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Sunday, December 18, 2011

Looking the Other Way, or...

     
In 1997, while working at a large privately-owned mortgage company in the Valley Forge (PA) area, one of the senior underwriters asked to speak with me after hours. I had worked with her at a prior employer, and knew her by reputation and performance to be a pretty straight shooter. Not knowing what the issue was, I stopped by her office after most of the 9-5'ers had bolted for the day.

When I arrived, she asked me to shut the door and handed me a folder from the pile on her desk that contained the mortgage application of Dr. and Mrs. L**n* Fo*m**. ( Still remember the name to this day ). Having been in the lending/mortgage business for almost 18 years at that point, I perused the file fairly quickly; it was a cash-out refinance on their primary residence. The borrowers had good job stability, good income, good credit history, good cash reserves, and the collateral was a well-maintained unit in a desirable center-city condominium with a good LTV.  I went through the file quickly again - thinking this was a test of some sort - and after finding I came to the same conclusion, looked up and asked: "What am I missing?"

She then handed me a second folder, which I opened and - to my surprise - found the same exact borrowers had applied to BUY a second (larger) condominium in the same building - as their primary residence.

For those that aren't too familiar with the conventional mortgage business, I'll try to make it simple: you cannot have TWO primary residences - or at least you couldn't in 1997. Any second property had to be funded as a vacation home or a rental property - PERIOD. And with those two latter mortgage classifications came higher interest rates, lower maximum LTV's ( requiring more money down ), usually stricter underwriting guidelines, etc.

Anyway, after reviewing the file for a second time, I simply blurted: "They can't do this. " At that very instant, I realized there was another issue complicating matters - the loans had been originated by the #1 top loan officer not only in the company, but possibly the entire southeastern PA market. This person was responsible for bringing in - on average - 40-50% of the loan origination business every single month. (S)He was THE company's cash cow. As the national sales manager, I was even paid an override on this person's production. I knew this was not going to be an easy issue to deal with, but now that I knew we had fraudulent loans in process, I also knew that I couldn't sit by and do nothing.

I asked the underwriter if I could take the files back to my desk and look through them at greater length, which she approved as long as I returned them before she went home for the day. When I left her office, I headed straight for a copier on the other side of the building and made a complete copy of both files and got them out of the office that evening. Among other things a more lengthy review of both files uncovered was that the borrowers, with the knowledge of (at minimum) the loan officer, had used two different real estate appraisers, two different title companies, two different credit reporting agencies ( possible to do at that time ), two different homeowner's insurance carriers...and so on. They clearly structured and processed the loans so that no one person or company would have both transactions pass in front of them at the same time. Bottom line: it was clear-cut fraud with severe penalties to all involved...if discovered.

Anyway, I knew I had to bring this to someone's attention, so the next morning I went to my direct supervisor, Mr. H**a** S*i*m**. I explained what I had discovered without bringing the underwriter into the picture. I could tell by his reaction that he was more than a little upset, but he said not to worry about it and that he "would take care of it."

Within a week, out of the blue with no counseling or advance warning, I was fired.

I could write for the next two days about what I discovered after the fact, but suffice it to say that not only was my supervisor knowledgeable of the fraudulent files before I met with him, he had actually helped organize the structuring of the "deals" to ensure ( he hoped ) they would fly under the radar screens of the companies involved in the various stages of the residential mortgage process.

However, he failed to consider and/or forgot one important step in the process; as both loans were over $100K,  they both had to go a senior underwriter at the company, and one of the two was out on maternity leave.
 
A few years later I ran into the underwriter who brought the loans to my attention on a SEPTA train. I sat down next to her, and after a minute or so of light chatter, I asked her if she remembered the F***** files. At first she did not, but when I went into much greater detail, mentioning the loan officer by name and the fact that I was fired a few days after she made me aware of the fraudulent files, her memory was sufficiently jogged.
  
I then simply asked: "Why did you come to me with those files?", to which she replied: "Because I knew you would do the right thing."

Without going into another hour of pecking away this morning, suffice it to say that mortgage company involved imploded a year or so later. Lawsuits were filed, more fraud was discovered, and I think a few folks may have served some jail time. And if you're wondering what happened to those two files I copied...let's just say they found their way to the right people and leave it at that.

Look at today's headlines, folks. A lot of people chose to look the other way in State College and, I truly believe, Harrisburg. No doubt in my mind. Same thing applies to our elected leaders and what's happening in PA.

Looking the other way is easy, but as many are finding, it definitely has far-reaching consequences further down the road. Doing the right thing can also be very difficult...with unknown consequences ahead as well. Lines - perceived or real - must be crossed.
  
So it is with the Sandusky mess, and so it is with the Marcellus mess. Knowing what I know about the latter, I cannot and will not look the other way.

Consequences to follow...

Later.
  

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