Mortgage Fraud

(8 am. – promoted by ek hornbeck)

If there is any doubt as to how this financial mess came to be, there is no shortage of stories of folks who saw and/or knew of significant fraud but were unable to do much about it. It isn’t unknown that house finances are extremely stressful without being a victim of fraud being added to it. That is why it is important to compare your deals online. The UK is known to have an excellent host of these informational and comparative websites to help you know what you need and there are many tools to help you with your money in the process of buying a house. There are many places to find bridging loans and mortgage comparisons on sites such as UK bridging loans.

INDYMAC BANK

Going back to this past summer, here’s a story of an appraiser who worked for IndyMac from Oct. of 2001 until March of 2002

I’ve shared some tidbits with you in the last month about my experience at IndyMac as their chief commercial appraiser from October 2001 to the end of March 2002. Now that IndyMac has been seized by FDIC and their legal staff presumably unemployed, I will tell the rest of the story. Some people tell me that it must have been hell for me, but I look back on it as an adventure, like sailing into the “Perfect Storm”, a perfect storm of corruption and incompetence, and living to tell about it…

At the end of my first week, there was an urgent need to field review an appraisal of a subdivision in the Sacramento area. I went up there on the weekend, but also took along some other recent appraisal reports from the Sacramento area. One of the other appraisal reports concerned me. A residential subdivision had been appraised as “80% complete”, but when I visited it, it had only been rough-graded, probably no more than 15% complete. When I returned to the office on Monday I asked who the construction inspector was for that region. I was told that there were two inspectors for the Sacramento area; one was CEO Mike Perry’s father and the other one was Mike Perry’s father-in-law. The loan officer on the deal was Mike Perry’s younger brother, Roger, who had recently been hired. His previous experience had been as a cop. Thereafter I heard of favoritism towards relatives of Mike Perry and “FOMs”, and the chief credit officer advised me to take special care of Mike Perry’s brother. (“FOM” was IndyMac jargon for “Friend of Mike”.)

I reported my Sacramento findings in a private memo to the chief credit officer, who then distributed it to the senior managers at the construction lending subsidiary known as the Construction Lending Corporation of America (CLCA). The senior credit officer from CLCA, the manager who most resembled Tony Soprano, was the one to call me. He asked “Are you sure you saw what you said you saw?” in a rather chilling manner. He said he had been on site with Roger Perry and had seen things differently. After that call, I asked the chief credit officer why CLCA’s senior credit officer would want me to recant my report. He told me that the senior credit officer received sales commissions for every loan made, which seemed to me like a blatant conflict of interest…

My only substantive encounter with CEO Mike Perry was in November 2001. I was summoned late to an impromptu meeting of senior executives in the board room. When I arrived, the meeting was already underway. The tone of the meeting was very different than senior executive meetings at other companies I had worked for. Mr. Perry, a man in his thirties, was spinning ideas and executives who were 10 or 20 years his senior were behaving like “yes men”, competing to agree with his ideas. There were lots of raised hands and enthusiastic participation. He seemed to be enjoying this, in an immature, megalomaniacal way.

Then he turned to me with an idea. He asked me if I, as the chief commercial appraiser, had the regulatory authority to change the discounted cash flow models in each subdivision appraisal, which might have the effect of changing appraised values. I said that I could possibly do it, but why? He smiled and said “Don’t housing prices always go up?” (Was he really too young to remember the early 1990s?)

I told him that it wasn’t a good idea, because we were already hiring competent appraisers who had more local knowledge than I had. Unless I could show that their analysis was flawed, it would be inappropriate for me to change the appraisals. That answer seemed to anger him. At the end of the meeting, the chief credit officer tried to introduce me to him, but he turned his back on me.

