Lie To Me *

It’s well known that those in the US who took out sub-prime Adjustable Rate Mortgages did so because their credit scores were lousy and were heavily influenced by the sales pitch. But that’s not the full story. It’s now apparent that the sales pitch came from unregulated mortgage brokers who, in their quest for commissions, were not averse to inflating borrowers’ incomes and their home values to the lenders, while misrepresenting the type of mortgage to which the borrowers were committing.

While sub-primes account for 1 out of 5 mortgages in the US, the figure would have been much lower. The sales pitch was so effective that a high proportion of sub-primes were dished to out to those with a perfectly normal credit rating who would otherwise have qualified for a usual or “prime” mortgage. In other words, this mortgage trap caught the inner city poor and the suburban middle class.

The Brokers were acting on behalf of banks and mortgage companies which originated the sub-prime mortgages. The banks and mortgage companies would have the borrowers’ financial credentials, whether false or accurate. The distinction was academic: many of these loans were "no-money-down" or "NINJA" loans (i.e. No Income, No Job or Assets). The same information, whether false or accurate, would also end up in the hands of the credit rating agencies.

Since the banks and mortgage companies were then re-packaging these sub-prime loans as CDOs for onward sale to investors, there was undoubtedly collusion between them and the credit rating agencies to talk up the authenticity of these “investments” as part of the “risk management” exercise.

In other words, US banks, mortgage companies and brokers were the originators and, co-conspirators with Wall Street and the credit rating agencies to perpetrate one of the biggest financial scams in America.

* The song title by Jonny Lang, one of SAW’s favourite blues singers

© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved