Anatomy of a Government-Abetted Fraud: Why Indymac/OneWest Always Forecloses

mortgagemess at 11:41 2009-12-02 said:

Where is Barney Frank when he needs to do the right thing?...guess the "mafia" never turns on its own!! Permalink

giabella7 at 13:29 2009-12-02 said:

Because after 2 years only doing conforming loans, I feel strong that borrowers have culpability.

My heart goes out to indivuals who suffer from unemployment and illness.

However, when a loan goes into foreclosure in less than a year such as the recent East Patchogue news story, does that raise a red flag to you.

Do borrowers ever express "mae culpa"--or is it always just the banks fault.

Life is a series of choices and consequences.

Saw on 60 minutes this past year where a woman was suing because she was allowed to refinance with her husband's income. Catch was her husband was deceased.

She is blaming the bank--Did she not know her husband was dead. But the underwriter who has never been to her home should know this. Most probably an unethical LO coached her.

But it was her decision to close, and commit a crime when she signed under the pains and penalties of perjury.

I do not even feel Home Affordale or any modification should be made until the borrowers income at closing is matched to the 1003.

Do not except borrowers to have the same job or income, realize some borrowers have had hours cut and pay decreased.

But if the loan was obtained under fradualent means--the rules in the foreclosure should change.

Bank Mortgage Fraud should only be investigated after the borrower is cleared of any fraud, mis-representations when they closed. Permalink

ppulatie at 00:40 2009-12-03 said:

First, a knowledge of the culture pervasive throughout the lending and brokerage industry should be examined to determine a large part of culpability. This includes the Securitization Process, lending practices, brokerage practices, and legal statutes.

The bottom line is that the only concerns that existed at that time was the desire to close the loan. Close the loan, make the money and move on to the next loan. Who cares if the borrower could not afford the loan? It was going to be sold to Wall Street and then private investors, so the lender was off the hook.

You should read a couple of Pooling and Servicing Agreements. They are eye-opening for understanding the process. Reading them reveals the true details of how the business operated and how liability was restricted. It also reveals how underwriting standards were devalued to the point that only a person needed to have a warm breath in the last 45 minutes would qualify.

I am working on an article about Securitiization that should really open eyes.

Now, to your comments, I will preface my comments with two ** for separation purposes.

loan foreclosure fraud if and when do you verify with your clients if the loan they took on their home was fully documented or stated.

** When I do an audit, I have intake forms that the attorneys have the clients fill out. The purpose is to get a basic background of what happened. I also have the borrower provide income documentation for the previous two years to compare with the loan app, if one is available. I use proprietary methods to determine the true ability of the borrower to repay the loan, and make determinations based upon these methods.**

Because after 2 years only doing conforming loans, I feel strong that borrowers have culpability.

**Two years of loans? You came into the business after all the damage had been done. You did not see the flagrant abuses that occurred. You never saw account reps walking into broker offices, asking to see files, telling the lo's how to write the loan then and there, and then pricing the loan right there. Nor did you ever hear the first question each rep would ask, "How much rebate do you want to make on this loan?**

My heart goes out to indivuals who suffer from unemployment and illness.

**Mine too, but there is much more to the story than that. What about all the people who did not speak English, were told by the lo that the loan was one thing, but in the end, it was completely different?" What about the elderly people, retired, and who were placed into Option ARM mortgages, where the loan terms were misrepresented to them as 1%? Please don't say that they should have read the documents better, because if you have ever read an Adjustable Rate Note, you would know exactly how confusing it was. The truth is that both the brokers and the retail lo's for lenders lied day in and day out to everyone. And don't get me started on realtors.**

However, when a loan goes into foreclosure in less than a year such as the recent East Patchogue news story, does that raise a red flag to you.

** Yes, it raises a Red Flag. And that flag asks why the borrower was ever approved for the loan in the first place? Why did the lender do a Stated Income loan for a W-2 employee? For a Retired Person? Why did the lender not execute the 4506-T that the borrower signed?

The reality is that if you go back and look at the Office of the Comptroller of the Currency Guidance Letters going back into the 90's, the OCC was continuously warning the banks about Predatory Lending and Stated Income loans. The OCC also warned about accepting loans from brokers, but the lenders never paid attention to the warnings, because they were selling the loans to Wall Street.

BTW, most states have stronger Predatory Lending statutes than the Federal Government would ever allow. But these statutes are not allowed to cover the banks. That is because the FED, the OCC, Treasury and other agencies always claim Federal Preemption overrules the states laws.**

Do borrowers ever express "mae culpa"--or is it always just the banks fault.

** Yes, many do. "I should have known better is the standard reply." But, they trusted the loan officer. This is the same loan officer who had a Fiduciary Duty to the borrower, though each and every loan officer will deny that. BTW, I have case law across the US showing otherwise.

