All the Devils Are Here [141]
To put it another way, it was hard to imagine anyone who wouldn’t qualify for a Countrywide subprime loan during the final throes of the housing bubble. In a lawsuit that would later be filed by the Mortgage Guaranty Insurance Corporation, which had insured many Countrywide loans, investigators went back and dug up details of some of the loans Countrywide had made during the subprime bubble. One loan Mortgage Guaranty investigated was for $360,000 made to a woman in Chicago who was supposedly earning $6,833 per month as an employee of an auto body shop. According to her loan application, the house she was purchasing was intended to be her primary residence. In truth, the woman was a part-time housekeeper who earned about $1,300 a month. She “posed as a front buyer to help her sister... and brother-in-law... acquire the home.” A few months after closing on the house, “[she] returned to her home in Poland because she was unable to find steady work in Chicago.”
Was this an example of a borrower pulling the wool over the eyes of the loan officer? Not exactly. “[The borrower] reported to MGIC that she disclosed her true employment, her actual income, and her intention to help her family purchase the property to the loan officer.” The loan officer told her she could “pose as a front buyer, obtain mortgage financing for her sister and brother-in-law, and avoid personal responsibility for the loan.” When the loan officer learned that she was a friend of the son of a man who owned an auto body shop, she “helped prepare a document” for the man to sign stating her employment and monthly income. Then she forged the man’s signature.
Another borrower was supposed to be a dairy foreman making $10,500 a month; he was really a milker at the dairy earning one-tenth that amount, and buying the house for his son rather than himself. The loan officer, according to the lawsuit, told him that he would be “lending your son your credit” and would not be responsible for the monthly payments. The borrower, who didn’t speak English, simply signed where the loan officer told him to. He got a $350,000 loan.
A “sales executive for Bay Area Sales and Marketing earning $8,700 a month” had actually been unemployed since 1989 and had no income. (And there was no such business as Bay Area Sales and Marketing.) She got a $398,050 refinancing. A house in Atlanta that had been appraised for $395,000 was worth no more than $277,000. A borrower’s tax return, claiming earnings of $17,661, was fraudulent, and his bank account was nonexistent. A borrower who claimed to be an account executive for “GNG Investments in Santa Clara, California”—another nonexistent firm—turned out to be a janitor making $3,901.58 a month. She never made the $30,000 down payment Countrywide was claiming. She got a $600,000 house.
According to the Mortgage Guaranty lawsuit, “by about 2006, Countrywide’s internal risk assessors knew that in a substantial number of its stated-income loans—fully a third—borrowers overstated income by more than 50 percent. Countrywide also knew that many appraisers were overstating property values to drive originations by making loans appear less risky... Countrywide deliberately disregarded these and other signs of fraud in order to increase its market share.”
But those subprime loans weren’t the only thing that increased the risk drastically at Countrywide. In that schizophrenic e-mail Mozilo had sent back in May, he also wrote that “we must pay special attention to helocs [home equity loans] and pay options. With interest rates continuing to rise unabated helocs will become increasingly toxic.... As for pay options the Bank faces potential unexpected losses because higher rates will cause these loans to reset much earlier than anticipated and as a result causing mortgagors to default due to the substantial increase