WaMu loaned millions to California home flippers convicted in fraud scheme

[jaybeat]

Source: The Seattle Times

In July 2007, Vijay and Supriti Soni of Corona del Mar, Calif., paid $440,000 for a home at 2129 W. Civic Center Drive in Santa Ana.

Five weeks later, they resold the house to Javier Hernandez, the family gardener and handyman, for $660,000. That's a 50 percent gain in 38 days — at a time when real-estate prices in Santa Ana were plunging.

But the lender that financed both mortgages, Washington Mutual, took a bath. Last March, Hernandez's loan went into default and in July the bank foreclosed. On the trustee's deed, the bank listed the home's value at $377,137 — $220,000 less than the outstanding loan.

...

"Lending institutions had an obligation to do due diligence to make sure the borrower can repay the loan, especially in 2007 and 2008 when they knew there was a mortgage meltdown taking place," Barth said.

Santa Ana home prices peaked in 2006 and have slid more than 40 percent since.

Read more: http://seattletimes.nwsource.com/html/businesstechnology/2008194436_wamu220.html

[leftofcool]

1. And you want my tax money to bail out

Mr Hernandez who bought a home he couldn't afford on a gardener's salary? NOT!

[sandnsea]

3. Oh for fucks sake, open your damn eyes

This isn't about Mr. Hernandez. It's about the damn banks pushing these bad loans because it was the only way they could make money to cover the previous bad loans. Mr. Hernandez may well have been able to afford a traditional loan - THE FUCKING BANKS WOULDN'T SELL THEM.

Goddammit.

:argh:

[Gormy Cuss]

8. No, it's about lax due diligence and mortgage fraud.

WaMu lent a lot of money to old-fashioned house flippers. Recently the term "flipping" has been used mostly to describe renovators who buy below market houses at value with the plan to fix them up to market standards and make a quick buck.

The older common use of the term was for a fraudulent scheme to inflate values artificially by buying and churning them through sales to associates at inflated prices and walking away with an ill-gotten profit. That's what the Sonis are accused of in this instance.

[sandnsea]

10. It certainly is NOT about Mr. Hernandez

Who looks like he was nothing more than a pawn in this game, if he existed at all. That's my point. I am so sick of people blaming the homeowners for this when the lion's share of the blame lays with a variety of mortgage scams.

[Cronopio]

17. Mr. Soni still has his $200K profit that will end up being financed by taxpayers.

So it *is* partially about him, and that fact needs to be emphasized. Every house flipper was in on the scam and trying to get theirs out of it. So they want their bailout too.

People and corporations need to be encouraged to take responsibility for their investments, not to "risk manage" (a euphemism for responsibility avoidance) it away on the taxpayer.

[sandnsea]

18. Not "Mexican Hernandez the Yardman"

It's not about any real yardman. It's about somebody who intentionally scammed the system. Not somebody who just tried to buy more house than they could afford. No yardman can afford a $200,000 house, let alone a $600,000 one. This was a scam, top to bottom. That's my point.

[Cronopio]

23. I meant Mr. Soni but wrote Hernandez.

But the yardman was trying the scam the system too. Americans are taught from the cradle that only a schmuck walks away from a sure payoff, so when quick cash is offered the yardman *and* his employer jump.

The yardman could have been real. If Hernandez had been able to flip the house his profit would have been more than Mr. Sonis, so I can definitely see a yardman gambling on a quick payoff if he could get the leverage. But, whether he was real or not, it was all a scam.

[Tansy_Gold]

26. SOME Americans are taught from the cradle

Many of the lower-middle and low-income people who were suckered into these unaffordable loans were NOT taught from the cradle how to handle a mortgage. Many of them come from families in which home ownership was a wistful dream; they had always rented, always struggled to save for a downpayment and always came up short.

But they were taught from an early age that home ownership is the way to building sustainable wealth for a family. It is, after all, what most -- dare I say it -- white folks do, and which until just a few generations ago, people of color were institutionally denied via "redlining." Formal redlining was only declared illegal in the 1960s; that's what the Community REdevelopment Act, now cited as a "cause" of the housing meltdown, was all about.

So is it any wonder that people who have had a dream dangled in front of their eyes for generations were a little too eager to grab it when it was offered? They didn't have fathers and grandmothers and aunts and uncles who had experience with mortgages to help them out. They trusted the bankers, the mortgage brokers, the real estate salespeople.

These people lost everything. They lost not only their investment but their dreams.

Was this Mr. Hernandez real? I don't know. But just because the name is Hernandez and he works as a gardener, don't assume he knows (or doesn't know) what he's getting into.

