosenlund would use his company 10Spring Homes to buy and sell the properties at inflated prices…”


http://www.myfoxtwincities.com/myfox/pages/News/Detail?contentId=8104640&version=2&locale=EN-US&layoutCode=TSTY&pageId=3.2.1

Two men were found guilty Thursday in a big mortgage scam that’s made headlines for a year. Prosecutors say they defrauded banks and investors all over Hennepin County.


Shinon Lindberg and Scott Rosenlund allegedly masterminded the largest mortgage fraud case in
Minnesota‘s history. They were found guilty Thursday of racketeering and seven counts of theft by swindle.”We’re seeing too many schemes. This is one time the bad guys got caught and they’re doing time,” says Mike Freeman, Hennepin County

Attorney.

Shinon Lindberg would allegedly recruit “straw buyers” for pieces of real estate. They had a third accomplice, a mortgage broker who would secure fraudulent loans, and then Scott Rosenlund would use his company 10Spring Homes to buy and sell the properties at inflated prices.

For instance, court documents show that one parcel of land was bought and sold the same day for a $100,000 mark-up.

Deals like this were done time and time again over three years, eventually bilking banks and unwitting investors out of more than $100 million.

Freeman says the properties were scattered all over southwest Hennepin County, and investors never saw any of the money they were promised.

Rosenlund and Lindberg will be sentenced in February. They face up to 100 months in prison.





Investment Bankers And Predatory Lenders Combined To Make Risky, Deceptive Mortgage Loans To Naïve Home Buyers Who Purchased Homes They Couldn’t Afford

17 12 2008

“…The widespread securitization of mortgages prompted lenders to give virtually anyone a loan that they could resell at a profit while offloading the risk. It also gave them incentive to mislead borrowers about what they could afford, what risks they were undertaking and, in some cases, the terms of the mortgage they were signing. The public face of this racket could well be Angelo Mozilo, co-founder of mortgage giant Countrywide Financial…”

“…though the poster child of mismanagement has to be Richard Fuld, former CEO of the former company known as Lehman Bros. Fuld, who received as much as $480 million in compensation from 2000 to this year, took risks that drove the storied investment house straight into the ground…”

 

http://blogs.usatoday.com/oped/2008/12/whos-to-blame-f.html

 

Investment bankers

In the war on drugs, the top target is always the traffickers. The same principle is true with the massive implosion of credit markets and corporate ethics. In this case, the traffickers were the Wall Street firms that created bundles of subprime mortgages and other toxic financial instruments, then peddled them as low-risk, high-return investments. These securities, and enormous side bets on them, fueled the housing bubble and infected the global financial system.

Nearly all the big investment banks were culpable, though the poster child of mismanagement has to be Richard Fuld, former CEO of the former company known as Lehman Bros. Fuld, who received as much as $480 million in compensation from 2000 to this year, took risks that drove the storied investment house straight into the ground. But he had lots of co-conspirators.

Predatory lenders

Lending is easy when it is someone else’s money. The widespread securitization of mortgages prompted lenders to give virtually anyone a loan that they could resell at a profit while offloading the risk. It also gave them incentive to mislead borrowers about what they could afford, what risks they were undertaking and, in some cases, the terms of the mortgage they were signing. The public face of this racket could well be Angelo Mozilo, co-founder of mortgage giant Countrywide Financial. But many others got into this game, as well. Subprime lending shot up from $130 billion in 2000 to $625 billion in 2005.

Clueless borrowers

It might seem cruel to put blame on people who have lost their homes, or are in jeopardy of it. But hundreds of thousands of homebuyers bought more house than they could afford, or financed investment properties with no clue about what they were doing. It takes two parties to sign a mortgage contract, so some borrowers share responsibility for the housing mess.

 

 





Mortgage Brokers And Lenders Pushed OptionARM Mortgages To Good Credit Alt-A Borrowers Who Are Now Defaulting In Record Numbers

16 12 2008

“The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall,” Tilson explains.

 

http://www.wwj.com/A-Second-Mortgage-Disaster-On-The-Horizon-/3494300

 

The trouble now is that the insanity didn’t end with sub-primes. There were two other kinds of exotic mortgages that became popular, called “Alt-A” and “option ARM.” The option ARMs, in particular, lured borrowers in with low initial interest rates – so-called teaser rates – sometimes as low as one percent. But after two, three or five years those rates “reset.” They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.

Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.

“The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall,” Tilson explains.

“What you seem to be saying is that there is a very predictable time bomb effect here?” Pelley asks.

“Exactly. I mean, you can look back at what was written in ’05 and ’07. You can look at the reset dates. You can look at the current default rates, and it’s really very clear and predictable what’s gonna happen here,” Tilson says.

Just look at a projection from the investment bank of Credit Suisse: there are the billions of dollars in sub-prime mortgages that reset last year and this year. But what hasn’t hit yet are Alt-A and option ARM resets, when homeowners will pay higher interest rates in the next three years. We’re at the beginning of a second wave.

“How big is the potential damage from the Alt As compared to what we just saw in the sub-primes?” Pelley asks.

“Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That’s probably another $500 billion to $600 billion on top of that,” Tilson says.

Asked how many of these option ARMs he imagines are going to fail, Tilson says, “Well north of 50 percent. My gut would be 70 percent of these option ARMs will default.”