Mortgage applicationNow that we're in the midst of the post-housing bubble foreclosure mess, it's easy to lose sight of part of how we got here: "liar's loans."

Liar's loans were mortgages that didn't require the wannabe borrower to prove she could repay the loan. They came in various flavors, allowing the borrower to state without proving her income, or assets, or both. These loans violated all the basic principles of underwriting, the process banks abandoned during the housing bubble. And it's no wonder most are ending in foreclosure.

And as a fax-email exchange first posted by the blog Foreclosure Fraud shows, the fraudulent nature of these loans was not only no secret at the banks, but bank staff steered applicants into filling out mortgage applications with false information. While I realize what follows is a single exchange, keep in mind when reading it that:
  • It involves a "Senior Loan Officer" -- how rogue can the behavior be?
  • The tone and details indicate this was a normal activity for at least this employee.
  • While it involves a JPMorgan Chase (JPM) loan, it cannot be true that Chase was the only mortgage lender behaving this way. Nothing that's come out to date about housing-bubble loans suggests Chase was unusually irresponsible. To the extent a big mortgage lender has gotten that rep, it's been Countrywide, which Bank of America (BAC) swallowed.
  • The borrower was sent documents and apparently was asked to sign them. Rather than sign them, the borrower asked questions. When reading the questions, think about the idea that the borrower was asked to sign these papers.
  • Finally, the borrower seems pretty sophisticated. Imagine how the process would work with a less sophisticated one. would they ask any of the questions?
So, here are the key bits:

On Sept. 25, 2006, aspiring borrower faxes Marc Bristol, senior loan officer of JPMorgan Chase Home Mortgage, regarding a mortgage application:
"I have the following concerns with the documents you sent me:

(1) I do not make $34,000 a month or anything close to this figure. I am not comfortable signing a document with a number I can not document in some form.

(2) There are repeated mentions that this is an adjustable rate mortgage. I could find no mention of the frequency and amount of the adjustment. I need this.

(3) I do not wish to escrow insurance or taxes. I will pay these.

(4) Apparently this is a $417,000 first and a $70,000 second. Where are the documents for the second? What is the rate, how adjustable, what are the costs, what is the term? Why are we doing it this way?

I will need the information and answers I have requested before I can execute and return the documents."
And the borrower cc'd someone else, presumably a co-applicant, given Bristol's same-day emailed response, which is as follows:
"Gentlemen,
I hope all is going well you. [sic] This e-mail is in response to the fax you had sent me. I'll address each numbered concern:

1. This is a stated-income deal. We had to state an amount that will be consistent through each deal. There are certain ratios that have to be met for income to debt. With [property 1] AND [property 2] AND taxes and insurance on your current, this is the figure that made the ratios fit. Since you have ample equity and assets, along with great credit, this where the luxury of a stated program comes in. It will not need to be documented. If there is a form 4506 (request for tax transcript) in the package that needs to be signed, it is only to verify that you FILE your taxes.

2. This is a loan that is listed for 5 years. The initial fixed, locked-in rate will be good for 5 years. After that it turns into a 1 year adjustable, meaning that, on it's [sic] 1 year anniversary, it will adjust, adding an index (1 year LIBOR) and a margin (2.25%) together. The maximum cap is 5 years over the life of the loan.

3. Escrows will be waived. The only reason they show up is for qualifying purposes. If they were on the Good Faith Estimate, I apologize. Please remove ANY "reserves deposited with lender" and initial.

4. The route we took to get the absolute best rate, was keeping the first mortgage at a "conforming" or "conventional" amount. 417,000 is that maximum amount. Once it went to a "JUMBO" or "Non-Conforming" loan amount, the rate jumps .25%
The second mortgage of 70,125 is to avoid mortgage insurance and allow you to put less down. The ideal goal would be to pay that one down and use it for future purchases.

I appreciate all your business and want you to be as comfortable with me as possible. I know we've had some delays that seem a bit silly, but I guarantee that I'm laying the foundations for these deals and several more. Once we get these initial few closed, it's smooth sailing from there on out. If you'd prefer a sit-down sometime this week, please let me know. I know you gentlemen are busy, but I want you to be confident AND comfortable with me.

Respectfully,
-Marc

Marc S. Bristol
Senior Loan Officer

JP Morgan Chase Home Mortgage
When I reached out to Chase for comment on this 2006 exchange, spokeswoman Daisy Cabrera said: "Our disciplined underwriting requires that we verify income on all mortgage applications." I'm sure that's true these days, and it was probably true pre-bubble, but as to those heady bubble days? The fax/email exchange speaks for itself.



