*OT* Well it's nice to see that you agree. The sad thing is that history has shown that these 'smart guys' always seem to be a step ahead, and by the time the government closes this avenue, they will have already been well onto some other way to do this. Kinda like the mortgage brokers that got all that subprime fee money upfront from 2004-2007, and now someone else is left to clean up the mess... And to add insult to injury, the FED and the Govt will bail out folks who don't deserve it just because of the size and impact of the problem. What was it that Trump said when he was having all those real estate difficulties in the early 1990's - if you owe the bank a small amount it's your problem, but if you owe the bank a large amount it's the bank's problem????
Regards,
John
`Deal With Devil' Funded Carrera Crash Before Subprime Shakeout
2007-12-18 00:37 (New York)
By Bob Ivry
Dec. 18 (Bloomberg) -- One week in 2002, Daniel Sadek was
$6,000 short of covering the payroll for his new subprime
mortgage company, Quick Loan Funding Corp. So he flew to Las
Vegas and put a $5,000 chip on the blackjack table.
``I could have borrowed the money, I suppose,'' Sadek says.
That wouldn't have been his style. With his shoulder-length
hair and beard, torn jeans and T-shirts with slogans such as
``Where is God?'' Sadek looked more like a guitarist for Guns N'
Roses than a mortgage banker.
Sadek says he was dealt a jack, then an ace. Blackjack. He
would make payroll. Quick Loan Funding, based in Costa Mesa,
California, would survive and, for a while, prosper as one of
1,300 mortgage lenders in the state vying to satisfy Wall
Street's thirst for subprime debt.
As home prices rose and hunger for high-yield investments
grew, Sadek found his niche pushing mortgages to borrowers with
poor credit. Such subprime home loans grew to $600 billion, or
21 percent, of all U.S. mortages last year from $160 billion, or
7 percent, in 2001, according to Inside Mortgage Finance, an
industry newsletter. Banks drove that growth because they could
bundle subprime loans into securities, parts of which paid
interest as much as 3 percentage points higher than 10-year
Treasury notes.
``I never made a loan that Wall Street wouldn't buy,''
Sadek says. He worked hard to build the business, he says, and
the company did nothing illegal.
U.S. Pays the Bill
In 2005 and 2006, New York bankers expanded the market for
mortgage-backed securities by creating new subprime derivatives
contracts. The derivatives allowed Wall Street firms to sell
more subprime securities and offered a new way to bet against
the U.S. housing market. Investors from Germany to Japan poured
about $1.2 trillion into mortgage-backed securities in those two
years, according to Global Insight Inc., an investment research
firm in Waltham, Massachusetts.
Now the U.S. economy is paying the bill for that easy
credit. Nearly one in six subprime borrowers has missed a
monthly payment, sending home prices to their first annual
decline since the Great Depression. The Federal Reserve cut its
main interest rate three times to fend off recession, and Wall
Street firms that posted record profits the last three years
have written down more than a combined $80 billion on subprime-
related losses.
Sadek, now 39, got into the lending business in 2002, just
as home prices were in the early stages of a record five-year
surge. Staked by banks including Citigroup Inc., Sadek and
others in his industry tripled the subprime market in five
years.
``I was working every day, all day, from dusk to dusk,''
says Sadek, who pumped gas and sold cars before creating Quick
Loan Funding. ``I slept in my office sometimes. I worked about
80 or 90 hours a week.''
Lamborghini, McLaren, Soap Star
Sadek collected a fleet of cars that included a
Lamborghini, a McLaren, a Ferrari Enzo, a Saleen S7 and a
Porsche, frequented casinos and was engaged to soap opera
actress Nadia Bjorlin.
``Daniel was charismatic, crazy, unconventional and
passionate about his company and his borrowers,'' says Lisa
Iannini, a former employee.
Sadek would try to help Bjorlin break out of TV's ``Days Of
Our Lives,'' co-writing and spending $35 million to produce
``Redline,'' a feature film about illicit car racing, starring
Bjorlin as a daring leadfoot.
The movie's climactic line, delivered by actor Angus
Macfadyen: ``Do you believe in destiny?''
Sadek did.
Wiping the Slate Clean
When homeowner Christopher Aultman, a mechanic for Union
Pacific Railroad, called Quick Loan Funding in July 2005, a man
identifying himself as Tim answered.
``He was friendly and he sounded like he knew what he was
talking about,'' Aultman says.
Aultman wanted to refinance the 30-year fixed-rate mortgage
on his four-bedroom home in Victorville, California, 80 miles
northeast of Los Angeles. He needed to tap $20,000 in equity to
pay off mounting debts, and he wanted to build a backyard play
area for his three children.