I later learned that Mike Perry was hired as CEO of IndyMac at the age of 30 when it was spun off by Countrywide. He had been an accountant at Countrywide and a protégé of Countrywide founders David Loeb and Angelo Mozilo…

IMB gave me two weeks’ notice of my impending termination and offered me $25,000 severance pay if I turned over all documents and signed a non-disclosure agreement. I told them that state law required me to keep records of all of my appraisals and reviews, and that $25,000 was not enough. After a few days of seeing that I was not cooperating, I was summoned to a final meeting with the chief legal officer and “chief people officer”. A written statement indicated that I was being terminated for having a “communication problem”. I asked for examples of my communication problem, but none were presented. (I later recounted, during a deposition, that I was left alone with the chief legal officer for a few minutes of awkward silence. I then asked him, “Doesn’t it bother you that I am being fired for a communication problem without any evidence against me?” He said, “Not at all.” This cracked up my attorney.) After the meeting, I was escorted back to my office by a large security guard to collect my personal belongings, and then I was escorted out of the building, with my toothbrush in my left hand and my toothpaste in my right hand.

This is followed up recently with the story of regulators who aided IndyMac in fixing their books to hide their impending dissolution

In at least one instance, investigators say, banking regulators actually approached the bank with the suggestion of falsifying deposit dates to satisfy banking rules — even if it disguised the bank’s health to the public.

Treasury Department Inspector General Eric Thorson announced in November his office would probe how a Savings and Loan overseer allowed the IndyMac bank to essentially cook its books, making it appear in government filings that the bank had more deposits than it really did. But Thorson’s aides now say IndyMac wasn’t the only institution to get such cozy assistance from the official who should have been the cop on the beat…

Darrel Dochow, the West Coast regional director at the Office of Thrift Supervision who allowed IndyMac to backdate its deposits, has been removed from his position but he remains on the government payroll while the Inspector General’s Office investigates the allegations against him. Investigators say Dochow, who reportedly earns $230,000 a year, allowed IndyMac to register an $18 million capital injection it received in May in a report describing the bank’s financial condition in the end of March…

“He did nothing to protect taxpayers in losses,” former federal bank regulator William Black told ABC News. “Instead of correcting it [Dochow] made it worse by increasing the accounting fraud.”

Meanwhile, IndyMac customers who lost their savings are demanding answers and are further infuriated after learning Dochow was also the regulator in 1989 who oversaw the failed Lincoln Savings and Loan, a scandal that sent its CEO Charles Keating to prison.

“He’s the person that claimed that he looked into Charles Keating’s eyes and knew that Charles Keating was a good guy and therefore ignored all of the professional staff that told him that Keating was a fraud, and he produced the worst failure of the Savings and Loan Crisis at $3.4 billion. Now he’s managed more than triple that,” said Black, now an economics professor at the University of Missouri in Kansas City, Missouri.

Following the Lincoln scandal, Dochow was demoted and placed into a relatively obscure office, but later, inexplicably was brought back into the Office of Thrift Supervision.

WASHINGTON MUTUAL

At Washington Mutual, there are tales of underwriters who were punished for doing their jobs and rewarded for NOT doing their jobs –

AS a senior mortgage underwriter, Keysha Cooper was proud of her ability to spot fraud and other problems in a loan application. A decade of vetting mortgage documents had taught her plenty, she says…When underwriters refused to approve dubious loans, they were punished, she says…

One loan file was filled with so many discrepancies that she felt certain it involved mortgage fraud. She turned the loan down, she says, only to be scolded by her supervisor.

“She told me, ‘This broker has closed over $1 million with us and there is no reason you cannot make this loan work,’ ” Ms. Cooper says. “I explained to her the loan was not good at all, but she said I had to sign it.”

The argument did not end there, however. Ms. Cooper says her immediate boss complained to the team manager about the loan rejection and asked that Ms. Cooper be “written up,” with a formal letter of complaint placed in her personnel file.

Ms. Cooper said the team manager told her to “restructure” the loan to make it work. “I said, how can you restructure fraud? This is a fraudulent loan,” she recalls.

Ms. Cooper says that her bosses placed her on probation for 30 days for refusing to approve the loan and that her team manager signed off on the loan.

