Former Mortgage Salesman: I Was "Shunned" for not Pushing "Nightmare Mortgages"
Last week, Joe Nocerra took a crack at the conservative Zombie Lie that government regulations forced the poor, vulnerable banks to lend money to poor people:
So This is how the Big Lie Works.
You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings.
You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.
Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis.
Bloomberg reported last week that the Republican line has been rejected “by the chairman of the Federal Reserve, many economists and even three of the four Republicans on the government commission that investigated the meltdown,” but Romney & Co. don’t care about facts; they care about convincing voters to believe ideologically-satisfying nonsense. Sure, the evidence points to a lack of regulations, but since when does evidence matter?
The thing that makes this storyline so absurd is that it requires one to pretend that there was no profit motive at play. Wall Street, having broken the traditional connection between lender and borrower through the securitization process, was making a fortune, and it was the hunger for a fat stream of fees, rather than desire to conform with some nonexistent regulatory requirement, that caused them to lower lending standards to nothing.
This story, by Michael Hudson, offers a glimpse behind-the scenes in the mortgage industry:
Greg Saffer says conscience and common sense prevented him from pushing the product his bosses wanted him to sell – “Option ARM” home loans that, he says, put homeowners at risk.
“I’m not going to steer people into a loan program that might not be good for them just because it’s more profitable for the company,” he says.
JP Morgan Chase Bank counters that Saffer didn’t sell because he didn’t have the chops to close deals.
Saffer charged in a lawsuit filed in 2009 in Los Angeles Superior Court that he was forced out of his job for refusing to take part in “fraudulent schemes.” In testimony in the lawsuit and in documents in arbitration proceedings, he claims WaMu retaliated against him because he refused to push “toxic” Option ARMs and mislead borrowers about how the loans worked and how much they would cost.
Saffer’s case is notable because, as a salesman, his job description was different from most of the ex-employees who’ve made whistleblower claims against mortgage lenders. Many were fraud investigators or loan underwriters who claim they were punished for uncovering fraud by sales reps and sales executives.
Saffer’s legal claims paint him as one of what may have been a distinct minority among the mortgage industry’s sales corps during the nation’s home-loan frenzy – a salesman who said no to the dirty tactics that became pervasive during the boom. Former industry insiders say salespeople who refused to go along were often weeded out, to make way for others who had a more pliable sense of right and wrong.
Saffer’s attorney, Carney Shegerian, represents two other former WaMu sales reps who, like Saffer, claim that WaMu fired them because they resisted pressure to engage in improper lending tactics. Their case has also been ordered into arbitration.
Shegerian says his clients not only lost their jobs because they refused to go along with the practices at the bank, “their good names were totally soiled for having been employed by WaMu.
WaMu, the nation’s largest savings and loan, was putting up big numbers peddling exotic home-loan products that, just a few years before, had been on the margins of the mortgage industry.
These included subprime mortgages designed for borrowers with weak credit as well as “payment-option” adjustable-rate mortgages generally targeted at borrowers with good credit.
Option ARMs allowed borrowers to make minimum payments that didn’t keep pace with interest charges on their loans. In other words, loan balances would grow rather than drop as each month ticked by. It’s known as a negative amortization loan, or “NegAm” in industry parlance.
Option ARMs accounted for roughly half of Washington Mutual’s home-loan production during the mortgage boom years, according to federal regulators.
WaMu chief executive Kerry Killinger touted Option ARMs as the bank’s “flagship product.”
It was no wonder.
WaMu earned more than five times as much on Option ARMs as it did on fixed-rate home loans, according to internal company documents. Mortgage investors on Wall Street loved them because their growing loan balances and escalating interest rates translated into big returns.