El Pato writes:
first?
El Pato | 03.27.08 - 12:12 pm | #

Napolean writes:
Yes, but who will buyout JPM in a Fed assisted acquisition?
Napolean | 03.27.08 - 12:15 pm | #

michael schumacher writes:
Great goal by Pato yesterday......

Ciao
MS
michael schumacher | 03.27.08 - 12:15 pm | #

nades writes:
This just made my morning! Thanks...

...................
nades | 03.27.08 - 12:18 pm | #

exbroker writes:
I recall seeing similar memos from Chase and other wholesale players we would funnel deals through.
One of our reps would say follow these simple steps and your deal will fly through like shit through a goose.
Like goose droppings many of these deals are spattered about and pretty gnarly.
exbroker | 03.27.08 - 12:19 pm | #

dreadlord writes:
Somebody please make sure the Senators who are reviewing the 30 Billion gift from the Fed to JP Morgan for Bear Sterns get a copy of this?

Why isn't the FBI and the Fed, as well as the SEC, jumping all over this!
dreadlord | 03.27.08 - 12:20 pm | #

Bob_in_MA writes:
I guess no one should be surprised, but I am. Well, there's a gift to the law firms looking to sue the lenders on the behalf of bondholders...

These idiots are still settling over Enron.

After Enron, the Wall St emails that arose after the dot-com bust, etc., how in the world could people be so freaking stupid?
Bob_in_MA | 03.27.08 - 12:23 pm | #

Rob Dawg writes:
"This is not how we do things," [Chase spokesman Tom Kelly] said. "We continue to investigate" the memo, Kelly said. "That kind of document would neither be condoned or tolerated."

He means the release of the document is what is being investigated. This is like cops saying they don't have quotas. If they were serious then we can expect every person who got the memo to be disciplined for not reporting it. Yeah right.
Rob Dawg | Homepage | 03.27.08 - 12:24 pm | #

zippythepinhead writes:
I guess / suspect / discern / feel / think that all ---repeat ALL -money lenders had these cheat sheets ---

and there will be more disclosures ...
zippythepinhead | 03.27.08 - 12:25 pm | #

ozymyandius writes:
And notice the non-denial denial.

"That kind of document would neither be condoned or tolerated."

Note that he does not condemn the practices or the falsification of applications, but the existence of evidence for it.
ozymyandius | 03.27.08 - 12:25 pm | #

Average Joe writes:
"This is not how we do things"


Well, it depends on what your definition of "is" is.
Average Joe | 03.27.08 - 12:26 pm | #

Flotown writes:
Check it out. Barack Obama releases plan to regulate the financial services industry.

“We let the special interests put their thumbs on the economic scales.  The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both.”

http://obama.3cdn.net/ f9836ef496...0_39gimvt5b.pdf
Flotown | 03.27.08 - 12:28 pm | #

Al writes:
I'm sure that memo was simply a gag, generated so funloving coworkers could get a good laugh at the water cooler.
Al | 03.27.08 - 12:28 pm | #

Pondering the Mess writes:
Hahahaha - yep, the DOCUMENT won't be tolerated. As for inflating incomes and committing mortgage fraud, yeah, we're cool with that!

Ah, I love it! Who coodadnode that they are all crooks!
Pondering the Mess | 03.27.08 - 12:29 pm | #

racerx writes:
One of the "tricks" for DU was to inflate the assets. You could increase the assets but it would only require you to verify a portion.
racerx | 03.27.08 - 12:29 pm | #

ac writes:

Our whole global financial system is one endless series of Zippy Cheats & Tricks.

Even the Economist talks about what the central banks must do to essentially force people in to trusting the markets (by purchasing assets at unrealistic values thus validating misvaluation).

Trust is something earned, not something forced on people.

At this point I have to conclude that economics as a practice and a profession is highly suspect and may be inherently counterproductive (though economics as a science seems to have functioned very well in terms of making predictions).

One does not make a global economy out of Zippy Cheats & Tricks.

Yet that seems to be precisely what the practicing economists advocate.

ac | 03.27.08 - 12:30 pm | #

Yoringe writes:
dreadlord writes:
Somebody please make sure the Senators who are reviewing the 30 Billion gift from the Fed to JP Morgan for Bear Sterns get a copy of this?

Why isn't the FBI and the Fed, as well as the SEC, jumping all over this!
dreadlord | 03.27.08 - 12:20 pm | #

2 words: Bush/Cheney

you get the Justice Department you elected...or elected not ...
Yoringe | 03.27.08 - 12:30 pm | #

Average Joe writes:
"This is like cops saying they don't have quotas"

For the record...we don't. No need, officers are rewarded for hard work that is measurable. The only real way to measure work product is to count arrests, tickets, impounds, reports etc. If you are given a ticket, it's likely from a cop who likes to work and wants to promote. There are probably 3 or 4 more others who are lazy and out of sight.

