BusinessWeek: Sex, Lies, and Subprime Mortgages
It may seem like ancient history now, but not long ago the mortgage industry was turning ordinary people into millionaires. One of them was Sharmen Lane, a high school dropout who, like many other young women during the boom, found her way into an obscure banking job with the clunky title "mortgage wholesaler." Her experience—and the experiences of other wholesalers like her—offers a glimpse into the recklessness and indulgence that drove the industry to ruin.  Related articles: Henry Cisneros on the Hot Seat - Editorial: Recipe for profits, defects and foreclosures

BusinessWeek
Sex, Lies, and Subprime Mortgages
The sexual favors, whistleblower intimidation, and routine fraud behind the fiasco that has triggered the global financial crisis
By Mara Der Hovanesian - Der Hovanesian is Banking editor for BusinessWeek in New York.
November 13, 2008

It may seem like ancient history now, but not long ago the mortgage industry was turning ordinary people into millionaires. One of them was Sharmen Lane, a high school dropout who, like many other young women during the boom, found her way into an obscure banking job with the clunky title "mortgage wholesaler." Her experience—and the experiences of other wholesalers like her—offers a glimpse into the recklessness and indulgence that drove the industry to ruin.

The rise of mortgage wholesalers from grunts to rainmakers is one of the more curious developments of the housing bubble. Wholesalers work for banks and other lenders. The wholesaler's job is to buy loan applications from independent mortgage brokers so that lenders can turn them into loans. Wholesalers are paid on commission: the more loans they generate, the more money they make. During the housing boom, lenders typically approved the loans and then packaged them into securities. That path—from mortgage brokers to wholesalers to lenders to securities—turned out to be a road to disaster.

But as the housing bubble inflated, wholesalers—though hidden from public view—became high-earning superstars. Lane, a manicurist before joining now-defunct subprime lender New Century Mortgage in 1997, says she brought home $1 million in 2002 and $1.2 million in 2003.

Eventually the deal-making turned frenetic. Multiple wholesalers began inundating mortgage brokers with offers for the same applications. Some brokers chose to exercise their power by asking for something extra in exchange for their business: sex.

Dozens of former brokers and wholesalers say the trading of sexual favors was so common that it came to be expected. Lane recalls one visit to a mortgage brokerage near San Jose (Calif.) in which the manager lewdly propositioned her in his office. She says she declined the advance, and he didn't sell her any applications. But other female wholesalers didn't have the same qualms about crossing the line. "Women who had sex for loans were known very quickly," says Lane, who left New Century before it failed in 2007 and now works as a $200-an-hour life coach and motivational speaker in New York. "I didn't want to be a mortgage slut."

WHOLESALE CORRUPTION

Investment bubbles always spawn excesses, and housing was no exception. The abuses went far beyond sexual dalliances. Court documents and interviews with scores of industry players suggest that wholesalers also offered bribes to fellow employees, fabricated documents, and coached brokers on how to break the rules. And they weren't alone. Brokers, who work directly with borrowers, altered and shredded documents. Underwriters, the bank employees who actually approve mortgage loans, also skirted boundaries, demanding secret payments from wholesalers to green-light loans they knew to be fraudulent. Some employees who reported misdeeds were harassed or fired. Federal and state prosecutors are picking through the industry's wreckage in search of criminal activity.

Now wholesalers, who for a brief moment rose to prominence, are an endangered species. The failures of large subprime lenders like New Century, BNC (a unit of Lehman Brothers), and GreenPoint Mortgage, owned by Capital One, threw thousands out of work. Some lenders still in business have curtailed or shuttered their wholesale operations.

In the end, the wholesalers were undone by the same people who allowed for their rise: their Wall Street overlords. During the boom investment banks bought as many loans as they could to pool together and turn into securities. In 2006 the top 10 investment banks, which included Merrill Lynch (MER), Bear Stearns (BSC), and Lehman Brothers, sold mortgage-backed securities worth $1.5 trillion, up from $245 billion in 2000. To keep the supply of loans coming, the investment banks increasingly took control of the industry's frontline players as well.  Read more...1 of 3
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HOBB.org Nov 22, 2008 
Mortgage Fraud Soap Opera Unfolds Pub. Nov. 6, 2006 - Recipe for profits, defects and foreclosures - http://www.hobb.org/content/view/1296/213/ The recipe for enormous industry profits and eventual tragedy for thousands of American families and taxpayers was simple; build homes bigger, more grandiose with plenty of expensive upgrades, no down payment and innovative financing. Target first-time homebuyers who neither qualified for mortgage loans nor could they tell the difference between defective or deceptive, until they moved into their American Dream. Top it off with a heaping portion of government insured mortgage fraud, created by big builder-owned mortgage and title companies, imitated by other mortgage fraud scoundrels. For the past ten years homebuilding has remained a chief indicator of the economy, and from the President to Congress no one wanted to disrupt the money flow. February 8, 2008 - A predatory lending scheme that many experts predict could eventually lead to the worst recession to hit this county, and possibly the entire financial world. Today: A predictable worldwide Enron

Cindy S Nov 20, 2008 9:52 PM GMT
I've been a volunteer for a consumer org for several years, and have a paralegal education from a university law dept. The org I volunteer for was just one of many voices warning years ago of economic damage from rampant mortgage fraud. Economists, consumer org's, consumers filing mortgage fraud complaints, and even the FBI were among those who pointed out what was going on. Law enforcement either didn't have the teeth or didn't care to enforce the laws. It was only consumers getting hurt, after all. They were told, "get a lawyer and sue." A cop out answer, and here we are in an economic mess due to high-up people in the home building, real estate, and lending industries. They artificially inflated prices, created and pushed toxic loans, and in some cases committed mortgage fraud. Some smaller companies that don't have the political connections have gotten in legal trouble and/or have shut down. But the bigger companies keep going, some still doing the same things. These industries lobbied to "keep govt out of our lives," meaning keep govt from prosecuting crooks I guess. But now they want a bailout at our expense. Outrageous!

Jordan Fogal Nov 20, 2008 7:36 PM GMT
We sent over 410 emails,87 faxes,and two hand written letters to the white house.We went to Austin and to DC. four years ago we said look at the mortgage fraud in Houston, TX it will make Enron look like a parking ticket. The city, state and fed agencies turned a blind eye. They tokk away our right to a trail by jury so we had no recourse. They can not fix this finacial fiscoe untill they stop all the culprets. Nor can they regain our trust. Arbitration companies, bad builders, bad lenders, insurance companies... eaten up by greed and dishonesty.Thousands of us are hidden in sub prime numbers. If some one would just look at Tremont Tower and Hydepark they could see how this scheme works. These bad builders are throwing up homes that will not make a historical register. Some won't even last 2 years before they are completly uninhabitable. Google my name go to HADD or HOBB for the truth.. Washington will not hear. Untill they do, the fix they are looking for isn't going to work.Until they really understand and listen this will continue andmore of us will be homesless, foreclosures will continue and our credit will be ruined just like this nations. Jordan Fogal

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