His average credit score was 465 out of a possible 850,
according to Aultman's loan documents. That is well below the
U.S. median of 720, according to Fair Isaac Corp., whose
software measures consumer credit-worthiness.
Quick Loan Funding was the only lender that would talk to
him, Aultman says.
``We'd been struggling and running away from bills, and I
was tired of living that way,'' says Aultman, now 35. ``I wanted
to be responsible and take care of my debts and wipe the slate
clean.''
Passed Officer to Officer
A year earlier, Aultman had paid $204,000 for the house.
Quick Loan Funding's appraiser said it was worth $360,000. When
Aultman called back later with questions, he says he was told
Tim no longer worked there.
``I was passed from loan officer to loan officer,'' Aultman
says. ``It just didn't feel right. But I was praying it was
going to come through. I was desperate.''
Loan officers were hired and fired all the time at Quick
Loan Funding's 26,000-square-foot call center in Irvine, says
Bryan Buksoontorn, who joined the company in 2004. By then,
Irvine had become a hotbed of subprime lending companies.
``We were motivated by fear,'' says Buksoontorn, 28, who is
now an independent mortgage broker. ``It was a boiler room. You
had to make your numbers.''
Buksoontorn's job: get the caller's credit card and charge
$475 for an appraisal, he says.
``You told the callers what they wanted to hear and you got
the credit card,'' says Steven Espinoza, 39, an employee from
2003 to 2005.
`Close 'Em, Close `Em'
Sadek and his managers would berate the sales staff, many
of whom had no experience or training, Buksoontorn says.
``They would get in your face,'' he says. ```Why aren't you
ordering appraisals? Why aren't you selling?' ''
Sadek brought a car salesman's mentality to mortgages,
Espinoza says.
``It's the same type of hard sell,'' Espinoza says. ``Close
'em, close 'em, close 'em.''
Iannini, who was vice president for compliance and risk
management, says she tried to make sure the hard sell didn't
result in bad loans.
``I went to work every day as an uninvited hall monitor at
a fraternity party,'' Iannini says.
Sadek says 95 percent of Quick Loan Funding's mortgages
were made to subprime borrowers.
``If we had a prime borrower on the line, we hung up on
them,'' Buksoontorn says. ``We were geared toward subprime
because they were easier to close. We were giving them money no
other bank would dare to give them.''
Citigroup's Backing
Sadek says that with the support of Citigroup, which funded
the loans, he pioneered lending to homebuyers with credit scores
of less than 450.
Citigroup spokesman Stephen Cohen said the bank doesn't
comment on its relationships with clients.
``We made most of our money from selling loans to banks,''
Sadek says.
Quick Loan Funding, like many subprime companies,
specialized in 2/28 loans -- 30-year mortgages that start with
lower ``teaser'' interest rates and ratchet higher after two
years.
A key selling point was the 50 percent rise in home prices
nationally from 2001 to 2006, according to the National
Association of Realtors. Mortgage salespeople told homeowners
that as long as values continued to increase, they could
refinance or sell before their interest rates jumped.
`They Believed'
It wasn't a lie. Year over year, prices hadn't fallen since
the 1930s, according to the Realtors group. The belief that
values would form a stairway even seduced Quick Loan Funding
employees who took out 2/28 loans themselves, says Marcus
Bednar, 32, a former sales manager.
``They believed everything the borrowers believed, that the
market was going to go up,'' Bednar says. ``It wasn't just
something we were pushing because we tried to rip people off.''
Bednar adds, ``We were never encouraged to do anything
shady.''
Borrowers with subprime adjustable-rate mortgages are seven
times more likely to default than those with prime fixed-rate
mortgages, according to the Mortgage Bankers Association.
Quick Loan Funding, like most subprime lenders, wrote so-
called stated-income or ``no doc'' loans that don't require the
borrower to document income with pay stubs or tax forms. They
are also known as ``liar loans.''
Reviewed, Rejected
In 2004, Bohan Group, a due diligence underwriting company,
was hired by a bank to double-check the suitability of mortgages
written by Quick Loan Funding that the bank was looking at
buying and turning into securities. Bohan sent Nicole Singleton,
39, to the Irvine office. She reviewed 40 loans and rejected
every one, she says.
Sadek says he fostered a competitive selling atmosphere,
and underperforming workers ``either quit because they're not
making money or they're fired because they don't work.'' He
says Quick Loan Funding ``thrived on customer service, so the
idea of hanging up on callers is not right.''
``If the loans were so bad, why did Wall Street keep buying
them?'' Sadek says.
In July 2005, Espinoza, Buksoontorn, Bednar and other
employees sued Quick Loan Funding in federal court alleging
various workplace abuses, including failing to pay overtime and
not providing adequate lunch breaks. Sadek later settled with
the employees, agreeing to pay them more than $3 million, says
Jon Mower, an Irvine attorney who represented the loan officers.