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18 Comments

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nome

SunTrust stop their C-P Loan Program as of August 14, 2012
Anyone have any success in court system against SunTrust CP loan conversions?

August 22 2012 at 4:45 PM Report abuse rate up rate down Reply
Ellery

2945 Lakeshore Dr. is the address in question.

Why would the borrower be taking a $487,000 mortgage out on a manufactured home that was purchased just one year earlier for $155,000.

Sounds questionable from both sides of the fence. Is the author fully investigating this story?

January 29 2011 at 8:41 PM Report abuse rate up rate down Reply
execmortit

I will being going to federal court in Bryson City, NC on 01/31/11. Myself, along with 12 other individuals purchased CP loans through the preferred lender on the project Suntrust Mortgage Bank. The Suntrust loan officer placed all of the customers in NIV (NO Income Verification) loans just like mentioned in the article. He filled in the application for all the customers without any validation from the individuals, did not send out any disclosures and did not have any initial signatures. Loans were approved, closed and funded. What next? The mortgage industry melts down and Suntrust cannot sell the mortgages on the secondary market. This means that Suntrust must portfolio these loans which would hinder their reserve ratios even more. Solution? All mortgages were paid on time and up to date. Suntrust asks for income documentation after closing and funding 6 months later and accuses customers of committing fraud. Their grounds for fraud is that we signed the closing docs that their loan officer filled out and did not provide us disclosures on all in which Suntrust does not deny. Amazing! Help from the regulatory agencies- FRB,OCC, State banking & finance, the standard reply is we will need to seek relief through the courts. Yeah, lets go to court against a bank with unlimited funds assisted by TARP (The peoples money) as they try to bleed us out and supress evidence with their large retained law firms. Why does the court put everything under confidentiality on a simple contract case???? When this goes to court hopefully a lot of dirt will become public. I would love for the media to pick up on this and make some inquiries.

January 25 2011 at 9:47 PM Report abuse rate up rate down Reply
mamc707

EVERY BODY AND HIS/ HER GRANDMOTHER IS WRITTING ABOUT THE PROBLEM, WHO LIED, WHO STOLE, AND WHO IS TO BLAME. NO ONE IS FIXING THE PROBLEM!!!!!

WASHINGTON POWERS THAT BE LIGHTLY SLAPED BANKS ON THE HAND ( NOT TO HARD ) SO AS NOT TO GET ELECTED / REELECTED ( I WAS UP AT MODNIGHT WATCHING HE HEARINGS )

THE FACT NOW IS THAT THERE IS AND DO NOT LOOK LIKE ANY HELP FOR THOSE OF US WHO CAME IN WITH CASH AND CAN PAY NOW ( MABY FOR THE NEXT 2 YEARS ) "NO ONE CAN PAY A LOAN THAT WILL GO UP EVERY YEAR, FOR 25 YEARS". ALL WE NEED IS A 30 YEAR FIX RATE AND WE WILL KEEP PAYING FOR OUR HOMES AND BE HAPPY.

January 21 2011 at 2:01 PM Report abuse rate up rate down Reply
glassblock9

does marc bristol still work for chase? i bet he does.

January 21 2011 at 7:55 AM Report abuse rate up rate down Reply
Wayne

If all this is known, and believe you me, there are articles in all major web sites, youtube,CNN, aol and the likes. Why is there nothing being done? What is taking so long and why have so many lost so much all because of these banksters? Why haven't the "Serve and Protect" people who we pay out of our hard earned money, helped us. WHY? What is taking so long? These very same people get to enjoy health care, vacations, money under the table, ect. I just want to know WHY?

January 20 2011 at 12:56 AM Report abuse +2 rate up rate down Reply
1 reply to Wayne's comment
h8tluzn65

The reason nothing has been nor will anything be done is because Wallstreet and Corporate America owns the politicians, including the president. This was proven when they bailed out banks and the failing auto industry. To this very day, the citizens got nothing but empty and broken promises. When the "small guy" commits fraud, he/she receives the maximum criminal penalty. However, when banks committ acts resulting in billions of lost dollars, hard working Americans losing their homes and jobs, nothing is done. The banks were caught red-handed "fraudulently" foreclosing on properties and nothing was done. Key personnel within the banks testified to committing the fraudulent acts as instructed by the banks and nothing was done. Get ready for a long and bumpy ride before it's over:-/

January 20 2011 at 2:07 AM Report abuse rate up rate down Reply
jaxprime1

Thia letter is surely proof that the big banks produced their fair share of these type of loans. Funny how when all of the mortgage mess started coming out, congress and the big banks and other regulators were quick to point the finger of blame at the mortgage BROKERS and their industry instead of admitting their own level of guilt.

