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Too Big To Fail: The Inside Story Of How Wall Street And Washington Fought To Save The Financial System -- And Themselves
The regulators failure to act was not becuase they were watching porn. It was because they were in the pocket of the GSEs and the lenders.
Yes, their were some "stupid loans" made, but most were not made because of the stupidity, but because the lender knew they could sell them to a GSE or to some entitty that could sell them to a GSE,
The practice was not just making "stupid loans"; but also involved making fraudulent loans, setting up borrowers for the fall and cutting off appraisers who refused to "bring in" the needed "fair market value" and having false certifications signed by applicants and various service providers. I have had lenders cut me off because I refused to back-date documents; refused to misrepresent debts on HUD statements, etc.
There was a great deal of financial incentive for the lenders to make bad loans. Many loan officers, especially mortgage loan brokers and including correspondent lenders, could make sizeable commissions for loans that closed. They worked for free if it did not close because they did not get paid for loans that did not close. I have been told (but have no independent eveidence) that even some underwriters were even paid largely on commission based upon loan production.
As a closing attorney who has closed over ten thousand mortgage loans (and was a partner in a firm which closed many more than that), I discovered that there was no shortage of dishonest borrowers, but borrowers on the whole were more honest than lenders, who seem to have made dishonesty an industry standard.
Lenders, as a common practice and as standard operating procedure, would have multiple sets of loan applications signed, and then revise them as late as at the closing table, to be signed without being read by the borrowers essentially at the same time as the notes and mortgages and 100+ other pages of documents were to be signed, typically in 30-60 minutes. I have even seen evidence of one large bank that altered the loan applications (after being sent accurate applications by the mortgage loan broker) to show the mortgage loan broker's fee as an installment loan in order to get loans booked. Our firm refused one underwriter's telephone demand to show the brokier fee in the HUD-1 1500''s instead of the 800's, thereby suporting the underwriter's fraud. when we refused, they sent it to another law firm. (This, by the way, lowers the "disclosed" TILA required APR also.)
Lenders who were selling the loans on the secondary marker typically advised borrowers that everything must be signed, with no "changes" or "corrections" or their cloans would not close. Don;t bother reading anything, sign the docs "as is" or not at all. Then, they would sell to Freddie or Fannie who would buy almost anything.
Plausible deniability was the only rule. As a closing attorney, I often refused to follow verbal instructions of lenders which were unlawful and/or dishonest. Usually, I could tell that they knew their practices were wrong due to the facts that either it was obvious to anyone or simply that they refused to put their requests in writing.
As for the "regualtors", have you noticed the revolving door between the SEC and the TBTF banks? Underwriters were even worse. Heck, one of the large mortgage loan brokers I often worked with had two Freddie Mac underwriters in their building, eating lunch with them, etc.
Most closing attorneys who have closed a significant number of refinances know what was going on. Most are afraid to mention it publically.
Feb 16, 2013. 04:06 PM
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