Try to imagine what it's like for someone who isn't just like you.


Tansy Gold

[sandnsea]

27. A $600,000 mortgage? Are you kidding me?

And I'm the stupid one. Yeesh.

No Real Mexican Yardman - anywhere - got a $600,000 mortgage. No yardman of any color- anywhere- got a $600,000 mortgage.

There most certainly were working income families who got ARM's and no interest mortgages, but they qualified for that payment level. Most would be fine if they just converted the 30 year rate to what the teaser rate had been.

But that isn't the problem.

The bundling and selling of these mortgages is the problem. Trading them and selling stock on them and everything else they did on them.

If this was just about some teaser rates, we wouldn't have a mess at all.

[Cronopio]

29. "Try to imagine what it's like for someone who isn't just like you."

It's a deal - if you try to rein in your hairtrigger snarkiness about what I meant by my post. "Try to imagine ..."? Did you stop to imagine that I might be one of those honest people?

What I did not mean was that *everyone* who took on an ARM was a houseflipper trying to get a quick buck. My clearly understandable point was that this fact needs to be emphasized: if it wasn't for the speculators taking out mortgages that they obviously couldn't pay off by any other means than houseflipping, the real estate bubble would not have existed. Honest people look for reasonable deals and invest in long-term payoffs, not quick payoff scams. I'm sure there were honest non-speculators taken in by those scams, and I wasn't referring to them. They weren't numerous enough to constitute a commodities bubble.

I still stand by the point about what Americans are bred to believe. That message comes through to all of us - especially banking executives ("When the music is playing, you've got to dance.") Some of us question it enough to remain honest people, and we deal with the attitude from the opportunists that we aren't ambitious enough.

[leftofcool]

12. So, the bank twisted his arm to buy this half a million dollar home?

[Indenturedebtor]

14. You're missing the point though. They're trying to blame this economic mess on

people who are losing everything. It's just like the whole "welfare queen" crap they pulled. Find a few bad apples and tar the whole system with their story. Don't fall for it.

[sandnsea]

16. This particular situation was a scam, top to bottom

There is NO Mr. Hernandez, Mexican yardman, buying a $600,000 house on a tree pruning salary.

It was a Flipping SCAM. And the bank was so desperate to sell these profitable loans, they were bundling them and reselling them, that they didn't care that they were being scammed.

[Spouting Horn]

30. Banks

actually do package loans and sell them.

Fannie Mae is about 40% of the secondary mortgage market, the remainder include banks, insurance co's, pension funds, but virtually all banks package at least some of the loans they originate for the secondary market.

Edit: typo

[sandnsea]

2. They made money bundling loans

They had no choice but to keep bundling and selling bad loans to cover the losses from previously sold bad loans. This was driven primarily by the banks.

[mckara]

4. Are WaMu Executives Culpable as Accessories?

[CountAllVotes]

5. it is called fraud

and yes, I believe they are guilty as charged, at least by me anyway!! :mad:

:dem:

[Supersedeas]

28. good question

[whistle]

6. Homer flippers are not homeowners, they are scam artists

[tridim]

9. And they STILL have at least two TV shows on the air.

[Gormy Cuss]

13. That's a different kind of flipping and it's legal.

Fix-and-flippers are fast buck renovators. They buy dumpy houses on the cheap, throw in a wad of cash and hope to haul out more $$$ because they bring the property up to market value.

Illegal flipping is when properties are "sold" repeatedly for prices above market rate as a way of artificially inflating values. The Wiki explanation is pretty good:

Illegal property flipping is a fraud-for-profit scheme whereby recently acquired real property is resold for a considerable profit with an artificially inflated value. The real property is resold within a short time frame, often after making only cosmetic improvements to the real property. Illegal property flipping often involves collusion between a real estate appraiser, a mortgage originator and a closing agent. The cooperation of a real estate appraiser is necessary since a false and artificially inflated appraisal report is required. The buyer (ultimate borrower) may or may not be aware of the situation. This type of fraud is one of the most costly for lenders because the loss is always large.

The following is an example of an illegal property flip: A buyer contracts to purchase a property in his name for $30,000. Before closing the deal, he draws up a second contract to sell the property to a co-conspirator at $70,000 — a price substantially higher than market value. He seeks a loan for a second contract through a mortgage lender or a mortgage broker and submits an application. A real estate appraiser inflates the value of the property, enough to justify the loan, and is paid triple the usual fee. (although many times inexperienced or incompetent appraisers are unwittingly caught in the scheme through pressure and intimidation from the scammers) A mortgage lender approves the application and releases the $70,000. Next, the contracts for the property are closed either simultaneously or within a short time from each other. The originator of the scheme takes the $70,000, pays off the $30,000 and divides the remaining $40,000 between himself and any other plotters — usually the mortgage broker or loan officer and sometimes the second buyer. The lender ends up with a 100% or greater loan to value mortgage. That buyer makes a few payments on the property, then defaults and allows it to go into foreclosure. Finally, the lender learns that the property doesn’t even cover the loan value.

