Is This Woman The Smoking Gun Of The Mortgage Meltdown?
Meet Tracy Warren. NPR says she's not surprised by the mortgage meltdown because she was supposed to be in charge of preventing it. Tracy worked for a quality control contractor that reviewed subprime loans for investment banks before they were sold on Wall Street, and her company's biggest client was none other than Bear Stearns. Tracy says she found plenty of loans to reject. The trouble is, according to Tracy, after she rejected them... her bosses unrejected them.
From NPR:
"I'd see people who were hotel workers saying that they made, in California, making $15,000 a month so that they could qualify for a $500,000 home," Warren says. "If a hotel worker is making $15,000 a month changing sheets at the Days Inn, everybody would want to do it. It just really made no sense."
Warren has worked in the mortgage business for 25 years, the past five in quality control. Most recently, she was a contract worker for a company called Watterson-Prime, which did loan audits for investment banks. She says their biggest client was Bear Stearns, which recently all but collapsed because of its exposure to bad loans.
Putting Bad Apples Back in the Barrel
Warren thinks her supervisors didn't want her to do her job. She says that when she would reject, or kick out, a loan, they usually would overrule her and approve it.
"The QC reviewer who reviewed our kicks would say, 'Well, I thought it had merit.' And it was like 'What?' Their credit score was below 580. And if it was an income verification, a lot of times they weren't making the income. And it was like, 'What kind of merit could you have determined?' And they were like, 'Oh, it's fine. Don't worry about it.' "
After a while, Warren says, her supervisors stopped telling her when she had been overruled. She figured it out by going back later and pulling the loans up on her computer.
"I would look every couple of days, and just see, if it was a loan that I thought was a bad loan, I'd go back and see if it was pulled."
About 75 percent of the time, loans that should have been rejected were still put into the pool and sold, she says.
NPR says Tracy's story isn't the only evidence emerging that points to Wall Street. According to one report, some investment banks agreed to reject only a certain percentage of loans -- regardless of how many were actually bad.
Loan Auditor: Supervisors Covered Up Bad Loans [NPR]
(Photo: Getty)
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I would love to see her do a very public media tour and write a book.
Ha. I had a similar problem working at a huge corporation - I would give job interviews and decline applicants, but I'd be overruled by my boss. Then, I'd be called to task for hiring unqualified people.
makes me want to shower for just financing my car with Chase.
sweet deal though.
Yeah, yeah, yeah. Everyone's a whistleblower after the damage is done. It's nice that she thought it was wrong while it was happening, but come on...
It's like Iraq. Everyone was always against the idea, but somehow it happened anyway. Funny. I'm sure three years from now, some oil executive with a conscience will surely come out and say how wrong the price gouging in the late 00s was.
@lightaugust: Yeah, yeah, she could have blown the whistleblow earlier, like thousands of other people in the mortgage industry. At least she was trying to do the right thing at the time by rejecting the crappy loans.
For the record, I always was against the Iraq invasion, and so were a lot of people.
Sounds like every bank where there's a "Credit vs. Officer" conundrum. Usually the volume group wins, since the people that are compensated based on volume push a lot harder than those who earn flat salaries based on objectivity.
I agree, but also in hindsight, would it have made much difference? If someone came out and tried to blow the whistle when times were good, everyone would just say "No, it's fine, these people deserve a home. Besides, the market is only going up and they'll always be able to make their payments."
Technically, I don't think anything criminal has occurred. Granted, screwing up the US/Global economy to make a few million could easily be described as "treason."
Personally, I hope these supervisors are audited every year for the rest of their lives.
Very, very shameful. :-(
@lincolnparadox: If the companies knowingly misrepresented the quality of the loan bundles, that's fraud, and a criminal act. It'd be tough to prove though.
Uh, 'scuse me, but the borrowers were also committing fraud by overstating their incomes. That doesn't excuse the lenders from doing proper due diligence, but it took two to tango here, and "Wall Street" isn't solely at fault. The people who knowingly lied about their finances to get loans sure as hell don't deserve to get off the hook because they aren't easily classifiable as "eeevil" corporations.
So much of high finance and big business is just a semi-legal con game (the oil companies have been in collusion since the 30s when actual market competition almost drove them bankrupt). Until upper level management types and CEOs start doing some serious time for this kind of shit, nothing will change. Upper management types realize the edge of illegality they slide along, but they protect each other because they know if this money-funneling system (into their pockets) collapses, they'll either be in jail or forced to find menial work.