``I don't think Quick Loan Funding was much different than
many of the other subprime companies,'' Mower says.
`I Can't Do This'
Sadek denies the charges, adding that it's the type of
lawsuit a jury would never decide in the employer's favor.
``They see me as a rich guy and who do you think they are
going to believe?'' he says.
To get $20,000 in cash from the Quick Loan Funding
refinance, Aultman was told, his monthly payments would rocket
to $2,264 from $1,464.
``I said I can't do this,'' Aultman says. ``They said take
the mortgage, make the payments and once everything is paid off,
within 30 days your credit will shoot up 150 points and we'll
get you a better rate and everybody wins.''
They convinced him, he says. The company sent a notary to
his house with the documents to sign. It was 9:30 p.m. Aultman
was worn out from work and the rest of the family was in bed.
Aultman says he didn't see the pre-payment penalty in his
contract. If he refinanced within two years, he'd have to pay
six months interest.
Crying in Son's Room
He also says he didn't notice his income on the contract:
$5,950 a month. At the time Aultman says he made $3,420.
Sadek says he watched employees closely and anyone caught
falsifying information would be ``fired on the spot.''
For a $247,500 mortgage, Aultman paid Quick Loan Funding
$10,813, including origination fee, application fee, processing
fee, underwriting fee and quality control fee, according to his
loan documents.
The average closing costs for a mortgage of that amount in
California is about $5,000, according to Pete Ogilvie, president
of the California Association of Mortgage Brokers.
Sadek defends charging those fees by saying he took more of
a risk by lending to people with such lousy credit. If
legislators want to limit fees, they ought to pass laws against
them, he says.
Aultman received $21,674.70 in cash, according to the
documents.
The monthly payments proved too steep and he fell behind.
``I feel burned,'' Aultman says. ``There's a lot of nights
I've gone into my son's room and watched him sleep and I've
cried.''
Reining in Loan Officers
Quick Loan Funding's survival, like that of other non-bank
mortgage lenders, depended on a stream of new borrowers like
Aultman. To fund the mortgages, the company had $400 million in
short-term credit from Citigroup. To pay that off, Quick Loan
Funding sold the mortgages to securitizers as soon as it could.
By August 2005, Sadek was spending most of his time working
on his movie, ``Redline.'' He hired Iannini to upgrade the
company's risk management.
``My biggest problem day to day was reining in uneducated
loan officers,'' Iannini says. ``You have to almost use police
force tactics and threaten brutality on a sales floor of a
lending institution and have that whip ready to crack, because
you never know what employee will be pressured by what
influences on any given day.''
Iannini had worked at two other mortgage lenders before
joining Quick Loan Funding. She says Sadek's firm was the most
committed of the three to maintaining lending standards.
Ferrari Crash
Asked about borrowers who have trouble making their
payments, Sadek quickly leafs through a mortgage application. He
stops, folds over the pages and points to the line that says,
``Cash to borrower.''
``Who's getting ripped off?'' he says.
Sadek was featured on TV newscasts in March. During a
publicity event for ``Redline'' at an Irwindale racetrack,
comedian Eddie Griffin, a star of the movie, drove Sadek's $1.2
million Ferrari Enzo into a concrete barrier, wrecking it.
Sadek, who appears in ``Redline'' as a poker player, also
intentionally trashed two of his own Porsches in the making of
the movie. In one scene, a Carrera is catapulted high in the air
before it crashes.
Aultman, meanwhile, says his credit score hasn't climbed
and he has received two notices of foreclosure since refinancing
with Quick Loan Funding in November 2005.
`Everything's Not OK'
``You go to soccer games, and everything's great with the
other parents,'' Aultman says. ``Nobody knows it, the wife
doesn't know it, the kids don't know it, but their old man is in
trouble. I put up a fa‡ade that everything's OK. Everything's
not OK.''
Aultman is trying to sell his house, but three others
within sight of his driveway also have for-sale signs.
``I'm embarrassed,'' Aultman says. ``I made a deal with the
devil. I didn't know what I was signing.''
Sadek may be in trouble, too. The California Department of
Corporations wants to revoke his lending license. The state says
he tried to use the bank account of his escrow company, Platinum
Coast, to apply for markers, or gambling loans, at three Las
Vegas casinos in April and May.
``It was a bank error,'' Sadek says. ``No money ever left
the account.''
Sadek holds up a copy of the marker application. It has his
name at the top and his signature at the bottom. In the middle
of the page is a bank-account number. He says he thought it was
his personal account. It wasn't. It turned out to be Platinum
Coast's, Sadek says.
He says he didn't know what he was signing. |
