Mortgage Brokers Wrest Free of Real Regulatory Reform

one woman protest against New Century

New Orleans     On the eve of the subprime meltdown in 2007 in Orange County, I met with a co-founder and the new CEO, general counsel, and some of the board members of the high flying mortgage player, New Century, along with several ACORN leaders from California, and ACORN’s national housing directors.  We listened to crazy talk about algorithms that masked as risk assessment, the fact that half of their multi-gazillion loan portfolio involved so-called “stated income” loans (now more popularly known as “liar’s loans”), and their weak claims of having turned a few cases of fraud perpetrating brokers over to legal authorities.  Months later their whole house of cards came falling down on top of their borrowers and started the domino fall of the housing industry trigger the Great Recession.

But, the only time the CEO’s head snapped around sharply and there was an immediate agreement in the meeting that there would be immediate action came when we confronted them with the compensation schemes of their Texas-based brokers that gave the broker network huge incentives to close the loans no matter what the terms to fuel their numbers machines no matter how soggy the stuff.  Immediately he got the fact that the broker network was out of control.  He didn’t immediately confess that their algorithms were equally bogus, but he must have now it.  Mike Shea with our housing corporation once again made the point that in negotiations after negotiations with Ameriquest, CitiMortgage, and others, a disproportionate part of the predatory swamp of subprimes outfits was knee deep because they relied on broker networks that were often independent and always inadequately controlled and supervised.  Brokers were the boiler rooms running the mortgage scams that brought down the housing market.

Last week the Consumer Financial Protection Bureau (CFPB) issued its last draft rules with one that supposedly barred brokers from being paid incentives to push consumers into higher priced, unaffordable loans…the same thing that snapped New Century’s CEO’s head almost off of his neck.  According to the Wall Street Journal, the CFPB backed away from more aggressive proposals to restrict fees, which is a sure sign that this problem will be back, like a bad penny.  As soon as I read quotes from the American Bankers Association and the Mortgage Bankers Association, I could see the red flags flying that we were getting fleeced again big time.

It seems that brokers, many of who are licensed by the states in a process that is most reminiscent of sending in five bucks to the Universal Life church to become a minister, can still be paid crazy fees for “high-cost abusive loans” as long as they “received the same fee for all loans.”  OMG!  Are you kidding me?  I can see the signs coming out on store fronts in lower income and working neighborhoods all over America offering people quick fixes at high dollar amounts to become home owners “at any cost!”  Within no time, they could crowd out pay day lenders and check cashing stores from strip malls in our communities.

This was a tragic giveaway.  Let’s hope as the disaster breaks out, the CFPB will take more seriously the “consumer protection” part of its name rather than the “financial bureau” part that leans towards the banker buddies at the first whisper of wind.  In the meantime it will be left to the states to try to do better, but it goes without saying that that’s going to be hard and thankless work that no one really has the capacity to do these days.

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Brokers Gone Wild Again! This Time Reverse Mortgages

Tokyo  We have been a broken record about the fact that not only did Wall Street largely get away with their shenanigans the precipitated the US and worldwide housing crises in 2008, especially for their subprime fast dealing and dodging, but so for the most part did the wheeling and dealing mortgage brokers.  Over and over again we documented cases where the mortgage simply lied to borrowers about the nature of their subprime loans.  Over and over again from New Century to Ameriquest and Citi, Wells, and the rest, it was clear that in many cases there was simply no management oversight on brokers at the street level or in fact the brokers were given financial incentives to lie in order to run-and-gun and make more money for themselves.

Now it is clear that the same thing – not surprisingly – is happening with reverse mortgages, a product designed purportedly to allow seniors to stay in their houses without selling by pre-promising the properties to mortgage companies in order to be able to “cash out” while still living in the home during their lifetimes.  The Times ran a story this morning about elderly people being bamboozled, and damned if it’s not some of the same subprime mortgage brokers back with a new scam.

Pitifully, their industry spokesman claimed that they were already heavily regulated, but of course that’s not true at all.  Most of the regulations are weak, and exist on a patchwork basis state by state with no federal regulation really even though a lot of the mortgages are guaranteed federally.  The National Consumers’ Protection Bureau (NCPB) also predictably said they were working on more disclosures, but those are always fairly toothless for people in predatory situations.

This is just plain theft, and we continue to let the criminals get away by turning a blind eye to the mortgage brokers and their tactics.  How many more times are we going to allow this?

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