What you mean to tell me that the uber rich are corrupt and greedy and will stop at nothing to get more wealth? Say it aint so Santa!.... Santa...? Santa..?!?!?!?!
@B: In the NPR show (I was home sick today, and heard the story) they talk about how Wall Street would be liable for massive wire fraud, and that the DOJ is currently opening an investigation into their actions. It would be one of the biggest criminal cases in history, because not only would the companies be liable, but individual workers as well. There'd be thousands of defendants. Unfortunately, many of them will go unpunished, although enough of them have already lost their jobs and defaulted on THEIR mortgages, which is sufficient punishment.
@lightaugust: "It's like Iraq. Everyone was always against the idea, but somehow it happened anyway."
Thats what happens when the people don't rise up and confront their petty dictators. You decide which country I mean.
@buckfutt: Except, of course, nobody's letting them off the hook. Also, the borrowers wouldn't have been able to lie about their income if Wall Street hadn't changed the rules. Not to mention there is a lot of evidence of mortgage brokers either encouraging the borrowers to lie about income or falsifying records without the borrowers' knowledge
@lightaugust: I agree with your post wholeheartedly. This news would have done us some good two years ago. But right now it just seems to me like someone wants to ease their conscience a little bit for standing by while things like this went on.
Kudos for the Iraq metaphor, too.
Why does "Wall Street" (rich white people) think everyone below them is a thief when they were the one's who "threw the bad apples back in the basket" for that bonus back in the nineties?
Shaddup you got yours.
The blame doesn't fall just to one party. Isn't a loan app a legal document? If borrowers were lying about their income, aren't they breaking a law? And isn't it the lenders job to verify incomes? The list of questions goes on and on.
The more I learn about this fiasco, the more it sounds like everyone's eyes were bigger then their stomachs.
The 60 Minutes episode this past Sunday had a piece about the mortgage crisis. It was originally aired in January, but updated this month. I didn't see the original in January, but it was very interesting. Here's the print counterpart.
Lemme guess. The little guy will take the fall and the blame? The rich and powerful will get their asses covered, as the taxpayer's expense?
I'm psychic I tells ya, psychic.
FTR, I think housing prices need to fall to realistic levels that match up with average incomes. In general, I'm opposed to bailouts for the big or small.
@camelontherun: When I made the last payment on my Chase card and let my wife put it in the shredder, I felt as if I had just taken a hot shower.
@MsClear: In order for that to happen, builders need to start building more realistic-sized houses again. I'd say somewhere in the 1200-1800 SF range.
They won't go after individual buyers -- too much work for too little payoff. They might lean on a few to establish a pattern so they can bust a bigger broker, then lean on them to bust lenders, then the packagers, etc. But the real PR payoff is in busting the big fish.
@MsClear: I'm with you, overall.
I remember my in-laws recently talking about their first home...it cost "more than they earned in a year, put together" (and that was a huge commitment). These days, 3-5x annual income is not unusual, because that's all that's out there, even in middle-class areas.
I'd absolutely be a fan of "less house, more yard". With boomers driving the market and land becoming more expensive, the trend is the opposite.
An 1600 SF house in the neighborhood next to mine runs you about $450k. It doesn't really seem like the only problem is the size of houses. Granted, I don't live in a high-expansion area like California, but even still, the problem doesn't seem like it's with house size, it seems like it's with over-valuation.
And it was like 75% of the people who shouldn't have been allowed to graduate from high school were like given diplomas and like put in charge of like money.
@ Steaming Pile
We're hoping to buy something in the 1000 sq/ft range, or even a bit less. But I agree with you about builders. Mega houses have to go. And they will, what with the cost of energy.
This is a good time to state that my fiancee might leave me because her credit score is 785 and mine is 650ish. Honestly, I dont blame her, we're looking at home loans at the moment and I'm going to cost us $60,000+ over the course of the loan.
/j/k, she loves me and my score should be climbing soon, they gave me a card at 18, I never thought that that could be a bad thing, eeesh. In fact how do you give an 18 year old $25K in credit, that just doesnt even make sense. Oh, because they knew I'd eventually pay it pluss $8K. Anyway, I digress, yeah, the home loan industry has come down a bit off of it's coke snorting Ex popping days of the early 00s.
@Steaming Pile: "Realistic sized houses" Wow, that's awfully socialist of you. Ya know, to decide whats realistic for other people.
I love stories like this. I love to see people losing their homes, when they can't afford them.
