Wednesday, April 30, 2008

Anatomy Of Fraud

The WSJ has a great story on how fraud at Countrywide started and spread. It starts with the Fast and Easy program

Fast and Easy borrowers aren't required to produce pay stubs or tax forms to substantiate their claimed earnings. In many cases, Countrywide didn't even require loan officers to verify employment, according to an October 2006 presentation by Countrywide's consumer-lending division. That left the program vulnerable to abuse by Countrywide loan officers and outside mortgage brokers seeking loans for customers who might have been turned away if their finances had been more closely scrutinized, according to three current and former Countrywide senior executives and to several mortgage brokers who arranged loans through the program.

First -- naming a lending program fast and easy? That just doesn't sound right, does it? It reminds me of a late night TV commercial. And there was no oversight of the brokers who obviously needed some serious oversight.

And get this:

A spokesman for Countrywide says that Fast and Easy loans are not plagued by defaults. As of March 31, about 3% of Fast and Easy loans were 30 days or more overdue, compared with 3.5% for Countrywide's fully documented prime loans, he says. Fast and Easy borrowers, he says, had to meet credit standards that were tougher than those for prime loans requiring full documentation.


During a conference call with investors last July, Countrywide acknowledged that Fast and Easy loans were riskier than fully documented prime loans. A chart provided to investors showed that a borrower who wasn't required to document income would be at least 50% more likely to fall behind on payments than a similar borrower who did provide documentation.


The quarterly financial results, which included $3.05 billion of credit-related charges, did not provide details about the performance of the company's "no-doc" loans, including the Fast and Easy ones. Late payments increased across the board: About 36% of "subprime" loans to people with weak credit records were at least 30 days overdue, up from 20% a year before. For all loans serviced by Countrywide, a category mostly made up of prime loans, the delinquency rate was 9.3%, nearly double the year-earlier 4.9%.

So -- Countrywide just says there are no problems with the loans, but doesn't release the figures to back that up. And during another conference call, the company admits the possibility of problems are a lot higher. Now I'm really suspicious, especially considering Countrywide's deteriorating reputation.

And here's a great story about a loyal and trustworthy employee:

In late 2001, mortgage broker Kourosh Partow got a job in Countrywide's Anchorage, Alaska, office, despite being under investigation for lending abuses in Wisconsin, where his license was revoked several months later. Mr. Partow began writing Fast and Easy loans for another person who was speculating in real estate, federal prosecutors later said.

"In each instance, Partow simply falsified the borrower's income and often bank accounts so as to make it appear that the borrower easily qualified for the loan program offered by Countrywide with no further internal checks necessary," the Justice Department said in a filing last summer in federal district court in Anchorage.

Countrywide sold some of the loans originated by Mr. Partow to Fannie Mae, and neither firm detected the fraud for years, according to documents filed in the case.

So -- the guy is under investigation for fraud. Let's hire him! Yeah, and then we'll put him in a position where he can make more loans. And the best part? The US taxpayer gets to foot the bill! What a deal..