For info, no matter how bad crime gets, how much graffiti there is, the number one complaint by any citizen survey is traffic related such as speeding and failing to stop at lights and signs. I think it the most vocal, older, community that bothers to respond to surveys, but heh, we all know the squeecky wheel gets the grease.
Average Joe | 03.27.08 - 12:31 pm | #

Cod Peace writes:
Rob Dawg writes:
"This is not how we do things," [Chase spokesman Tom Kelly] said. "We continue to investigate" the memo, Kelly said. "That kind of document would neither be condoned or tolerated."

There appears to be a misquote. I think what was really said was "This is not how we do things anymore,"
Cod Peace | Homepage | 03.27.08 - 12:31 pm | #

racerx writes:
"This is not how we do things," [Chase spokesman Tom Kelly] said. "We continue to investigate" the memo, Kelly said. "That kind of document would neither be condoned or tolerated."

Captain Renault: I'm shocked, shocked to find that gambling is going on in here!
[a croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.
racerx | 03.27.08 - 12:32 pm | #

LJ writes:
This piece should have mentioned it was for the stated income, stated asset program in Zippy which does require a FICO over 700 and a signed 4506 at closing. If it was full dock thru Zippy, it would be subject to desk review and then the whole package would fall apart because you can't inflate income and assets.

This article seems like a hit piece. JP Morgan Chase is one of the cleanest, professional companies I have ever worked with.
LJ | Homepage | 03.27.08 - 12:32 pm | #

Windowdog writes:
I just about died reading that. It sure was considerate of whatever sales manager put it together. When there is no penalty for grievous overselling of the product, or I guess of the client in this case, stuff like this is inevitable.

Though putting it in a memo... that takes initiative.
Windowdog | 03.27.08 - 12:33 pm | #

m writes:
Average Joe writes:
"This is not how we do things"


Well, it depends on what your definition of "is" is.


I kind of wish Clinton was President now. He would smooth talk us out of this disaster. I truly beleive that. He has the GIFT, unlike Hillary
m | 03.27.08 - 12:34 pm | #

racerx writes:
I wouldn't take this as a "hit" piece on JP Morgan. It does illustrate the downside to AUS systems.
racerx | 03.27.08 - 12:35 pm | #

Windowdog writes:
"Well, it depends on what your definition of "is" is.
Average Joe"

Actually I believe the matter is how you define the "we" in the statement.
Windowdog | 03.27.08 - 12:35 pm | #

Bob Dobbs writes:
Sigh. People do what they're incented to do. If people are incented to close deals, they'll do what they need to do to close _any_ deal, and expect (and get) a wink for any rules they break.

Some loose cannon is always blamed, but it's the zeitgeist of the company that's at fault.
Bob Dobbs | Homepage | 03.27.08 - 12:36 pm | #

LJ writes:
I wouldn't take this as a "hit" piece on JP Morgan. It does illustrate the downside to AUS systems.
racerx | 03.27.08 - 12:35 pm

Yeah, and Freddie LP is an AUS and will spit stated/stated also. So maybe all the regulators should go after them?
LJ | Homepage | 03.27.08 - 12:37 pm | #

ac writes:

JP Morgan Chase is one of the cleanest, professional companies I have ever worked with.

Everything is relative, isn't it?

During the dot.com era even the "cleanest, most professional" compaines I worked with were pitching completely hairbrained products to clients and potential investors.

It's just what you did to stay in the game. If you didn't the money you relied on to stay in business went to some other business's hairbrained scheme.

ac | 03.27.08 - 12:38 pm | #

Anonymous writes:
This article seems like a hit piece. JP Morgan Chase is one of the cleanest, professional companies I have ever worked with.
LJ | Homepage | 03.27.08 - 12:32 pm | #

Similar things were said about Bear Sterns last year.
Anonymous | 03.27.08 - 12:38 pm | #

barely writes:
OT about LEH, but good for a chuckle...

"Kerrie Cohen, a spokeswoman for Lehman Brothers, said, "There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self interest."
barely | 03.27.08 - 12:39 pm | #

sk writes:

Somebody please make sure the Senators who are reviewing the 30 Billion gift from the Fed to JP Morgan for Bear Sterns get a copy of this?


The senator for CO, Wayne Allard is on the banking committee and since they hold hearings on the Fed assistance to JPM, I emailed him about that and about the extension of the discount window to the primary dealers.. You can reach out to your senators easily by going to http://www.senate.gov/general/ co...enators_cfm.cfm

Find your senator ( by state ) and use the webform to comment.

-K
sk | 03.27.08 - 12:40 pm | #

CalculatedRisk writes:
LJ, the article very clearly states this was for stated income loans - and that Chase no longer offers there loans. In no way do I think this was Chase's policy - instead this shows how some people (probably Chase insiders) were helping borrowers (or mortgage brokers) commit mortgage fraud.

Best to all.
CalculatedRisk | Homepage | 03.27.08 - 12:41 pm | #

ac writes:

Similar things were said about Bear Sterns last year.

Cleanest most professional ponzi finance scheme I've ever had the pleasure of doing business with!

ac | 03.27.08 - 12:41 pm | #

Tanta writes:
The big deal here, for me, is that old "Zippy" doesn't seem to be programmed to recognize "re-runs."

It isn't all that hard to to catch on, for an AUS, when someone keeps resending the file through with the income "inching up" by $500 each time.

