It might seem like ancient history now, but not long ago the mortgage industry was turning ordinary people into millionaires.
One was Sharmen Lane, a high school dropout who, like many other young women during the boom, found her way into an obscure banking job with the clumsy title of “mortgage wholesaler”. Her experience – and the experience of other wholesalers like her – offers insight into the recklessness and indulgence that led the industry to ruin.
The development of the mortgage loan wholesaler business is one of the most curious of the real estate bubble. These wholesalers work for banks and other lenders. The job of the wholesaler is to buy loan applications from independent mortgage brokers so that creditors can turn them into loans. Wholesalers are paid on commission: the more loans they generate, the more money they make. During the housing boom, creditors typically approved loans and then wrapped them up in the form of financial securities. This trajectory – from mortgage brokers to financial securities to wholesalers to creditors – has proven to be a straight path to disaster.
But, as the real estate bubble swelled, wholesalers – albeit hidden from public view – became high-income superstars. Lane who was a manicurist before joining the now defunct New Century Mortgage subprime organization in 1997, says he made $1 million in 2002 and $1.2 million in 2003. Eventually, business went into a frenzy . Several wholesalers have started flooding mortgage brokers with offers of loan applications. Some brokers have chosen to exercise their power by asking for something in return for their business: sex.
Dozens of former brokers and wholesalers say trading in sexual favors was so common it was part of what was to be expected. Lane recalls a visit to a mortgage brokerage near San Jose, Calif., where the manager made an indecent offer to him in his office. She says she rejected his advances, and that he hadn’t sold her any records. But other women wholesalers had no such qualms about crossing the barrier. “Women who had sex to get loan offers became known very quickly. says Lane, who left New Century before its bankruptcy in 2007 and now works $200 an hour as a life coach and speaker in New York City.»
The corruption of wholesalers
Investment bubbles have always generated excesses, and real estate is no exception. Abuse goes far beyond somersaults. Court records and interviews with scores of industry players also suggest that wholesalers bribed other industry employees, produced fabricated documents, and trained brokers on how to break the rules. And they weren’t the only ones. Brokers, who work directly with borrowers, altered and destroyed documents. Underwriters, bank employees who approve mortgages, also went overboard, demanding secret payments from wholesalers to make loans they knew to be fraudulent. Some employees who have reported these wrongdoings have been harassed or fired. Federal or state prosecutors are currently scouring the rubble of the real estate and financial sectors for criminal activity.
Now the wholesalers, who for a brief time came to the fore, are an endangered species. The failures of big subprime lenders like New Century, BNC (an entity of Lehman Brothers), and Greenpoint Mortgage, owned by Capital One, have produced thousands of unemployed. Some donors still in business have reduced their wholesale activities.
In the end, the wholesalers saw their trade taken away by the same people who had allowed them to exist: their supreme leaders on Wall Street. At the time of the boom, investment banks bought as many loans as they could in order to consolidate them and turn them into financial securities. In 2006, the top 10 investment banks, including Merrill Lynch, Bear Stearns, and Lehman Brothers, sold mortgage-backed securities worth $1.5 trillion, up from $245 billion. dollars in 2000. To keep the supply of loans coming, investment banks were increasingly taking over the leading players in the industry.
First, they start buying from small, independent wholesale businesses. Then they granted billions in subprime loans to creditors. Then they took stakes in some, and simply bought some others. At the height of the frenzy in 2006, the top 6 investment banks racked up a total of $2.2 billion to buy subprime companies.
This gave Wall Street the power to demand more subprime loans, which paid the highest interest rates and were the most profitable. As national account manager for Deutsche Bank, Mark D. Toomey bought loans from subprime lenders to convert them into financial securities. Sometimes, he says, he “twisted his arms” to get more loans. “Nobody had the courage to say no. said Toomey, who left the bank in 2007. Deutsche Bank declined to comment.
But above all, brokers and wholesalers were happy to comply. After all, the more loans they took, the more they got paid. A former wholesaler from Northern California, who requested anonymity, joined Suprime Greenpoint Mortgage in 1997, straight out of school. By 2004, she said, she was making several hundred thousand dollars a year. She had a driver available to take her and her friends to “exclusive clubs, restaurants and parties” as she pleased, and invited friends on shopping sprees at Neiman Marcus, Gucci and Louis Vuitton. “It was the time of our lives. says the woman, who now works as an account manager for another creditor in the area.
Brokers say the women wholesalers were unfamiliar with the intricacies of finance – but tapped into other assets in their quest for more loans. “You had boiler rooms of brokers, young, predominantly male, and in which was to evolve a superb wholesaler, hot, who moved from one office to another. says Rick Arvielo, president of New American Funding, a mortgage brokerage firm in Irvine, California. “Most of them did not know the product. »
Of course, it is common practice in many industries for companies to hire attractive salespeople. What is more, on Wall Street, where the scandalous stories of erotic dancers animating the periods of closing of the Stock Exchange, are frequent. (end of the 1st part)