[Xithras]

20. Different kind of flipping.

That kind of flipping (which I did, years ago) involves buying up a dump on the cheap, fixing it, and reselling at a profit. I once bought a 90 year old 2Br home for $69k in a neighborhood where the average place went for about $250k. Why so cheap? The foundation had been destroyed by trees, the roof was caving in from rot (caused by leaf accumulation from those same trees), and the "landscaping" consisted of 3 foot tall weeds surrounding the six cars abandoned on the property by the deceased prior owner.

$110k later the house had a new roof and foundation, and I'd relandscaped everything myself. We posted it up for $260k and had it sold in three days. That's a $60,000 profit in two and a half months.

Here's the crappy part. We did that flip in 1999 and I invested the money in the market shortly afterward. The value of that $60k probably ballooned to $100k by the time the Dotcom bubble hit its peak, but was worth just about $12,000 by the time the dust settled from the crash. Easy come, easy go.

[WriteDown]

7. Looks like the blame falls on

Mr. Hernandez.

[jaybeat]

11. There was clearly a "willful disgregard for reality" by WaMu

Home prices are falling, but sure, we'll lend you money to buy a house for 22% more than it sold for *2 months ago*!!! Freakin' idiots? Yeah, but it gets worse when you read that in many of these cases, the high prices were "justified" by recent sales between people *in the same family*!!! I buy a house for $200k. Then I sell it to my sister for $350k. Then my sister sells it to you for $600k! Oh, and I give you the money for the down payment under the table, so the bank thinks you're a better risk than you really are. And nobody knows this because I'm a real estate broker AND an escrow agent.

'Course, if they'd bother to check the CRIMINAL RECORDS of these folks, or red-flag appraisals based on family-member flip sales, they might have figured out something was up.

But WaMu, and all the rest of them, were into the "let's make this month's numbers" game, and worry about the consequences later.

And later, is now.

If you ask me, put the Soni family in jail (duh), regulate the FUCK out of WaMu and every other mortgage lender, and make them write the Hernandez family a new mortgage at a fixed interest rate for the home's current (conservative) value. And take the costs out of the personal wealth of every WaMu exec. making more than $100,000 a year.

[Pete2069]

15. Why in the world is Obama only leading by 4 or 5 points over McSame

Are Americans that much of an idiot , or are these polls
really wrong???? 

McCain is most likely receiving the elderly votes , corporate
lobbyist , telecoms/banking&Financial/Exxon institutions.
So Palin was selected by Rove for the religious right ,
Hillary women , we don't have to even mention oil companies ,
anti abortion group and anti Obama voters.

This sounds like a Rove's pick...
Make no mistake about this Palin did not come up at the 11th
hour for VP,,, this is a bunch of BS.

[customerserviceguy]

21. Two reasons

The first one is that it's tough to tie McInsane to the current housing mess. There may be a smoking gun somewhere, but it's going to involve having people pay far more attention to the story of it all than they usually show.

The second is that age-old tendancy to blame the victim. I shook my head in disbelief when I first heard about it in Psych 101 back in the mid 1970's, but thirty-plus years of experience have told me its for real. There is ALWAYS the need to find a reason to say, "That bad thing happened to him, because he did something to deserve it, that I didn't do, therefore, it didn't happen to me." The housing crisis is ripe for that sort of convoluted thinking. It's much easier to shake your finger at the guy getting foreclosed down the block because of choices he made.

[lifesbeautifulmagic]

19. There will always be people who try to get loans they are not

qualified to have, always. ALWAYS. There should never never be a bank that makes loans to unqualified people. That is their job to figure out who is qualified and who is not. And this hurts, WAMU is my bank.

[customerserviceguy]

22. You need to do like I did

and make that past tense. You might find it tough to get by while the FDIC has to persuade Congress to allow the Treasury to pay you back for the last paycheck you deposited. Especially after all the corporate pigs have gotten their fill at the trough.

[lifesbeautifulmagic]

24. I know, I know

my procrastination just may come back and bite me on the rear.

[The Backlash Cometh]

25. This doesn't sound like fraud. It IS fraud.