They're computers. They have "memories." No, really.

One reason why it is, in fact, harder to do this scam on some other AUSes I happen to know about is that they don't let you resubmit like that.

Duh. Total duh.
Tanta | 03.27.08 - 12:42 pm | #

Yoringe writes:
ac writes:

Similar things were said about Bear Sterns last year.

Cleanest most professional ponzi finance scheme I've ever had the pleasure of doing business with!

we are all ponzies now...

btw the philosophics and semantics coming out off this are incredible..
to sad Orwell is dead..
Yoringe | 03.27.08 - 12:43 pm | #

ac writes:

One reason why it is, in fact, harder to do this scam on some other AUSes I happen to know about is that they don't let you resubmit like that.

I don't know anything about these systems. How much more does it cost to get the resubmission feature?

ac | 03.27.08 - 12:44 pm | #

energyecon writes:
ac,

them there is the 'rouge' economists - they never saw a pig they wouldn't put lipstick on (with apologies to the pig). ;-)
energyecon | 03.27.08 - 12:49 pm | #

cm writes:
Average Joe: What you say re quotas, incentives, and squeaky wheels sounds plausible and certainly is a large part of the picture, but then there is the troubling fact that here and elsewhere "planning" traffic fine revenues is always part of city budgeting processes. That's a short enough step from setting goals, and from other domains I know that where there are plans and metrics, (internal) goals will follow from that. Often that's the very point.
cm | 03.27.08 - 12:49 pm | #

Portland Refugee writes:
Correct me if I'm wrong, but doesn't an AUS only allow 3 chances for approval? If you keep inching up the income, eventually it'll lock you out.

Regardless, every account exec. has encouraged brokers (over the years) on stated income loans to "make the income work". Along with "don't forget to check salary.com to ensure the income is viable".
Portland Refugee | Homepage | 03.27.08 - 12:51 pm | #

cm writes:
Average Joe: That's different from saying the goals are "official policy". But then nobody has claimed the city commissioners hand down quotas to the cops. I wouldn't be surprised though when departments, not necessarily individuals, are cited or even pressured over their "underperformance".
cm | 03.27.08 - 12:52 pm | #

scotty Ex nihilo writes:
Adjust and tune risk multipliers:

The MBS Enhanced Prepayment model with risk multipliers uses adjustments to the Refi and Turnover tuning parameters to account for the impact of extended data items.

Also see: Active-Passive Decomposition with naturally occurring Burnout

See also: The new HEL model now uses the Active-Passive decomposition for burnout (see "Divide & Conquer: Exploring New OAS Horizons, Parts I, II & III,” Quantitative Perspectives, June
2004

See also: Even though FICO is an important variable in explaining the variation in prepayments for
HELs, we do not have complete historical FICO time-series data. Hence, we use a proxy
variable to determine the credit rating of a borrower.

We use the Spread-at-Origination
(SatO) variable which is calculated as the difference between the loan rate and the weighted average rate on a par-priced Fannie 30 year mortgage in the month of origination, and the two months prior to the origination month. The original balance and original loan-to-value variables are also used as multipliers in the model.

XXX porno site: http://www.intex.com/homepage/co...ge/ coverage.htm
scotty Ex nihilo | Homepage | 03.27.08 - 12:53 pm | #

Tanta writes:
How much more does it cost to get the resubmission feature?

Either ($8,600) or ($10,000), whichever is less.

More fun facts:

Everybody who does both Fannie and Freddie loans got burned for a while several years ago by LOs or brokers getting a "no dice" from one AUS and then turning around and running it through (with the same or, um, "corrected" data) the other.

They got burned because after the loans were closed, they got allocated into pools by someone in the trading department who just sold them to one GSE or the other based on today's pricing. So Fannie might end up actually getting a loan that was approved by Freddie's AUS.

They don't necessarily prohibit that. But if Fannie's AUS kept the "file key" (which it does), then Fannie can figure out that it originally rejected the loan and the originator resubmitted to Freddie. (Freddie can do the same thing.)

This ticked the GSEs off a touch.

Originators had to start breaking some kneecaps in the loan production offices to get them to quit, since the GSEs are perfectly capable of forcing those loans back.

So, to the current point: everybody knows about the resubmit game. No one has any ability by now to pretend that it never occurred to them.

You'd have to hire a programmer to take the "file key storage" thingy out of an AUS you bought. It's not a question of that not being standard equipment.
Tanta | 03.27.08 - 12:53 pm | #

donna writes:
Considering it's taken JP Morgan Chase four years and counting to settle my mom's estate while we fought with them tooth and nail, I don't find it hard to believe they would be finding ways to put through fraudulent loans. It's pretty obvious they don't care about their customers, only lining their own pockets.
donna | Homepage | 03.27.08 - 12:54 pm | #

ac writes:

ac,

them there is the 'rouge' economists - they never saw a pig they wouldn't put lipstick on (with apologies to the pig). ;-)

Well, when the Economist starts supporting the idea of deliberate misvaluation, then I really start to worry it's the whole profession that's the problem.

