I should know

The Problem with Option ARMs

I competed with Herbert and Marion Sandler and their company, World Savings Bank, for years and years. Your statement that “They clearly cared more about underwriting than most mortgage lenders, and they didn't found the Center for Responsible Lending as some kind of PR stunt” is completely inaccurate. Their standards were almost nonexistent. They would approve nearly anyone and give them whatever program or product they wanted, but pushed the product that threw-off the most money to WSB, the option ARMS. Most of their loans were originated, not by WSB employed loan originators that may or may not have understood the pitfalls of this toxic loan, but by slimy mortgage brokers who only care about making the sale and making as much money as possible from the particular loan they were pushing; most often, the Option ARM. WSB paid the highest commission and SRP on Option ARMS, not standard ARMs or fixed rate products.

Here is a direct quote by Herb Sandler: “You have to understand how independent brokers work, they are the whores of the world.”

Despite that distaste, World Savings made extensive use of brokers. By 2006, they were generating some 60 percent of its loan business, he acknowledged. He said he was compelled to do so because of brokers were a dominant force in the mortgage industry. Money trumped ethics once again for the Sandlers.


I lost some business to these hucksters and snake-oil-salesman that were pushing this product, and at one-time the upper managers of our company went to the senior managers and requested that we be allowed to originate these loans, if even for the purpose of showing just how bad they were. When we were competing against this product and tried to tell buyers, Realtors, and builders how unethical the product was, they usually said we were just “bad mouthing” it because we couldn’t do them”. Our senior managers said NO, we would never do the Option ARM. The product was not good for our customers and was not good for our company and stakeholders. We didn’t like that answer, but it sure turned-out to be right. When the miscreant huckster team of Herbert and Marion Sandler sold out to Wachovia, one of their big selling points was the huge income they were making on these Option ARMS. When they became part of the Wachovia board of directors, they continued to press the origination of these loans and even convinced Wachovia to have it available to their bank branch originators. The bank branch originators hated the product and sold almost none of it.

Going back to your statement “They clearly cared more about underwriting than most mortgage lenders, and they didn't found the Center for Responsible Lending as some kind of PR stunt”; you are seriously mistaken, they could not have cared less about their slimy, pathetic underwriting standards and absolutely, positively attempted to shield themselves from criticism and cloak themselves in altruism by throwing a few milling over to the Center for Responsible Lending. It was very cleaver on their part, not unlike the support and financial contribution made by Bernard Madoff, the huckster extraordinaire, master of the Ponzi scheme, that were made to legitimate organizations. The Option ARM product was a giant Ponzi scheme dependant on a house going up in value to refinance and pay-off the unpaid negative amortization on the Option ARM.

Madoff and Herbert and Marion Sandler, three peas in a pod.