Subprime Lenders Back in the Game, Reworking Loans
Did you ever wonder where all those subprime lenders who made big profits making predatory loans during the housing boom ended up? Think about it: What kind of resume would you have, given that you worked for a discredited company that went out of business after making high-rate, abusive loans that have led to record foreclosures? You can’t exactly brag about earning six-figure salaries for a few years, engaging in the kind of lending practices that brought down the word economy. That would be a tough one to spin, even in a healthy job market. I’ve assumed that former brokers probably took online courses to get some other degree. Or found religion. Or went into rehab.
It turns out, however, that some just went right back into their old line of business, sort of. The New York Times reports that former subprime lenders are making a killing by running loan modification companies that — surprise! — rip people off instead of reworking their mortgages.
“„From the ninth floor of a downtown office building on Wilshire Boulevard, Jack Soussana delivered staggering numbers of mortgages to homeowners during the real estate boom, amassing a fortune.
“„By Mr. Soussana’s own account, his customers fared less happily. He specialized in the exotic mortgages that have proved most prone to sliding into foreclosure, leaving many now scrambling to save their homes.
“„Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California.
“„“We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.”
“„Mr. Soussana’s partners at FedMod, as the company is known, were also products of the formerly lucrative world of high-risk lending. The managing partner, Nabile Anz, known as Bill, previously co-owned Mortgage Link, a California subprime lender, now defunct, that once sold $30 million worth of loans a month.
“„Jeffrey Broughton, one of FedMod’s initial partners, served as director of business development at Pacific First Mortgage, a lender that extended so-called Alt-A mortgages for borrowers with tarnished credit for Countrywide Financial, which lost billions of dollars on bad mortgages before being rescued in an acquisition.
The only problem here is that these financial geniuses aren’t exactly delivering on their loan modification promises, according to The Times.
“„Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit making loan modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau, and documents filed by the Federal Trade Commission in a lawsuit against the company.
“„The suit, filed in California federal court, asserts that FedMod frequently exaggerated its rates of success, advised clients to stop making their mortgage payments, did little or nothing to modify loans and failed to promptly refund fees. The suit seeks an end to FedMod’s practices, and compensation for customers.
“„“Our job was to get the money in and then we’re done,” said Paul Pejman, a former sales agent who worked out of FedMod’s two-story headquarters in Irvine, Calif. He recounted his experience, he said, because “I really feel bad.”
“„“I had people calling me crying, and we were telling them, ‘You can pay me or you can lose your house,’ ” Mr. Pejman said. “People were giving me every dime they had, opening credit cards. But I never saw one client come out of it with a successful loan modification.”
No surprise here.
Mark Thoma at Economist’s View has the best take on all of this:
“„See, the anti-regulation types are right. A Consumer Financial Protection Agency might stifle valuable innovation like this and prevent these companies from giving consumers the value that they pay for.
“„I might have that backwards.
Yes, how elitist to suggest consumers should have some protection from these predators. Chalk this one up to yet another lesson not learned from the financial crisis.
