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A Mortgage Broker on Rapid Credit Rescores for Subprime Loans

BEGIN TRANSCRIPT

RUSH: Laurie, who can't say where she is.  Is that right?  She's worried about lawsuits, so she can't say where she is.  Laurie, welcome to the EIB Network.  You're worried about the lawsuits from what you're going to say here?

CALLER:  Well, it's possible, Rush, and, by the way, it's an honor to speak to you.

RUSH:  Thank you.

CALLER:  I worked as both a packager and an advertising executive for a mortgage brokerage firm.  I saw the rise and fall of the housing market and what infuriates me about when Obama speaks or Barney Frank or anyone else who talks about these mortgage-backed securities and everything that happened is that nobody knows the real truth about what goes on in the mortgage business and why it failed.  It's not just people going to the bank, getting a loan, paying the bank back.  You know, in the late '90s and early 2000s when real estate prices were sharply on the rise, you know, anywhere between '99 and '03 depending upon what part of the country you lived in, housing prices were on the rise dramatically, and there was a lot of pressure at Fannie and Freddie to get mortgages out the door. 

We had a representative from FHA, HUD, Fannie and Freddie, all of which visited this mortgage broker's office.  And when Fannie began this idea of packaging these things as securities and grouping them together, you'll find that the number of mortgage brokers for residential mortgages in the country skyrocketed because they were suddenly getting what we call wholesale lines of credits from banks.  So mortgage company A or B goes to the bank and he gets a $15 million line of credit called a wholesale line.  He fills that line up with mortgages and then they're guaranteed, they're bought off. Fannie and Freddie buy them up immediately, repackage them, or leave them whole and send them out to places like Lehman Brothers.  And I worked for a company --

RUSH:  Wait, wait, wait.  Hold a minute.  Why would somebody like Lehman Brothers buy these things?

CALLER:  Well, at the time, no one knew that they were insolvent, number one.

RUSH:  Why?  These were mortgages, a lot of them -- I'm sure you're not talking explicitly here about subprime, but a lot of these mortgages were made to people that weren't paying back, there wasn't an income stream on these mortgages.

CALLER:  Yeah, but here's the problem.  People talk about subprime.  I'll bet 95% of the mortgages that went out of our office were subprime even if they weren't rated that way because I'll tell you the pressure we got from somebody else.  We used to get visits by our credit representatives from the three major credit bureaus.  They were under a lot of pressure to develop a program to allow people to, quote, unquote, fix their credits faster so --

RUSH:  Well, who's -- (crosstalk)

CALLER:  -- type of loan --

RUSH:  Who was the source of this pressure, Laurie?

CALLER:  Well, according to the people from the credit managers bureau, they were getting that pressure from Congress and FHA and Fannie and Freddie that they weren't doing enough to help people --

RUSH:  The government.

CALLER:  Yeah.  The credit agencies were being unfair because they weren't doing enough to allow people who had had financial problems to fix their credit.  So here's what happened.  It went from, yeah, maybe it took a long time to fix your credit to what we call rapid rescore process.  Our office could literally, in one day, take everybody's bad credit issues, write a one-line sentence about each one, fax it over to the credit bureau that we were members of it that we paid to be members of, and, boom, within an hour, they were dropped off and the credit was rescored.

RUSH:  Why?  Why would this be done?

CALLER:  Right.  You tell me.  Because people wanted people to qualify for mortgages.  Especially at the beginning of this problem was what they call nonincome mortgages, people who are unemployed, 1099s or W2s --

RUSH:  (laughing) What are we hearing, nonincome mortgages.

CALLER:  Yeah, that was the original part of this rapid rescoring problem.  If you had a business or you were a small business person and you didn't necessarily have a 1099 or W2 or your books didn't show or you didn't want it to show that you had enough to pay for this loan, all you had to do was walk in the door with a credit score greater than 700.

RUSH:  Okay.

CALLER:  And I can tell you that if you were anywhere up north of 580 we could rapid rescore you to 700 within an hour.