Again, if the MBS market is so vital, make the case to the taxpayers that the government needs to intentionally buy these assets for more than they're really worth. Tell the taxpayers that you're paying for this but this is why it's necessary.

Don't try to hide it by having the Fed do it using some underhanded behind-the-scenes mechanism.

The politicians, of course, don't want to tell their voters, "Hey, we screwed up. Now you have to pay."

ac | 03.27.08 - 12:56 pm | #

m writes:
amen to you donna. I remeber reading your post a while back
m | 03.27.08 - 12:56 pm | #

Yearning to learn writes:
This may or may not be a "hit" piece on Chase. I have no idea.

what I do know is that there is so much rot and decay and decadence and so little ethics/morals in the financial world these days that I suspect ALL of them. They have at minimal all been guilty of complete abrogation of sane and competent lending standards.

they have earned their reputation.

IMO: the AUS is besides the point. I would guess the same thing could happen just as easily with people, if the people were of spotty character. (as many were in the boom times)
Yearning to learn | 03.27.08 - 12:57 pm | #

LJ writes:
CalculatedRisk | Homepage | 03.27.08 - 12:41 pm |

I guess I will read THE WHOLE ARTICLE before commenting next time. Sorry about that.
However, it is true that reps from many wholesale lenders would stop by the office and basically tell you what to write in for income and assets in order to qualify. First Franklin comes immediately to mind.
LJ | Homepage | 03.27.08 - 12:58 pm | #

ac writes:

You'd have to hire a programmer to take the "file key storage" thingy out of an AUS you bought. It's not a question of that not being standard equipment.

I just got a new idea for a start-up.

ac | 03.27.08 - 1:00 pm | #

blogenfreude writes:
This is not how we do things.
Usually they send an email.
blogenfreude | Homepage | 03.27.08 - 1:01 pm | #

Lars writes:
In no way do I think this was Chase's policy

What????
Lars | 03.27.08 - 1:05 pm | #

m writes:
lars

looks like many institutions had no policies or audit staff.

triple what for me.
m | 03.27.08 - 1:08 pm | #

Kp writes:
It's ok to cheat as long as you get paid.

Where have you losers been anyways?
Kp | 03.27.08 - 1:10 pm | #

Bill Melater writes:
"That kind of document would neither be condoned or tolerated." not the policy per se, just the document. The policy was supposed to be no-paper-trail, word-of-mouth, but one of the brighter lights emailed it to "only a few who needed to see it," then naturally it spread like a cancer.
Bill Melater | 03.27.08 - 1:11 pm | #

Ralph Cramdown writes:
Wow, lotta tinfoil hats on the thread.

If senior management wanted to approve these things, they could've changed the AUS to approve them, or even to suggest which parameters needed tweaking.

The problem here is sales force compensation. It isn't unique to JPM or even to finance. You have to be very careful tweaking your compensation model such that your sales force's goals aligns with the organization's short and long term goals. Most salespeople examine the commission structure and attempt to maximize their income, some less ethically than others. How far up the chain did the rot extend? I doubt that the national sales manager wanted to originate a lot of crap, but you never know. Oops, flash of inspiration: If they're selling it all into MBS, the whole bank is the sales force, excepting the poor guy on the prop desk who has to hold the equity tranche. Maybe HE should've been going to those sales meetings.

Like Tanta, I was surprised that they'd have an AUS that just let the sales force keep pulling the handle until it came up cherries.
Ralph Cramdown | 03.27.08 - 1:13 pm | #

Tom Stone writes:
LJ,I will never forget the AE for World who told me he'd call if there was a problem with the income on a "Stated" loan,and we could "fix it".yep,he is still with them (Wachovia now).That was the most Blatant,but FF and greenpoint were not far behind.A friend of mine worked at Aegis for a while in Sacto,and he related to me that the manager gave classes on how to "Bump Up" income on stated loans.My friend had spent a decade as a bill collector,but could not stomach what he saw going on at Aegis and quit.
Tom Stone | 03.27.08 - 1:15 pm | #

ac writes:

I guess I will read THE WHOLE ARTICLE before commenting next time.

That's not how we do things around here. >:(

ac | 03.27.08 - 1:16 pm | #

some good policework there writes:
"We continue to investigate"

As in, we'll continue to investigate until this blows over, then we'll forget about it.
some good policework there | 03.27.08 - 1:16 pm | #

m writes:
Ralph Cramdown

great observation. I just beleive the compensation like you said did not support the overall goals of the company. I have seen that all the time, So many sales plans are so damn difficult to understand. Make it short and simple so people know how much they will make that month. I am guessing insanity and stupidity and lack of good auditing ruled the day
m | 03.27.08 - 1:16 pm | #

Charles II writes:
Is there any doubt remaining that the fraud in the mortgage mess was in large part committed by the lenders and not the borrowers?
Charles II | Homepage | 03.27.08 - 1:18 pm | #

M-F writes:
These practises seem to be in line with how these guys are reporting their losses to Wall Street. Inch up the losses slowly to keep the stock price you want and don't break out the assets too finely to be able to avoid an accurate valuation.
M-F | Homepage | 03.27.08 - 1:18 pm | #

PhatMary writes:
http://www.philly.com/inquirer/ b...moratorium.html


so overwelmed by foreclosures, no time for lunch.
PhatMary | 03.27.08 - 1:20 pm | #

Alo writes:
Chase is the place with the helpful fraud-ware man. I mean, it was.
Alo | 03.27.08 - 1:22 pm | #

BG writes:
Ralph,

"If senior management wanted to approve these things, they could've changed the AUS to approve them, or even to suggest which parameters needed tweaking.