What you are attempting to do is raise the "Unclean Hands" defense. I can "kill" that argument 90% of the time. The only time I cannot, and I will not is when it comes to lo's and re investors who knew what they were doing at the time. If fact, I advise the attorneys upfront that those arguments will not fly and not to even make them.**

Life is a series of choices and consequences.

**I agree. But when a person is led into unwise decisions through fraud and/or fraudulent misrepresentation, then there must be a level of accountability for those who the led the person.**

Saw on 60 minutes this past year where a woman was suing because she was allowed to refinance with her husband's income. Catch was her husband was deceased.

She is blaming the bank--Did she not know her husband was dead. But the underwriter who has never been to her home should know this. Most probably an unethical LO coached her.

**I would need to see the total file for a complete evaluation, but based upon what you wrote, here would be my issues:

Unethical LO - Fraud, Fraud in the Enducement

Lender - Why did they not verify income for both parties with most current bank statements or paystubs? If the death had occurred longer than a couple of months before, then the statements would show the lack of new deposits and unavailable paystubs.

How old was the woman? Was she in financial duress? What other options were available?

This is not black and white.**

But it was her decision to close, and commit a crime when she signed under the pains and penalties of perjury.

** Again, the unclean hands defense. The lender had an obligation to conduct due diligence for their own stockholders. Also, a Fiduciary Duty to their stock holders, not to mention OCC Guidelines again.

As well, the previous comments come into play as well, age, financial situation, lo fraud, etc. So there can be no black and white answer.**

I do not even feel Home Affordale or any modification should be made until the borrowers income at closing is matched to the 1003. Do not except borrowers to have the same job or income, realize some borrowers have had hours cut and pay decreased.

**So, in other words, just ignore the activities of the lender or lo regarding getting these loans funded. Forget about the fact that the lender offered the Stated Income loan, knowing full well that it would be abused, even by their own account reps. Forget about the fraud by the lo. Don't hold the banks accountable.**

But if the loan was obtained under fradualent means--the rules in the foreclosure should change.

**The fraud was initiated by the broker, with the lender aiding and abetting in most cases. In fact, I cannot tell you the number of cases whereby I see Countrywide Retail lo's who have conducted the fraud, doing stated income loans for a borrower, creating employment for borrowers, etc.

What about Chase and the ZIPPY program, whereby all underwriters had a cheat sheet memo abut how to get loans approved when they had been declined?

The reality was that the fraud was throughout the entire system. Lenders and brokers initiated the fraud, and then through Fraud in the Inducement, implicated the borrowers. Most the the time, the borrower did not even know what was happening.

You say that the borrowers signed the loan documents, so they should have known. Have you EVER been to a signing? The notary just shoves page after page in front of the person, saying "Sign here, sign here. Don't worry about reading this stuff, you can read it later. You have three days to cancel." In the meantime, the notary is counting her dollars and trying to determine how many signings she can do that day and what amount of money she will take home.**

Bank Mortgage Fraud should only be investigated after the borrower is cleared of any fraud, mis-representations when they closed.

**Pure B.S. The banks and the brokers were the initiators of the fraud. So you would have them to go free and punish the homeowner.

Your comments make me wonder if you work for a bank.** Permalink

giabella7 at 05:23 2009-12-03 said:

Taught for a few years that is why the experinece is 20 Years.

Conforming we were very, very thorough.

In regards to the East Patchogue case, borrower admits to having an online doll business. Hard to go onto salary.com to verify that.

Bottom line it is a two way street.

Why does someone with no children need to live in a 3400 square foot house.

Fraud on a mortgage application is a crime. Borrower signs it two times.

No matter what, that needs to be addressed first. Did borrower contribute to the foreclosure?

I choose to work for a company that did Alt A for just seven weeks. But I was on the wholesale side.

Just not sure how you can focus on only the supposed bank behavior of the banks, and some borrowers have complete blame.

Should we live in a society where government tells us what kind of house we live in, how many kids we can have, and what we can and cannot eat.

Of course, we want to make our own choices. The bad choices some borrowers made will effect us all.

Underwriting guidelines will be tightened, down payments increased, and in the end home prices will suffer from less people being able to borrow.

So again, 20 Years. I originated some of the very first adjustable loans in Massachusetts.

Sup-prime borrowers are already in financial trouble. That is why they are sub-prime.

Again, health issues and job losses depending on the LTV and several other factors, deserve some accomadation.

I will NEVER CHANGE MY MIND, WHATEVER THE BANK DOES, that a borrower who committed perjury which is a crime should be allowed to sit in a house paying nothing for 2 years.

By the way, had two employers owing me sustantial money go BK. I lost my deferred compensation which would have paid for 3 years of my sons college education. All because of the subprime mess.

Guess, I could call myself a victim and figure out ways to not pay my mortgage. But sorry, paid back a condo that I bought in 1986. By 1989 it was half its value. Many urged me to walk from it.

