One of the things I have been sure was going to happen was how the big banks are going to be exposed during this time of upheaval in the business. The big boys will try to come off as innocent and not part of the problem but the reality will be once all the dust settles that they (in my opinion) were as much to blame if not more so than anyone else. Sure the originators are just as guilty but the greed motive by the big banks fueled the wreck in my opinion.
I ran across an article written by Barry Ritholtz who is Chief Market Strategist for Ritholtz Research, an independent institutional research firm. He “claims” that JP Morgan/Chase sent out a memo instructing their mortgage brokers on how to get questionable loans approved by their system.
Now if that is a fact it is pretty revealing about the tactics of at least this bank in contributing to the problem we have today. Think about it, a Federally Chartered Bank instructing originators on how to produce fraud in their system. I don’t acknowledge that this is factual but sure looks like it, you decide.
Enjoy part one of two:
3 "handy steps" for getting a questionable loan approved by JPM Chase's (JPM) automatic system:
1. Lump all of an applicant's compensation as the applicant's base income, rather than breaking out commissions, bonuses and tips.
2. Do not disclose use of gifts for down payments.
3. If all else fails, simply inflate the applicant's income. "Inch it up $500 to see if you can get the findings you want. Do the same for assets.
Thus reads an internal memo from Chase that accidentally found its way into the hands of journalist Jeff Manning of The Oregonian. It was the basis for an article titled; Chase mortgage memo pushes 'Cheats & Tricks'.
Fraud has been a frequent theme of ours regarding Housing during the Boom, circa 2001-06. From appraisal fraud to the payola of the Ratings agencies, the entire system has been corrupted. Some will act as apologists for the worst tendencies of the banking industry, and others may debate who is to blame. We long ago reached a verdict as to where the culpability lay.
Anyone with even a modicum of experience in the mortgage industry will confirm the rampant disregard for lending standards and the corner cutting and shortcuts that were all but official corporate policy during the boom years. There was headlong rush to originate, process and securitize mortgages -- and the ability to repay the loans be damned. (Predatory Borrowing my ass!)
Part 2 tomorrow,
More to come
Lonny
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Some how or another you conjure up images of Charlie Brown, the original round headed kid. Now that I think about it you have some Charlie Browenian tendencies. Loan officers and processors seem to always find ways around the system. LP and DU had some nuances that could be manipulated to "tweek" the system into giving an approval. Pressing the automatic underwriting system by charging all or some of the parameters to see what might work is "sop". Falsifying records to apparently meet those records is someting else. The industry rewarded too well those who found no problem taking that last step.
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