The problem here is sales force compensation."

Dead on, sir. I spent 4 years in a situation where Risk would try to set up an internal roadblock to stupid "short-termist" lending, whereupon the Sales side would immediately start trying to find a way to crack it open. Natural enough, given the opposing sets of incentives. Got so that there were only a handful of finance people allowed to see the specs for internal scorecards, on pain of the CFO's boot.
BG | 03.27.08 - 1:29 pm | #

Tom O writes:
None of this is news to people in the business. We have a whole generation of brokers, loan agents and wholesale reps that literally don't know any way other than fraud to do a loan.

Funny how nobody ever read the fine print directly above the signature section of a standard loan application. You know, the part that says...

Each of the undersigned specifically represents to Lender and to Lender’s actual or potential agents, brokers, processors, attorneys, insurers, servicers, successors and
assigns and agrees and acknowledges, that: (1) the information provided in this application is true and correct as of the date set forth opposite my signature and that any
intentional or negligent misrepresentation of this information contained in this application may result in civil liability, including monetary damages, to any person who may suffer
any loss due to reliance upon any misrepresentation that I have made on this application, and/or in criminal penalties including, but not limited to, fine or imprisonment or both
under the provisions of Title 18, United States Code, Sec. 1001, et seq.;

That's in part why I refused to do stated loans for a borrower unless I had their tax return in my personal files. I did darn few of them, but at least I can sleep at night and no one is sueing me.
Tom O | 03.27.08 - 1:48 pm | #

scotty ath writes:
CEOs and CFOs never know this is going on yah know!
scotty ath | 03.27.08 - 1:50 pm | #

Tanta writes:
BG, I don't know how many times over the years I worked on new/upgraded loan pricing/locking/registration systems. I actually worked on that kind of thing more often than on underwriting models.

Standard practice: the IT people "test" the thing by submitting loans correctly. They then verify that the system priced the loan correctly. Then they sign off on the "done" part.

I'd get hauled in to do some "user testing," and I'd come up with a 97-page list of shit they needed to fix. Everybody's aghast. So we have this meeting, and the IT folks go through Tanta's shit list, and they say, yeah, but you were submitting things wrong! You aren't supposed to send it through as a principal residence, get a locked rate, and then go back in and change it to an investment property 4 unit!

I'd have to sit there in a roomful of grownups and explain that when you pay people to rip you off, they get good at it. Plus, I'd have to point out that the reason it occurred to me to try that trick in my testing was because the little shits were picking me off, today, with the junk system we have, and I'd been complaining about it, and that's why they got authority to spend eleventy jillion bucks on a new one.

Why did I give up that line of work? Can't imagine.
Tanta | 03.27.08 - 1:57 pm | #

energyecon writes:
ac,

Go tell it to Roubini! ;-)
energyecon | 03.27.08 - 2:05 pm | #

Sebastian writes:
Tanta said: "Why did I give up that line of work? Can't imagine."

For the deep spiritual satisfaction that comes from the Internet version of trying to control a mob of angry rioters at a soccer match, with fans from both teams trying to kill you?


Sebastian
Sebastian | 03.27.08 - 2:22 pm | #

Bill Melater writes:
For the deep spiritual satisfaction that comes from the Internet version of

herding cats?

Bill Melater | 03.27.08 - 2:41 pm | #

A Cat writes:
I'd have to sit there in a roomful of grownups and explain that when you pay people to rip you off, they get good at it. Plus, I'd have to point out that the reason it occurred to me to try that trick in my testing was because the little shits were picking me off, today, with the junk system we have, and I'd been complaining about it, and that's why they got authority to spend eleventy jillion bucks on a new one.

Why did I give up that line of work? Can't imagine.
Tanta | 03.27.08 - 1:57 pm |

The chances your internal IT department has the experience and skill to do develop a new AUS is pretty close to nill.

The first and most obvious error was they were tasked to develop/buy a AUS and apparently never asked anyone what all the functions of an AUS were.

There are only so many smart people to go around after all.
A Cat | 03.27.08 - 3:20 pm | #

tg writes:
BB says you guys are not helping. He wants people to borrow and a little asset inflation is needed right now.
tg | 03.27.08 - 3:21 pm | #

Michael Fernwood writes:
I worked the B2B Channel of Chase.

Let's curl your hair a little more. SISA had nothing to do with Alt-A, which Chase called ChaseFlex.

SISA was a process, not a product. You had to trick and cheat ZiPPY! so that you could get the SISA finding. Get the SISA finding, and your loan amount was less than $417,000, then that loan was being sold to Fannie or Freddie, depending on best execution when it was time to deliver the loan. If your loan amount was greater than confomring, the loan went into a Chase Jumbo. Jumbo was not Alt-A.

