Foreclosure Crisis Isn’t Just Irregular Paperwork, It’s Massive Fraud

Administration officials have signaled that they are unwilling to support a nationwide  moratorium on foreclosures. In David Axelrod’s appearance on Face the Nation last weekend, referring to bad documentation he said “we are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don’t work.”

To be sure, Axelrod expresses the usual preference of the Obama administration for Wall Street over Main Street — the bankers over the middle class.  But the Obama administration, in seeing the foreclosure crisis as a case of irregular, correctable paperwork,  is also  indulging in wishful thinking on a massive scale.

The following excerpt from a new book by Michael Hudson, “The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America — and Spawned a Global Crisis,” shows the depth of the foreclosure crisis that is only just beginning to unravel, a crisis spawned by a combination of deregulation and greed:

A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles’s Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody’s signature.

Glover was new to the mortgage business. He was twenty-nine and hadn’t held a steady job in years. But he wasn’t stupid. He knew about financial sleight of hand—at that time, he had a check-fraud charge hanging over his head in the L.A. courthouse a few blocks away. Watching his coworker, Glover’s first thought was: How can I get away with that? As a loan officer at Ameriquest, Glover worked on commission. He knew the only way to earn the six-figure income Ameriquest had promised him was to come up with tricks for pushing deals through the mortgage-financing pipeline that began with Ameriquest and extended through Wall Street’s most respected investment houses.

Glover learned that his colleague’s art work wasn’t a matter of saving a borrower the hassle of coming in to supply a missed signature. The guy was forging borrowers’ signatures on government-required disclosure forms, the ones that were supposed to help consumers understand how much cash they’d be getting out of the loan and how much they’d be paying in interest and fees. Ameriquest’s deals were so overpriced and loaded with nasty surprises that getting customers to sign often required an elaborate web of psychological ploys, outright lies, and falsified papers. “Every closing that we had really was a bait and switch,” a loan officer who worked for Ameriquest in Tampa, Florida, recalled. ” ‘Cause you could never get them to the table if you were honest.” At companywide gatherings, Ameriquest’s managers and sales reps loosened up with free alcohol and swapped tips for fooling borrowers and cooking up phony paperwork. What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents—the ones indicating the loan had an adjustable rate that would rocket upward in two or three years—near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.

At the downtown L.A. branch, some of Glover’s coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out, and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the office’s break room with all the tools they needed to manufacture and manipulate official documents. They dubbed it the “Art Department.”

Wishful thinking won’t make this crisis go away.

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4 Responses to “Foreclosure Crisis Isn’t Just Irregular Paperwork, It’s Massive Fraud”
  1. Fred Smith says:

    Nobody has brought up the distinct possibility that the loan servicers may well have bundled and sold each of these loans MORE THAN ONCE to differernt investors via the securitization process. THIS COULD BE THE REAL REASON THAT THERE IS NO DOCUMENTATION / PAPER TRAIL. The non-existent documentation and accounting is entirely consistent with this scenario. This means that the entire plan was a true Ponzi scheme in the worst sense. In other words, rather than selling the loan once to investors, as we have all naively been assuming, there is no reason to believe that they did not double-dip or quintuple-dip and sell the exact same loan to completely new buyers. THIS IS A LEVEL OF FRAUD THAT THE AMERICAN PUBLIC HAS NOT YET CONTEMPLATED.

  2. depelton says:

    Great comment, Fred. I hadn’t thought of that!

  3. First…Very nice Blog!

    I am doing the loan modification thing and loan docs I was just presented clearly states, in the last of many “what if’s) lender has right to reconstruct “missing” paperwork and it will be accepted by the borrower.

    Sounds like butt covering to me.

  4. depelton says:

    Wow, Curtis, so new (or refinance) loan docs now include a possible way for the banks to reconstruct missing paperwork? That’s amazing!

    I’d be inclined to strike out that portion of the contract before signing!

    When we were landlords some years ago, renting out the house we now live in, and we were refinancing, I stayed up til 2 AM the night/morning before the signing ceremony at the title company … just to read every damn word in the stack of papers (even though I understood only about 1/2). Among the 1/2 I did understand, I found a clause canceling our right of rescission because we were refinancing a rental rather than an owner-occupied residence. We refused to sign the contract with that provision, so in the end we were able to cross it out before signing.

    Times have greatly changed.

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