Four months later, the loan was in default, she says. The borrower had not made a single payment. “They tried to hang it on me,” Ms. Cooper said, “but I said, ‘No, I put in the system that I am not approving this loan.’ “…

Ms. Cooper says that loans she turned down were often approved by her superiors. One in particular came back to haunt WaMu.

Vetting a loan one day, Ms. Cooper says she became suspicious when a photograph of the house being bought showed one street address while documents deeper in the file showed a different address. She contacted the appraiser, and recalls that he said that he must have erred and that he would send her the correct documents.

“So then he sent me an appraisal with a picture of the same house but this time with the right number on it,” Ms. Cooper recalls. “I looked the address up in our system and could not find it. I called the appraiser and said, ‘Please investigate.’ ”

The appraiser came back, reporting that a visit to the California property had found everything in order and in agreement with the original appraisal. “I was so for sure that it was fraud I wanted to get on an airplane,” Ms. Cooper says.

The $800,000 loan was approved, but not by Ms. Cooper. Six months later, it defaulted, she says. “When they went to foreclose on the house, they found it was an empty lot,” she recalls. “I remember clear as day this manager comes over to me and asks, ‘Do you remember this loan?’ I knew just what she was talking about.”

Rejecting loan after loan, however, gave her battle fatigue. “The more you fight, the more you get in trouble,” she says. She was written up three or four times at WaMu.

After WaMu’s mortgage lending unit laid her off, she applied for work in its retail banking division. She was turned down, she suspects, because of the critical letters in her personnel file.

As if that weren’t enough, there’s also this story of Washington Mutual –

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…

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.

STANDARD & POOR’S

Then there’s the failure of the rating agencies to do THEIR job –

Rahul Dilip Shah: btw – that deal is ridiculous

Shannon Mooney: i know right…model def does no capture half the risk

Rahul Dilip Shah: we should not be rating it

Shannon Mooney: we rate every deal

Shannon Mooney: it could be structured by cows and we would rate it

Rahul Dilip Shah: but there’s a lot of risk associated with it – I personally don’t feel comfy signing off as a committee member.

FBI

And the failure of the FBI to investigate what they knew was happening –

The FBI was aware for years of “pervasive and growing” fraud in the mortgage industry that eventually contributed to America’s financial meltdown, but did not take definitive action to stop it.

“It is clear that we had good intelligence on the mortgage-fraud schemes, the corrupt attorneys, the corrupt appraisers, the insider schemes,” said a recently retired, high FBI official. Another retired top FBI official confirmed that such intelligence went back to 2002.

The problem, according to the two FBI retirees and several other current and former bureau colleagues, is that the bureau was stretched so thin that no one noticed when those lenders began packaging bad mortgages into bad securities.

“We knew that the mortgage-brokerage industry was corrupt,” the first of the retired FBI officials told the Seattle P-I. “Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism.”

Maybe they were too busy –

Needles in a haystack

The problem of sifting through vast amounts of data was highlighted by the US 9/11 Commission, which concluded that the American intelligence community knew in advance that the attacks on the World Trade Center and Pentagon were in the offing, they just didn’t know they knew it. The pieces were all there for anyone who knew to look for them, needles buried in a haystack of irrelevancies.

The answer in both America and Britain has been to collect more haystacks: useless, indiscriminately acquired information on people who’ve done nothing to arouse suspicion. We even inveigle our citizens to become amateur curtain-twitchers and pecksniffs, demanding that they report “suspicious” activity to the authorities.

Between DNA databases, mandatory fingerprinting for visa seekers, CCTV carpet-bombing, and Oyster card data, we’ve never collected more “security” information than we do today. But does this really make us secure? Is it possible to know too much?

Outside of dramatically failed experiments like the Soviet Union and East Germany, policing has never been a business of gathering data on every single person and arresting the guilty ones. This doesn’t catch guilty people, it ensnares the innocent and acts as a kind of monetary black hole, absorbing all the cash we can toss into it, growing larger and more voracious by the day.

Too much data ruins the investigation, every time.

Stupid, illegal, counterproductive – let’s hope the Obama administration can start to make changes that result in smart government.