RUSH:  Let me cut to the chase here.  So everything that's happened since all this fell apart is all these people that you had to deal with that were forcing all this credit readjustment, all the crime labs, all the churn, all the volume, everything being said now is by people to cover their rear ends?

CALLER:  Yeah.  And then what happened is I ended up going to work for a firm on the East Coast that saw the beginning of the end here and tried to start buying small portions of these packages from people like Lehman Brothers because they knew they wouldn't get bailed out because they weren't Goldman Sachs.

RUSH:  I gotta break, I gotta break in five seconds.  Don't lose your train of thought.  We'll come back to you after this obscene profit time-out, which does not consist of any mortgage company.

BREAK TRANSCRIPT

RUSH:  This is funny. Michael Moore was reading the Washington Post the other day and he read that Obama has collected more campaign donations from Wall Street banks than all of the Republican candidates combined.  So now he's beside himself.  He was on CNN. (imitating Moore) "What does this mean? Wall Street's got their guy and it's Obama?  Whoa, whoa, whoa, whoa."  His world's been turned upside down.  I tried to tell you people on the left, I tried to tell you, Wall Street is liberal Democrat, and its money is going to Obama.  And if any of you think that Wall Street is gonna take any kind of a financial hit if Obama gets his way after that speech yesterday, you have got a big wake-up call coming. 

Back now to Laurie who can't say where she is because she fears lawsuits.  She was in the mortgage business.  You know, I checked some e-mails during the break here, Laurie, and you know how people are reacting to your call?  It's tough to pick one thing, but your description of the rapid rescoring of consumer credit has sent people through the roof.

CALLER:  It should.

RUSH:  Yeah.  It should.  People's credit scores were just restored to 700, to perfect, just to qualify 'em for mortgages.

CALLER:  Yeah.  And it took literally less than 15 minutes at the end of the day.  I mean we could fax it over and have it faxed back and rapid rescored.  Now, did that hold?  If six months later they applied for credit, was that still there?  No, oftentimes it wasn't.  Which means that's all it was for.  You couldn't rapid rescore for a home loan unless you knew a mortgage broker.

RUSH:  Wait, wait, wait, wait, wait, wait.  You gotta let me in here for questions, 'cause this is blockbuster.  So the rapid rescore was a temporary rescore just to get people a mortgage, but that credit rating didn't survive if they tried to use it for anything else?

CALLER:  It wouldn't survive the next update from the credit bureau, from whichever of the major three.  If they're doing it quarterly, monthly, the next time that update came along everything was back on, everything was like it was before. I actually knew people who had friends that owned mortgage businesses and they would go in there to have them rescore them so that they could go get a car loan.

RUSH:  Okay.  So I'll tell you who's really ticked off about this hearing your call -- all the people who played by the rules.  They didn't buy anything they couldn't afford. What you're basically saying is that people who were unqualified were qualified on a temporary basis to go buy whatever they wanted, and then that paper, that mortgage, it was packaged with a bunch of other mortgages and sent down the trail where they tried to find value in it somewhere else along the line?

CALLER:  Absolutely.  And the people that played by the rules that got hurt by that were just the beginning of the bargain.  I worked for a company on the East Coast that went to work and started to buy small packages of mortgages that had already started to go bad.  The first package they bought was from Lehman Brothers.  And because these people were very savvy investors and real estate prices were still on the rise, they would negotiate these people out of their homes. They would give them what they could. They would take the homes back. They would sell them again to qualified buyers and for a very short period of time this was successful.  But if somebody wants to spend some time and Google this, at least four different states, prosecutors in at least four different states sued three of these groups doing this under RICO statutes.  I got scooped up in that.  That's why I'm worried.  I had to testify at three of those trials because somebody at the end of the day came back and said, "Well, they negotiated me out of my house and I shoulda gotten more because real estate prices were still on the rise."

RUSH:  What does that mean, they negotiated me out of my house?