Maybe you didn't get a SISA. ZiPPY was good enough to autoflow the loan to DU or LP. Maybe one, or the other would return a stated income finding.

Will somebody tell the bottom fishers that this thing is far from over. Liar-liar loans were being sold to Fannie/Freddie and into vanilla Jumbo pools.

One more thing. My experience is that it wasn't just the commission grubbing Chase Wholesale AE's cheating and tricking.

Imagine this conversation, and, for me and my sales team it happened every goddammed week: a broker calls and tells you the truth, he's seen the borrowers tax returns and the ratios are kind of high. Can we talk to the underwriter, because there are some good compensating factors. We would go to the underwriter (she never talked to brokers) with the scenario, but no paper in hand. We'd give our spiel and at the end 9 times out of 10 the underwriter would say "Sounds like a stated income loan to me."

One day, ended up being very close to my last day I was in a meeting with the Channel Executive and Channel Underwriting Manager. I remarked that it amazed me we had borrowers and brokers were willing to show us tax returns for the past two years. All they wanted was consideration of the compensating factors and some flexibility on the ratios. Our response was, no, just lie to us.

The Underwriting manager said "I know." My Channel Executive looked at me like I just farted. Two months later he walked me out the door after 12 years.

I'm biased, but this couldn't have happened to a nicer company. I hope this blows the doors off of the whole Jamie Dimon as Jesus Christ. Although, truth is, he didn't know what was going on.
Michael Fernwood | 03.27.08 - 3:22 pm | #

Tanta writes:
The first and most obvious error was they were tasked to develop/buy a AUS and apparently never asked anyone what all the functions of an AUS were.

Actually, it wasn't an AUS.

It was "just" the interface to the pricing system. You know, the place where you lose money up front.

AUS is dealing with how you lose money later on. I'm talking about being in the vanguard.

And I would hazard a guess that even today, most lock/price/registration interfaces are home-grown add-ons to an old legacy system. They are not considered "higher high tech" like AUS, which was billed for years as "artificial intelligence."
Tanta | 03.27.08 - 3:25 pm | #

Tanta writes:
We'd give our spiel and at the end 9 times out of 10 the underwriter would say "Sounds like a stated income loan to me."

I did a major rant about that issue last September.

A lot of days lately I've just wanted to repost links to old stuff.

http://calculatedrisk.blogspot.c...ted- income.html
Tanta | 03.27.08 - 3:37 pm | #

bacon dreamz writes:
A lot of days lately I've just wanted to repost links to old stuff.

you could start a weekly series called "RTFP!!!" and just post a link with a new label: Tanta Classics (tm).

i would read it.
bacon dreamz | 03.27.08 - 3:53 pm | #

A Cat writes:

Actually, it wasn't an AUS.

It was "just" the interface to the pricing system. You know, the place where you lose money up front.

AUS is dealing with how you lose money later on. I'm talking about being in the vanguard.

And I would hazard a guess that even today, most lock/price/registration interfaces are home-grown add-ons to an old legacy system. They are not considered "higher high tech" like AUS, which was billed for years as "artificial intelligence."
Tanta | 03.27.08 - 3:25 pm | #


Ah, My mistake, I've only been on the consumer side of mortgages.

I'd assumed the 'pricing' of mortgages was part underwriting portion of the mortgage process.

It seems the gist is still the same, They didn't ask the right people the right questions which is fairly typical of internal IT projects.
A Cat | 03.27.08 - 3:53 pm | #

jim a writes:
So when do we see the zippy cheats and tricks memo from the bond rating agencies? That's just one step further in the chain of stupid.
jim a | 03.27.08 - 3:53 pm | #

MaxedOutMama writes:
Amen Michael, and to anyone else reading, Tanta's link was one of her best ever.
MaxedOutMama | Homepage | 03.27.08 - 3:57 pm | #

grizzlyadams writes:
Common practice for many brokers and retail LO's for the last 5-7yrs or so. This is clearly a memo to show in-house LO's how to manipulate DO/DU in order to get files approved that will in turn sweak through QC or secondary. I wasn't a very popular AE when I pointed out these things were fraud. Hence I am now unemployed for lack of production.
grizzlyadams | 03.27.08 - 4:26 pm | #

Tom O writes:
You are going to need wholesale retraining/replacement of the current generation of "underwriters" by the time this plays out. For the last few years, underwriting has meant massaging the AU system to approve increasingly poor quality loans. Most working today simply don't know any other way to do business.

Trying to reason with them is like trying to perform music with an Ipod. If it's not in their box, it's not in their world.
Tom O | 03.27.08 - 4:27 pm | #

Shnaps writes:
I like the RTFP concept bacon suggests. In fact, I'd be all for a system that makes us answer a few quick questions to prove that we have, in fact, R'd the effing P, before posting comments on it.

Sort of like captchas; we could call them "DYRTFPs".
Shnaps | Homepage | 03.27.08 - 4:33 pm | #

inquiringMind writes:
"Inch it up $500 to see if you can get the findings you want," the document says.