But I rented it out with a negative cash flow. I have learned the hard way that "nice people finish last", and that "bad behavior is now rewarded in our society," but I am the mother of two sons and constantly remind them that all choices have consequences. Permalink

giabella7 at 05:39 2009-12-03 said:

The borrower did not know what they were signing.

They get a copy of the 1003 at application and 1003 at closing. On a refinance they have 3 days to rescind.

PLEASE--STUPIDITY is not an excuse for people who think they are foreclosure victims.

If a borrower is paying $1,200 in rent and they see the PITI is $2500, they better not sign unless they usually bank 1,000. Using that since they now have a tax deduction.

In regards to closings, I have gone to over two hundred closings since I started in 1982. The borrowers I dealt with were again conforming, so yes they read the paperwork. The attornies did point out the key wording on each document, but asked them to review before signing.

Who signs for a 30 year obligation for the largest debt in your life without signing, but blames others.

Answer--The borrowers who moan they are victims to everyone who will listen

Anyhow, I will end this topic--the borrowers that believe they are victims will just continue to blame everyone and accept no responsibility.

I believe the majority of mortgage professionals are honest and ethical individuals. Especially on the Conforming Side. Permalink

ppulatie at 10:34 2009-12-03 said:

I guess in MA brokers and lo's are a different breed. In Ca, most did commit fraud in one manner or another.

Why should a lender be held harmless when they offered the program, and then did not conduct due diligence when they loaned the money? If it had been their own money, they would have certainly been more circumspect. Why be any different with others people money.

By 2003, most truly qualified borrowers already had homes and "decent" loans. The lenders had to expand their scope and pool of borrowers to keep up the game. They did so by dropping loan qualifying requirements to expand the pool and when that pool dried up, they dropped standards again and again. All with a nod and a wink from the government.

The large numbers of Hispanics in CA created a fertile ground for mortgage fraud on the part of the brokers. Most of the Hispanics never truly understood what was going on from 2005-2007. They were led around by their own people who they trusted and then they got screwed. I can't tell you the number of them who could not read the documents, and relied solely on the broker to properly represent them.

How could banks offer Stated Income to wage earners without any attempt to verify income? That alone can lead to allegations against the banks for aiding and abetting, fraud in the inducement, lack of due diligence, improvident lending, Unfair Business Practices, and many other potential charges.

If the banks had not offered these programs to the brokers, and the brokers not realized all the money that they could make from the programs, there would not have been the whole Bubble and Bust.

When I finish the article on Securitization in the next couple of days, it will tie all the recent articles that I have written into a pretty little package for Christmas. It should really pull things together for a good understanding. Permalink

giabella7 at 09:07 2009-12-06 said:

It is terrible when any individual takes advantage of any nationality. From 2001-2003 the majority of the students whom I taught were ESOL (English as a Second Language )

But as we all know for basically most languages spoken, their are attorneys who are multi-lingual.

So obviosuly you are telling me in California where house prices probably averaged $450,000 in 2003-2005, borrowers were willing to borrow close to half a million but not spend $1,000 on hiring an attorney that spoke their language, and who would protect their interests.

Read Busted, by Edmund Andrews (though do not buy the book) he also claims he was a mortgage victim. Such a joke because he is the economics reporter for the New York Times.

But his new wife had to have a certain house, in the right neighborhood and have her kids from her first marriage go to private school. He signed for a loan that basically required more than he took home after his alimony and child support was paid.

Yes, I wrote the New York Times and said I would never again read his articles, why would I accept economic advice from an idividual who appears to take no responsibility for his actions, places all blame on "Emotion and being so much in love," and is a mortgage victim.

Bottom line whether you work as a chamber maid, own a landscaping busness, or work as a New York Times Reporter you know what you ring home monthly. If someone is working in the US, they understand how many dollars they earn monthly.

Bottom line, I will not place total fault on the sub-prime borrowers, but they do need to accept some culpability.

Yes,past adminstrations and congress thought they were opening home ownership up to groups who had been barred from owning before.

Intent was good, but the abuse that was practiced, was exercised by both brokers and buyers.

Going forward, it will now be more difficult for everyone to borrow.

Sub-prime loans if used properly were to be temporary.

Borrowers were to work on establishing paying obligations on time and in full. Some, though it appears only a majority, used sub-prime loans correctly and actually learned from past credit history errors and paved a new path. Those people refinanced into conforming loans.

Regarding Stated W-2, not saying it is correct,but many service people receive approximatly half their total income in tips. Yes, they should report all the income but even the IRS admits their are many working under the table or not showing all tips.

Did the Stated programs --W2--let the borrowers qualify on W2 income , plus tips --probably yes, but again never did a sub-prime loan.

Again, in summary I totally understand that job loss and health issues can propel a homeowner towards foreclosure, but feel their is resposibility on the part of the borrower IF INCOME was NEVER actually there.

Yes, the right unethical broker may help some borrowers make the wrong decisions, but in the end we all share responsibility for our decisions. Permalink