CALLER:  Well, these groups would buy these mortgages that were already late from companies that had bought mortgage-backed securities that had started to get the idea that these things were gonna go bad.  'Cause here's the problem.  The vast majority of especially the nonincome qualified loans that were given out during this period of time and a huge majority of just regular loans were called ARMs, they were adjustable-rate mortgages, and 95% of them I would bet you were two and three-year ARMs given between '04 and '05.

RUSH:  Oh, jeez.

CALLER:  So at the end of '06 these two-year ARMs had started to circulate, they had become due, they had to refinance their house, and they had to now not only pay two and a half percent interest, they had to pay a reasonable interest rate plus, you know, just a regular amortization schedule.  They had to be paying principal down every month.  These payments in some instances were four and five times the original payment.  If they were paying a thousand dollars a month, now their payment was four or five thousand.  That's when this all started to go bad.  It's when the companies that have bought mortgage-backed securities tried to find a way out.

RUSH:  Right, exactly.

CALLER:  There were investors that moved in to try and help them do that, and as these people started falling behind on their loans, these people would try to negotiate with them to take whatever the value of the house was with prices still on the rise because no one realized the amount of poison that had been injected into the system yet.

RUSH:  See, I don't believe nobody knew the amount of the poison.

CALLER:  No, I think somebody did, but the public didn't.  The people who were falling behind in their mortgages didn't, and I have to say, too, Fannie and Freddie spread this stuff out so far and so wide that you would have had to really been in on the ground floor of this to realize how much, how many millions, billions, trillions, whatever it was in dollars of these securities were floating around in the open market, and I bet that if there's any FOIA left in this country, someone could find out that many, many, many of these packages went out, and if those loans were rapid rescores, they were in one package, and if they were actual qualified mortgages they were in another package.

RUSH:  If you were on the witness stand and somebody asked you to point a finger at one place, people wanted to understand who is responsible for this, could you do it?

CALLER:  I probably couldn't name any name, but I can tell you that it was Fannie and Freddie because every mortgage seminar that we went to -- remember the little Fannie, Freddie junkets they had in Chicago that people were upset about the $600,000 they spent? Those are relatively common in the mortgage business.  We used to go to them once or twice a year.  Fannie and Freddie were there, and they might as well have set up a carnival booth. I mean they were so excited about the fact that if you were a new mortgage business and you could get a wholesale line of credit, you could rapid rescore and qualify 500,000 people in a year, and they would back and buy everything you could send them.

RUSH:  It was on this basis that all the executives there were paying themselves these bonuses, right?

CALLER:  Yeah, because that's exactly what was happening, a number of mortgage brokers in this country I would bet you doubled or maybe even tripled between '98 and 2004.  I know that the office I originally worked for, the owner and two other brokers were the only brokers in the field.  By the time rapid rescore really got going he had 20 brokers in the field and he sat in the office and did nothing but pull in wholesale lines of credit.  And these wholesale lines of credit oftentimes -- well, one of the big things that was doing wholesale lines was WaMu and they're no more.

RUSH:  Yeah.  WaMu, and they are no more.  And, and a lot of others are no more, and Lehman is no more.  Laurie, I have some questions about the cases you're testifying in and I know you can't tell me, so could we get your number and stay in touch with you down the line, months or so, whenever this shakes out and query you further about it when it's safe for you?

CALLER:  Sure.

RUSH:  Okay, good, don't hang up, Snerdley will get your name.  And, by the way, would you like an iPad?

CALLER:  I have one, but thank you very much.

RUSH:  Okay, all right.

CALLER:  You could make me just as happy by continuing to do what you're doing.

RUSH:  Well, I appreciate that more than you know. I really appreciate that.  Hang on and we'll get a number and find a way to stay in touch with you but only when you -- Countrywide's no more, either, by the way.  Friends of Angelo.  So whenever it's safe for us to talk to you or for you to tell us more about it -- (interruption) no, Wachovia is not gone, it's Wells Fargo now.  At any rate, we'll stay in touch and I appreciate your doing that.  She's gotta testify in three days and I would love to ask her about the cases, but I'm not gonna put her in that position.  We'll find out from her later.  Thanks, Laurie, very much. 

END TRANSCRIPT

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