Thanks for all you do. I hope you have great 2008!

Tom

You are all correct the SIVA, SISA & No Ratio Products were FRAUD the day they came out of Product Development and Risk and offered to “wage earners” with the 80/20 Combo mechanism and relaxed decisioning requirements (only follow the guidelines mandate, forget prudent decisions).

When they were first developed by World in the 80’s the thought was 30% down and state the income, verify the assets. The typical consumer using that product was Self Employed, not that they did not allow wage earners, but it was a sophisticated product priced with the risk model considered. The cost was high enough in rate and price that the average wage earner used the Full Doc product, additionally he/she did not have the funds to come to the table with 30% down. At that time the rates were also significantly higher than we have had in this “artificially manufactured let’s stimulate the market era”. We had a real time relationship with rates and documentation as well as the required investment.

This whole tragedy has been driven by more than just greed and avarice, it is a “market of smoke and mirrors” with so many convincing themselves that they are justified and entitled, to hell with the consequences.

Fraud has always resided in our industry, just not to this extent, now I sense that has become a “normal course of business”. There is in my book little fraud and big fraud, most of you will disagree with this weird view, but I have had to come to terms with the reality of Fraud.

Little Fraud for example, is the “sin of omission” -”Golly, yeah he was divorced, he had a child support payment, but you can’t find it, so how did you?”. No I can not find it, unless I am in a State that reports that stuff on the Title Report – a lot do not. Am I aggravated when I do discover it on the paycheck stub, you bet, but do I decline the loan; the borrower still qualifies ’cause I am good at finding income that is ligitimate, or do I penalize that borrower ’cause his LO is a P*&%k. Aha, here is the dilemma, I am really concerned about the borrower, first time home buyer – how was he to know that he had to spill his guts about that little number. No, I take the borrower’s side and do the best I can give the P*&%k of a LO a walk and get the proper documentation and move on. The LO of course is furious that I dug to deep, idiot it was on the paycheck stub, and lets loose with any number of invectives and threats, yep he is a P*&%k (sorry guys, never had a woman LO pull that one ). Loan still approved and closed.

Now for the BIG Fraud – complete Tax Returns -2 years mind you reflecting the borrower a mechanic on heavy equipment, supposedly self employed making 159,856.00 per year (2006) and 138,762.00 (2005) -after expenses. Now there were no salary or employee costs, no insurance costs, – this was a Schedule C filer. The borrower has had a credit history of less than 2 years, very limited and low max credit limits. The bank statements are truly, for want of a better word, Funky. Somehow the photo editor that was used did not match type fonts very well. The borrower was lacking a solid Social Security number, from my point of view he was born in 1969, the Social Security number was issued in 1950. He had no directory listing as per the Broker he got business by word of mouth and contract. Contract (1 only) was extremely Funky – the guy who signed it lived in the Borrower’s present primary residence. Now how do you think I handled that one…….well, sneaky me, ’cause I wanted her (female LO) to get reported to the Treasury Department (the shop I worked in did that), asked for a signed 4506T. Wonder why…… the LO, B*&%h that she was was incensed, went over my head, that did not work (thank god). NO ONE, had ever questioned her, how dare I. “These were perfectly good tax returns.” My response – then get me the 4506T (translation -I want your @ss in a sling). Long and short of the tale – I declined the loan, sent the file to risk mit, they got the tax returns without a 4506T, they have their ways. These were not perfectly good tax returns, the bank whose Statement was altered was contacted and yes it was altered, not even our borrower’s account. The Social Security Number belonged to another party. The institution proceeded to bar the Broker B*&%h and turn her sorry @ss over to the Treasury Department with all other participants in the transaction.

How often does that happen, rarely, they do not turn them over to the Treasury Boys except in a few shops. When I have found this degree of egregious fraud in the past, for the most part I was told to approve it or better yet IMPROVE on it. My response, get the hell out of there.

Now think about this – both of these examples were from this year, they were full doc files. I was supremely lucky that the shop I was in had no tolerance for this behavior. It was the first time in over 5 years that I had worked in that sort of environment, where it was not tolerated. My employment experiences for the past 5 years, excepting this shop, all required the underwriter to ignore and quite frankly often improve on the fraud. No exaggeration, it was de rigeur and in their minds part of the job description.

Having said that, you can only imagine how bad it was with the Stated Products, a person working at WalMart as a clerk on the floor – does not by any stretch of the imagination make 8000.00 a month. What was really tragic, since it got a Refer from CLUES, they wanted me to raise the income until I got an Approve return from CLUES. No, I did not, I walked out that day, with a lot of class and dignity, praying that I could find another job. That company went out of business last February. I keep track for prurient interest and some small degree of vindication.

It is only a very small degree of vindication since I believe that we good industry professionals are all paying for the bad deeds promulgated by this 5 year era of “smoke and mirrors”.

A point for all … i find it very amusing that the often used argument for rationalizing fraud on stated income applications is that the lenders offered stated income programs and it was up to the lender to “catch the fraud”. However … there is no legal support for this argument … the legal definition of fraud is “a false representation of fact — whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed — that deceives and is intended to deceive another so that the individual will act upon it to here or his injury. The common definition of fraud is “the crime of cheating somebody: the crime of obtaining money or some other benefit by deliberate deception”.

Fraud must be proved by showing that the defendant’s actions involved (1) a false statement of material fact, (2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

The relationship between parties determines whether a statement is fraudulent. A misleading statement is likely to be fraudulent when one party has superior knowledge in a transaction, and knows that the other party is relying on that knowledge. Misleading statements are fraudulent where one party exploits a position of trust and confidence, or a fiduciary relationship such as those between attorneys and clients, stockbrokers and clients, and mortgage brokers and lenders.

Bottom line: fraud is illegal. Federal and state criminal statutes provide for the punishment of persons convicted of fraudulent activity. Fraud violation of banking laws are subject to federal prosecution because of the mail and wire fraud statutes.

So … what is a mortgage brokers legal responsibility … to state accurate and complete information on the 1003 … not some “fairy tale”.

I’m certain that all would agree.

In my opinion and history….this is how I see it.
Remember 15 years ago? Credit Risk was not \’e2\’80\’9ccontrolled\’e2\’80\’9d by Sales. Reputable companies had training programs and the bottom line was to provide homeownership to people in the communities\’e2\’80\’a6.which was an overhead expense that was dropped.. Somewhere in the process over these last 8 years especially, Sales convinced Corporate that they were being \’e2\’80\’9cpicked on\’e2\’80\’9d and they could not compete with other companies. More and more \’e2\’80\’9cinexperienced\’e2\’80\’9d sales people, processors and managers were being hired.
Experience was a \’e2\’80\’9cbad\’e2\’80\’9d thing, they wanted to hired new faces so the \’e2\’80\’9csales\’e2\’80\’9d team could train them the \’e2\’80\’9cright\’e2\’80\’9d way. I quickly became aware that these people did not have the structure of Integrity that we grew up with in the Industry\’e2\’80\’a6.it all became about the money.
So you keep on believing in that which you are such an expert in\’e2\’80\’a6.it has to be a hard win battle out there right now\’e2\’80\’a6I wish you well!