As told to Jen Benepe
In order to understand factors that contributed to the subprime debacle and the mortgage crisis, The Real Deal spoke to a mortgage banker who witnessed shady practices firsthand. In some cases, he said he saw mortgage brokers who evaded punishment for fraud by skipping to another bank; in other instances, loan officers accepted fake verification of employment letters. The banker’s name is being withheld to protect his identity and the identity of his former employers. His words are largely unedited.
“I am a mortgage banker, have been for more than six years. My job was to go to various brokers and solicit loans. My company went out of business this year.
Let me tell you, the mortgage business is fairly transient. A loan officer parks themselves at a shop for a year, and then moves around, you know, to another shop. Especially when things were good they were constantly looking for the best service or cuts, and they would bounce around from shop to shop.
Especially the stinker guys, you know, the crooked ones. It really wouldn’t be fair, the bank would have a pretty good fraud unit, but anyway, it [fraud] would still happen. When it did they would give the guy a warning, and he knew the jig was up and he would leave.
Or, they would say, ‘If you do it again well have to fire you,’ but then the Stinker Guy would leave anyway, and nothing would happen to him, he’d just end up at another bank.
Some banks would report them, but not everyone did. There are a couple of different places, like the New York State Banking Commission, [where] that was the most common. But they were still working, at the new joint.
The stinker guys: They were the loan officers in the broker shops. They would overstate the [borrower’s] income badly. They would do VOE [verification of employment] – instead of doing pay stubs and W-2s, they would just take a written VOE from the employer. They would find someone to say, ‘He is making around $100,000.’ Or ‘He works with me,’ a letter verifying employment. They were fake VOEs.
Let’s say the guy makes socks, and they [the fraudulent loan officers] would get a relationship with someone from the company. [They] would get a couple hundred dollars just to say that the guy was making that money. They would call and verify, and the guy may have never worked a day in his life. They were faking somebody’s job!
Somebody who wanted a better interest rate, they would put down a fake W-2; I think you can go to Staples and do it.
They would also get in bed with an accountant. Let’s say you would have a guy who said he was self-employed. It could be that they have a license, or they would just require a letter from a CPA or an accountant. Now the accountants, they are dying for business. The loan officer would find an accountant who was willing to play ball, throw them a couple of hundred dollars, and that would get through.
I am just telling you the scams I saw and heard. The fake VOE and the accountant’s letter, when they couldn’t do it another way. In the industry it was easy to prove income.
A lot of time they used the job ‘contractor’ to fake the income. You know contractors – half of them are licensed, half are not licensed. There is that whole underground there. Because the banks knew that there was an underground there, they knew contractors have the perfect job, because they are making good money. But some are making $10,000 a month, and some are making $100,000 a month. So they would say they were making good money even when they were not.
I saw a lot of applications where they said a woman was a contractor. Now we all know there are a lot of women who are contractors, but like owners, as in they run the business, [they’re] not builders – that’s ridiculous. Women can be a general contractor, but let’s face it, most women are not contractors.
I knew one shop that did it almost as a religion. They saw the application and said, ‘Well we don’t know what to make it, make it a contractor.’
Like for retired people, you could take a retired person and not put anything down. The rates were not as good, and you could never get 100 percent [financing] on that loan. The top amount was 75 percent… maybe 80.
The programs themselves were ridiculous. Let’s say you were going to take a loan out. There are guidelines, banks did not just loan you money. You know, that income had to fit their monthly debt ratio; under conventional paper you had to have all your bills 27 percent or less of the mortgage. Then they figure about 36 percent of all debt put together, the debt-to-income ratio is fair. To this day that still works… [But] let’s assume you were making $100,000 together… But now you want to buy a house in Astoria, for half a million dollars, or $550,000. But you are only making $100,000, right? Suddenly your debt-to-income [ratio] is more than half. That is when the subprime started.
Wall Street was behind the whole thing, don’t kid yourself – they were behind the whole thing. They gave us the subprime product. I mean you are still showing your income at this point. We know that people are putting half their money, and we know they will be OK.
But now you want a house in Westchester for $800,000. So they came out with this stated income product, you tell us what you make and we believe you if it makes sense, they said. So, you put down that you make $80,000. And let’s say your husband made $70,000. But you are not really using your income, and if your credit score was good enough they gave you the loan. This is what began to happen.
I laughed all the way to the bank for four years. I was making $30,000 or $40,000 per month. I knew a guy in California who was making about $200,000 a month.