January 19 2011 at 8:18 PM Report abuse rate up rate down Reply
h8tluzn65

Although the banks/lenders required a form 4506 to be signed at closing, they were never used as the intended tool they were designed, which were to verify income. This is where the banks failed in their responsibility to perform their audit functions and due diligence to the investment banks and investors buying these loans by submitting the 4506 form to the IRS to verify income reported on the loan application. This is a function that should have been performed before these loans were bundled and sold on Wallstreet. If this simple function would have been performed by the banks/lenders, this real estate crisis could have been prevented or at least greatly minimized damages to the industry and our economy.

January 19 2011 at 7:12 PM Report abuse rate up rate down Reply
1 reply to h8tluzn65's comment
jaxprime1

The 4506 Form was only valid for a period of 60 days from the date of it being signed by a borrower. There was no way any bank could close a loan, and then be able to audit all of these types of loans within that period of time and still get it securitized and sold to wall street. Your statement is correct but the bottom line conclusion is flawed in its ability to have occurred as you have suggested.

January 19 2011 at 8:21 PM Report abuse rate up rate down Reply
Wayne

Hey Jkennedy .. Love your comments ... aren't you just exhausted? I am. Can't find an attorney with-out them wanting more then the house is worth. I went cheap with a local Real Estate attorney and I found out I knew more then he did. How frustrating is that? So now I have dropped him and now I went and called the Arizona Attorney Generals Office to make sure my complaint was still on file. It is. So I guess I will wait for the Arizona Attorney Generals Office does something. I refuse to pay another attorney one more dime when I think this is so simple and criminal charges toward bank of america would be so easy, It behoves me that no lawyer would take this Pro Bo-no. Hell they could do it as a side job and together we both could make money and see Justice Served. I just don't get it. I don't think the Judges are smart enough on all of this. This white collar crime is just out of their league of expertise. However I am so tired.

January 19 2011 at 11:50 AM Report abuse rate up rate down Reply
jkennedy806

Banks profit 6 figures on foreclosures & short sales, here’s how
Indy Mac was seized by FDIC 6/2008
FDIC sold Indy Mac’s assets to One West bank, 3/2009
Guess who owns One West? 3 guys, Goldman Sachs vice president Steven Munchin, and big time Goldman Sachs billionaire investors George Soros and John Paulson.
One West purchased these assets from FDIC at 70% of first mortgage values, and HELOCS at 58% of value.
FDIC promised to cover 80-95% of any losses One West may incur from home owners not making their payments.
In the event of short sale or foreclosure, the loss is calculated from the original amount purchased, not what is currently owed, or what the house is worth. Huh. Not too fair….
They give an actual example of a the numbers on a real case:
A new home owner took out a mortgage of $478,000.
Some time later, after he could not make his payments for six months, the bank adds $7,200 for missed payments. (Garbage fee’s)
$478,000 + $7,200 = 485,200
One West bought this loan for 70% of $478,000 = $334,600
Now, there is a short sale cash offer of $241,000 Take the $485,200 ‘owed’ and reduce it by the cash received from the short, and you get $244,200.
According to One West, they are losing $244,200.
Now, the FDIC is covering 80% of the loses One West incurs. So, if you take the $244,200 One west says it is owed, and times it times 80%, you get $195,360.
The FDIC pays this $195,360 to One west.
The short pays $241,000.
One West gets $436,360.!!!!!!!!
Remember, One West paid $334,600 for this loan!
Profit $101,760 thanks to this insane arrangement.
But wait, it gets better.
Still, the house was sold for less than the full loan amount.
One West forced the borrower to sign a promissory note for $75,000
One West profits $176,760
Read it again if you do not get it.
I think it is clear why they are not doing loan modifications.
FDIC just announced they need to start borrowing money from the treasury;
the place Goldman Sachs guys called home before they called One West Bank home.
And I wonder why I am cynical.

January 19 2011 at 9:10 AM Report abuse rate up rate down Reply