Stain Upon Mortgage Industry Will Not Be Easily Removed

Implications: Kerri Panchuk's article addresses the most significant intangible loss brought about by the subprime mortgage failures.  Namely,the loss of consumer borrower trust which may never be fully regained as long as predatory mortgage horror stories continue to capture headlines and replace mortgagor confidence with skepticism and even disdain.

Analysis: How bad has it gotten?  California offers some stunning examples of how blatant the hucksters have become.  Earlier this year California Attorney General Edmund G. Brown Jr.  shut down Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions, accusing the predatory lending companies of pushing homeowners into “illegal and unconscionable loans." The companies ran a complex predatory lending scheme using bait and switch tactics to victimize thousands of consumers in California, many of whom have already lost their homes. In March of this year the attorney general froze all the companies’ real estate and bank accounts and enjoined them from engaging in further predatory practices. The freeze order also included expensive cars and millions of dollars in private real estate. The AG also seeks an estimated $20 million in penalties and restitution.

So,how did these companies pull off the hijacking of so many borrowers?  Lifetime Financial, Nations Mortgage and Greenleaf Lending operated lending schemes to cheat homeowners by promising unrealistically low mortgage payments and then switching them to loans that do not match the original agreement. Telemarketers lure consumers by telling them that they are preapproved for a fixed rate loan of 5% to 6% which could lower monthly payments by hundreds of dollars.  Lifetime Financial arranged loans with hidden fees of up to $20,000. In addition to these fees, consumers found themselves with loans that had worse financial terms than their original mortgage. In some cases, consumers were saddled with monthly payments that exceeded their entire monthly income! Many borrowers either lost their homes to foreclosure or are facing foreclosure as a result of engaging in these transactions.

Telemarketers initially request only a nominal payment for a home appraisal. Appraisers then inflate home values to qualify the homeowners for much higher loans than are appropriate. The companies never provide copies of theses appraisal reports to consumers. Next, a salesperson shows up at the victim’s house, sometimes as late as 11:45 at night, with documents that are incomplete or contain terms that are vastly different from those originally promised. If consumers complain about the terms, the salespeople tell them that there is a mistake but they should just sign the paperwork to “keep this great deal.” If a consumer refuses to sign the documents, company employees forge the customer’s signature. In some instances, the forgeries are so blatant that the victims’ names are misspelled.

Sadly,these examples are not isolated to California.  Not at all.  They are cropping up across the nation.  It would be comforting to end this article with a bit of hope by saying something glib like
"One rotten apple can spoil the entire bushel",and that we must simply cull and prosecute the rotten apples.  However,I am afraid that the bushel is rotten and is now threatening the entire orchard!  The mortgage lending industry has a high hill to climb and it must do everything within its power to recapture the confidence of the American consumer.  No,the stain will not be easily removed.