*^*^*^*^*^*^*^*^

They don't mention the time frame for that inch-up.

By 1Q 2007, I bet it was a weekly $500 "inch-up".
inquiringMind | Homepage | 03.27.08 - 4:39 pm | #

grizzlyadams writes:
That couldn't be more true Tom. I even had UW'ers who would call up and openly suggest I have the LO adjust income/assets when DO would not require physical proof of either. I would guess these weren't caught because a DO/DU approval is as good as a purchased loan form Fannie. In the end there was no practical oversight. I can tell you though many files that shouldn't have got through, did.
grizzlyadams | 03.27.08 - 4:46 pm | #

waitinginPNW writes:
Obama is being interviewed on CNBC right now.

He just said he wants to "create a floor under the housing market"- to benefit current owners who bought above their means of course (those who are "facing foreclosure").

He feels that the "low monthly payment/forget about ultimate price" (and never have a prayer of paying the mortgage off and actually OWNING your home) is the model to go with.

Cringe. I thought Obama could be the most useful of the three candidates- at least he could give an inspiring speech to help people get through the coming sh*tstorm more gracefully.

But, apparently he believes overpriced housing is "good" for people. Dang. He's completely lost my vote now. For Good.
waitinginPNW | 03.27.08 - 4:50 pm | #

Tanta writes:
In fact, I'd be all for a system that makes us answer a few quick questions to prove that we have, in fact, R'd the effing P, before posting comments on it.

What I think I should really do is start putting those instant poll things under my posts. You know, click one:

1. It's Ben Bernanke's fault
2. As a representative of the industry being trashed in the post, I'm offended
3. All Americans Are Crooks And Frauds
4. You should have written about my favorite topic instead

See, the drive-bys could just click and register their gut response, saving them the trouble of having to open Halo and type it up, and the rest of us the trouble of having to read it.

That would free up the actual comment thread for stuff like recipes and pasting in off-topic copyrighted text and stuff.

I don't know why I didn't think of this sooner.
Tanta | 03.27.08 - 5:00 pm | #

Shnaps writes:
you missed one:

5. This post was too long.
Shnaps | Homepage | 03.27.08 - 5:14 pm | #

Tanta writes:
you missed one:

5. This post was too long.

Oh, you're right. Of course, I guess I missed two.

6. First!
Tanta | 03.27.08 - 5:16 pm | #

lama writes:
7. See what the PPT did today?

Keep that one in reserve in case the stock market trends upward.
lama | 03.27.08 - 5:31 pm | #

bacon dreamz writes:
8. lenders deserve to be punished. i oppose this bailout.
9. borrowers deserve to be punished. i oppose this bailout.
bacon dreamz | 03.27.08 - 5:35 pm | #

John Stark writes:
Bob Dobbs writes:
Sigh. People do what they're incented to do. If people are incented to close deals, they'll do what they need to do to close _any_ deal, and expect (and get) a wink for any rules they break.

Some loose cannon is always blamed, but it's the zeitgeist of the company that's at fault.

Amen. I'm guessing all or most of these mortgage companies, right down to New Century et al, had all kinds of ethics policies and rules and regulations in an employee manual someplace. But the incentive was to close the deals. And close more deals this quarter than last quarter.
John Stark | 03.27.08 - 5:58 pm | #

drdebt writes:
youz guys are missing the point...this wasn't THE fraud...everyone knew what was going on (or should have) and they kept approving, funding, closing...and securitizing these loans. - don't blame the dumb ole brokers for trying to get more efficient while following directions from the lenders. A lot of the young uns in the biz were taught that this is how to do business...they didn't know what bank fraud was. - The ole dogs, who did know the difference between right & wrong...got huge bonuses for following their boss' directions, and 'zippy-ing' approvals through. I'll bet Tanta knows what I'm talking 'bout.
drdebt | 03.27.08 - 5:59 pm | #

John Stark writes:
Each of the undersigned specifically represents to Lender and to Lender’s actual or potential agents, brokers, processors, attorneys, insurers, servicers, successors and
assigns and agrees and acknowledges, that: (1) the information provided in this application is true and correct as of the date set forth opposite my signature and that any
intentional or negligent misrepresentation of this information contained in this application may result in civil liability, including monetary damages, to any person who may suffer
any loss due to reliance upon any misrepresentation that I have made on this application, and/or in criminal penalties including, but not limited to, fine or imprisonment or both
under the provisions of Title 18, United States Code, Sec. 1001, et seq.;

The best way to keep some of this stuff from happening again would be to hold as many people as possible RESPONSIBLE for fraud and negligence--civil or criminal. Not companies or their stockholders: the people who prepared these documents and the supervisors who were supposed to be checking their work.
John Stark | 03.27.08 - 6:15 pm | #

3rdbillygoat writes:
Nothing too shocking here, they're just gaming the AUS; same AUS that powers Freddie, Fannie.

Actually they're doing it backwards:

Start with the HIGHER numbers then chunk them back until you get a REFERRED rather than APPROVED.

The systems log each submission and u/w is going to see you submitted a file 40 times with each time the income/assets going UP. Not slick. Start higher and go down.