I know it sounds mean, but it isn't. If you bought into a huge home that you couldn't afford, you were also driving up the prices for the rest of us. Now that reality is crashing down on all of you who needed 6,000 foot homes with eight bathrooms on your $2,000/mo income, it's going to slowly become more affordable for the rest of us who didn't want to go into absurd debt beyond what we could rationally afford (presuming we aren't forced to bail your stupid asses out).
As for scores and fiances. Problem solved. Don't get married. Duh. I wouldn't marry someone - - much less someone with bad credit and poor financial habits just like I wouldn't form an incorporation between my business and a failing business with no business plan, incoming and a massive amount of debt.
What am I supposed to say to myself in my head when I read "00s", as in "say how wrong the price gouging in the late 00s " or "coke snorting Ex popping days of the early 00s". The "naughts" or what? Just curious.
It's a terrible thing... for everyone else :P
Thanks to the mortgage/housing crash I can now look at houses that were way out of my price range just 5 years ago :)
@chewiemeat: @chewiemeat: I have to agree with you. This whole mess is the inevitable correction for an America that feels entitled to wasteful overconsumption, and a corporate economy willing to enable it.
@chewiemeat: Agreed, I actually wish more people were losing their houses at a faster rate, that way my wife and I would be able to afford a house sooner rather then later. I know there are a lot of other issues involved with this kind of stuff but the prices we are looking at are still unbelievable, it needs to be like 15-20% lower before the prices even start to make sense.
Bailouts piss me off.. because all it's doing is slapping the people in the face that realized that they can't afford a 1.5 million dollar house making minimum wage at McDonalds. People that worked hard, and took out a mortgage they could afford on a home that was small. Are they going to get anything? Not a chance.
@cubejockey: Why does "Wall Street" (rich white people) think everyone below them is a thief when they were the one's who "threw the bad apples back in the basket" for that bonus back in the nineties?
Shaddup you got yours
Wow so all poor people are black in your world too? That has to be one of the most racist statements I've ever seen posted here.
@kidgenius: Yes, exactly. If her bosses were rejecting her decisions, could she have found someone else to listen to her?
@khiltd: And it was like 75% of the people who shouldn't have been allowed to graduate from high school were like given diplomas and like put in charge of like money
Are you from the valley? Fursure dude totally.
@buckfutt: "Uh, 'scuse me, but the borrowers were also committing fraud by overstating their incomes. The people who knowingly lied about their finances to get loans sure as hell don't deserve to get off the hook because they aren't easily classifiable as "eeevil" corporations."
And they won't. They'll likely go into foreclosure (losing their houses and taking a significant hit to their credit rating), or else have to short-sell (losing their houses but preserving their CRs), or possibly having to go through Deed-In-Lieu process (as short-selling above).
They lose their homes in any event, and will quite possibly take a significant hit to their CRs. That's hardly 'off the hook.'
I love the fact that these companies have become so compartmentalized that one hand (the compliance department) rarely has a clue what the other hand is doing. I find this whole thing morbidly fascinating because the failures originated in a significantly less regulated financial sector (mortgages) and through various shady methods they offloaded the risk. Instead of entirely offloading it, they outsourced it to the good ol' US Taxpayers who have no choice but to pick up the tab.
jscott73: Don't get too happy about huge price drops. When prices drop, so do property taxes, and services have to be cut dramatically. Schools start to suck. Crime goes up because police departments have had to cut back. In addition, more owners walk away from their underwater mortgages, so you have more empty homes and more vandalism and ghettoization.
I used to have this discussion with people in CA who were dreaming of 50-60 percent drops. There are two sides to every price decline. You want gentle -- to give everything else time to adjust -- not precipitous.
@Me: Absolutely right. In locales where the most precipitous real-estate price drops have taken place, watch for property tax rates and assessments to shoot through the roof. Watch CA and FL in about six months, when towns start to figure out what happened to their property tax rolls. Tax rates will surge, assuming towns/counties don't start jacking up assessed values.
Either that, or they'll stop picking up the garbage and answering the 911 line when it rings.
@Me: Agreed, which is why I said I know there's a lot more to it then that, I would like to see it drop fast only to be able to buy a home faster but I know better then that, slower is better. As with the last couple housing bubbles they were symetic about their peak, that is 3 years up 3 years down. This last one was about 5 years up, 2000-2005, so five years down, 2005-2010. I said this early last year, seems to be on track for now.
Ms. Warren should write a book. I'm sure there would be a lot of legal hurdles to deal with in terms of naming names, etc, but my lord what a bestseller that would be.