From "Inside the Countrywide Lending Spree" by Gretchen Morgenson:
ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. “I want to be sure you are getting the best loan possible,” the sales representatives would say.
But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.
Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided......“In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.”
Sound familiar? Received any phone calls from stock brokers lately? The securities industry is heavily regulated and securities brokers are registered, fingerprinted, and licensed in large part to prevent such abuses. The mortgage industry and its brokers are very lightly regulated and then on a state by state basis, (ie: weaker and more ah, impressionable, legislators). This is not news.
However, Wall Street had its hand deeply in the pie too. From looking the other way while continuing to buy the securities backed by pools of junk mortgages to investing directly in the originators that created them. This is not news either.
From the WSJ story "How Wall Street Stoked The Mortgage Meltdown" by Michael Hudson:
Twelve years ago, Lehman Brothers Holdings Inc. sent a vice president to California to check out First Alliance Mortgage Co. Lehman was thinking about tapping into First Alliance's lucrative business of making "subprime" home loans to consumers with sketchy credit.
The vice president, Eric Hibbert, wrote a memo describing First Alliance as a financial "sweat shop" specializing in "high pressure sales for people who are in a weak state." At First Alliance, he said, employees leave their "ethics at the door."
The big Wall Street investment bank decided First Alliance wasn't breaking any laws. Lehman went on to lend the mortgage company roughly $500 million and helped sell more than $700 million in bonds backed by First Alliance customers' loans. But First Alliance later collapsed. Lehman landed in court, where a federal jury found the firm helped First Alliance defraud customers.
That hardly stopped them of course as they later acquired several originators to feed one of the Street's largest mortgage security underwriting and trading businesses. They had plenty of company too. Lehman shut down one of their mortgage origination firms this week but still maintains a presence in the business.Loathe though m* would be to have anything in common with the current crop of politicos clamoring for socialization of the problem, m* suggests that if one insists on using "lender," do the right thing and precede it with "predatory."
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