Lump all income together under base? Did that just out of laziness more than AUS trickery. :_)
3rdbillygoat | 03.27.08 - 6:31 pm | #

Clyde writes:
We faced the AUS resubmission problem every week when doing our autopsies on loans put back by the dealers. We came to the conclusion that the incentives were all wrong on the front-end of the business and that the business model was broken at the atomic level. Thus the 2007 vintage being even worse than the 2006 planting.
Clyde | 03.27.08 - 9:14 pm | #

Clyde writes:
Atomic level = beyond repair
Clyde | 03.27.08 - 9:14 pm | #

UnEasyOne writes:
I would say that rather than helping borrowers to commit fraud, this is a clear illustration of encouraging fraud, abetting fraud,providing a roadmap for fraud, probably while adding assurances that "This is just what we have to do to get people into houses - everybody does it."

Matter of fact, I wonder how many of the borrowers were even aware that fraud was being committed in their name!

Here you have a guy who is committing fraud several times a day - and prospective buyers completely bewildered by the process (proved by the fact that so many agreed to ARMs etc.) signing papers they only had time to skim and barely understand - at best.

I think a more accurate statement might be that these so-called professionals persuaded, induced or tricked buyers into committing what might be if they had the intent to defraud (as the insiders clearly did)construed as fraud.
UnEasyOne | 03.28.08 - 12:52 am | #

sdtfs writes:
Well, I'd like to add:

10. Tanta, you rock!

Ahhh, this has a few different connotations:

T, you're a 10
T, I dig your music
T, you're a stalwart defender of truth and justice
T, get out of that rocking chair
T, I agree
T, I disagree and you're head is as hard as a rock



BTW- I'm a little disappointed no one said to LJ, "I see you didn't get the memo."
sdtfs | 03.28.08 - 3:43 am | #

Thomas Murray writes:
I used to work with JPMorgan Chase here in San Francisco, and quickly moved up the corporate ladder. I started my career as a loan originator / loan officer, and within nine months was promoted to AVP, Ass’t Branch Manager.

Not only was this type of loan fraud common practice at JPMorgan Chase, it was also an integral part of their training and management curriculum. It was a system designed to secure as many loans as possible for the bank, and as the memo states, that is exactly how it happens.

Essentially, this practice cost me my career at JPMorgan Chase, as I was one of the few who had any issue with this practice, and spoke out about it.

As a loan originator / loan officer, we were given direct training and instruction – from corporate trainers and our immediate managers - on how to manipulate the ZIPPY Underwriting System in order to have the automatic underwriting system approve the loan as stated income / stated asset (SISA). Branches were expected to meet certain loan sales criteria, and this system was key to achieving those goals.

Not only was it common practice to continue to run the loan through ZIPPY with increased income / assets (often many times larger than the actual income and assets of the borrower), the ZIPPY results actually spell out the issues of the loan, should the loan not receive an automatic underwriting approval, so the loan officer could 'correct' the application in order to resubmit through ZIPPY to obtain the SISA results. There was no maximum amount of times that the loan could be run through the ZIPPY program.

In ANY instance, you were told / allowed to run ZIPPY underwriting, fraudulently increasing income and assets – without the knowledge of the borrower - until the loan was within the correct underwriting debt to income ratios, and hence was ‘ZIPPY Approved’. At that time, the loan was packaged / processed by the originator and sent to a manual underwriter for entry into the system and for drawing docs. As the findings were ‘stated’, you did not include ANY income or asset documentation as proof of such income and assets. This is/was VERY COMMON PRACTICE in most lending arenas.

If you look further into the system, the mortgage crisis is the by-product of the banking system. All banks have such systems in place.

For instance, Bank of America uses the same system known as 'Rapid Results'; Countrywide uses a system known as 'CLOUT'; GMAC has 'AssetWise' Indymac uses 'e-Mits' and even Fannie Mae and Freddie Mac use a DU/DO/LP system (desktop underwriter / desktop originator). All of the above mentioned systems allow for assets and income to be fraudulently mis-represented – unbeknownst to the borrower – to receive an easier and faster underwriting approval.

It is a very serious flaw in the banking system, and what I believe is the root cause of the current crisis. These systems were put into place by big retail banking giants and allowed – and dictated – fraud, making it an acceptable and common practice for banks / lenders.

Currently the mortgage broker industry is taking the heat and has become the industry scapegoat. As a broker myself, I understand and know that mortgage brokers are under much stricter guidelines than retail banking channels, as often our loans are underwritten and quality controlled by up to five internal banking representatives. This is NOT the case of a direct lending retail channel, and allows for much more fraud than a mortgage broker.

There will be much more to come on this subject.
Thomas Murray | 04.06.08 - 3:16 pm | #

Darvin writes:
I find your blog rather helpful, since it has something to do with the Chase. On the www.pissedconsumer.com I found plenty of complaints in the address of the bank and now I doubt whether I should deal with it. The clients are not satisfied. This means the services and conditions are far from being perfect. The financial institutions are all about making profits of their own and they do not care about the customers.
Darvin | 07.05.08 - 11:33 am | #