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The art of mortgage duplicity

Guest Blogger

The mortgage mess just won’t go away. After its shady tactics helped take down the economy, the mortgage industry is again in the crosshairs for its shenanigans in the aftermath. Michael Hudson, a staff writer with a nonprofit journalism organization, the Center for Public Integrity, chronicles the rise and fall of the subprime mortgage business in “The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America -- and Spawned a Global Crisis,” just published by Times Books. Here, Hudson, a former Wall Street Journal reporter, reveals how the mortgage industry’s taste for fraud lives on.

By Michael Hudson

In many of Ameriquest Mortgage’s far-flung sales branches, employees outfitted break rooms or spare cubicles with the tools they needed to create fake tax documents and other paperwork required in the loan-approval process: Wite Out, X-Acto Knives, Scotch Tape. They dubbed these workspaces The Lab or The Art Department.

These fraud-enabling workshops made it easy for loan officers to qualify borrowers for mortgages they couldn’t afford. It was simple: Paste the name of a low-earning borrower onto a photocopy of a W-2 tax form belonging to a higher-earning borrower, run the cut-and-paste version through a Xerox machine and, like magic, you had a piece of paper that made a bad loan prospect suddenly look better.

This was the way of the home-loan industry during the America’s mortgage boom, circa 2002-2006. To make deals go through, many mortgage professionals engaged in a wide variety of fraud, including forging borrowers’ signatures on truth-in-lending statements that were supposed to let folks know exactly how much they’d be paying.

A former Ameriquest loan officer recalled that the company’s system of punishments and rewards made it clear that employees should use any means necessary to book loans: “Anyone who wasn’t doing bad things was getting replaced. The people who were doing the illegal things were the ones making the money and getting the promotions.”

Flash forward to 2010. Little, it seems, has changed. The new scandal that’s now rocking the mortgage business involves allegations of backdated documents and falsified affidavits. Attorneys general in 50 states are investigating whether some of the nation’s largest banks have been illegally foreclosing on homeowners.

Some defenders of the banks have dismissed the problem as nothing more than sloppy practices and clerical errors. “If you didn't pay your mortgage, you shouldn't be in your house. Period. People are getting upset about something that’s just procedural,” one Wall Street portfolio manager told Reuters.

Besides making light of what may be widespread perjury, that line of argument also ignores the recent history of the mortgage business.

Many borrowers are in desperate situations not because they bought McMansions but because they were trapped and gouged by unscrupulous mortgage brokers and lenders. They shouldn’t be bumrushed through foreclosure before they’ve had a day in court to pursue legitimate legal claims and defenses against the taking of their homes.

Others may have been pushed into default by what’s called “loan servicing fraud.” Lawsuits and government regulators have charged that some loans servicers – banks and other firms that collect monthly mortgage payments – have purposely recorded on-time payments as late and charged exorbitant late fees and insurance premiums.

In June, for example, Bank of America agreed to pay $108 million to settle servicing fraud charges leveled against two loan-servicing units it had acquired when it purchased Countrywide Financial Corp. The Federal Trade Commission claimed the servicers had gouged homeowners and misrepresented how much they owed on their mortgages.

All the shady behavior – duplicity in the selling and servicing of mortgages and, now, it appears, in the push for foreclosures – is evidence of a mortgage system that’s still broken. Fraud, when unchecked, tends to beget more fraud.

By Steven E. Levingston  | October 21, 2010; 12:59 PM ET
Categories:  Guest Blogger  | Tags:  mortgage fraud; mortgage crisis; foreclosure fraud; financial meltdown;  
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Mr. Hudson, I wrote an essay titled: "The American Dream In Peril- A Foreclosure crisis"...I wrote my thesis on where the blame lies... Was the abuse of Sub-Prime lending a "terrorist act or Treason"?
Was it the greedy banks who used deceptive practices to keep their shareholders happy aboard this titanic sinking ship? Was it the mortgage lenders who at all cost and with no regard for the care in which they dealt John-Q-Public a mighty blow? This "tragic cosmic slop", the "Sub-Prime melt down" involved many key components: A set of GSE'S (Fannie $ Freddie)who held their collective breathe and crossed their fingers hoping this scam would work out in their favor. Yet knowing it was a trillion dollar disaster waiting to explode. Was it the giants of our financial system, Wall Street, or an amoral collective cast of characters salivating with blinders on and fat wallets; that lead our nation to economic dispair?
Your article describes a comedic play in the making. Ameriquest is but one of the greedy giants that lined ther pockets with the precious crumbs of gulible citizens. These stories must be told and they must be written about daily, to bring home how truly aweful the lose of your home/life savings is. We are faced with a nation of "homeless-hopeless" citizen that have been duped. What happen to the "American Dream"? What does it mean "Owning A Slice of the American Pie"? Mr. Hudson, keep on writing your blof...I think there just might be a glimmer of light at the end of our rainbow. Constant exposure of these wrongs will generate a more watchful American Public with an out cry for JUSTICE...

Posted by: MsFreeThinker2 | October 22, 2010 9:13 PM | Report abuse

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