Ex-Subprime Brokers Help Troubled Homeowners
A foreclosure sign stands in the yard of a house. - A foreclosure sign stands in the yard of a house in Southern California. (David McNew / Getty Images)
Amber Barbosa didn't graduate college. But she did get an education — by working for the now infamous subprime lender New Century Mortgage Corp.
Barbosa was a quick study: A few years later, she struck out on her own as a mortgage broker.
"In 2006, I made close to $500,000," she says. Not bad for a 28-year-old with no college degree.
(David McNew / Getty Images)
By then Barbosa, who was living outside of San Francisco, had a nice boat, a 27-foot Bayliner. She had several houses, a Mercedes and a Cadillac.
"I was riding around in my '07 Escalade," she says. "God, I had three properties at the time — one right on the water with ocean access, another property worth $800,000."
NPR checked the property records, and Barbosa really did own those houses. Since the crash of the housing market, though, she says she has pretty much lost everything.
(Getty Images)
But during the height of the housing bubble, brokers like Barbosa were working next to a river of money; all they had to do was reach in and grab some. Basically, the more costly and risky the loans they gave to their customers, the more money they made.
Wall Street Demand for Subprime Loans
Before the bottom fell out of the subprime loan market, many big financial firms had an unquenchable thirst for subprime loans. Firms were making a lot of money securitizing these high-interest-rate mortgages, so the demand from Wall Street for new loans was huge. And that created a big opportunity for mortgage brokers. The industry is very thinly regulated, and many brokers made piles of fast, easy money off the lending frenzy.
Barbosa says she was pretty fair to her clients and got them the best deal she could in the marketplace. But she says there was plenty of incentive not to put the customer first: Lenders would offer her 1 percent or 2 percent of the price of the loan as a kickback if she persuaded her client to take a higher interest rate. That was legal and commonplace.
Then there were the negative-amortization or "pick-a-payment" loans. Those offered low payment options to begin with but often exploded on the homeowner. As interest rates reset, often at much higher levels, homeowners faced larger payments. That's because the minimum payment required at the introductory rate didn't even cover the interest on the loan, let alone the principal.
"The bottom line is that the lender offered an incentive of 3 percent to the broker if they put [a client] into that particular loan," Barbosa says.
On a $500,000 home in California, brokers could make $15,000 to $20,000 or more in kickbacks on every single one of these risky loans.
"Obviously, tons of people got pushed or thrown in that direction," Barbosa says.
From New Century to Nonprofits
NPR spoke with Barbosa while she attended training at the Neighborhood Assistance Corporation of America, or NACA. Some out-of-work mortgage brokers have now found their way to nonprofits like this one. NACA is working with borrowers facing foreclosure all over the country, refinancing or restructuring their unaffordable subprime loans.
Bruce Marks heads up NACA and now helps retrain former subprime loan brokers. Who better to untangle these unaffordable loans than the brokers who helped set them up, he says. The former brokers understand the "exploding ARM loans" and the "pick-a-pay loans," Marks says. "They are the experts, because they were a part of that industry, and they know that business inside and out."
An Industry Riddled with Fraud
Anthony Narag worked as a loan officer for several different mortgage brokerage outfits in Southern California. He says everybody in the industry knew there was fraud all over the place: "It's almost like baseball with steroids. They knew about it, but they didn't do anything about it."
A case in point was the "stated-income loans." These were originally designed to help self-employed people with irregular income streams obtain mortgages. But during the housing boom, most people who got them weren't self-employed. They or their brokers just exaggerated their income to justify a big loan set to adjust to a high interest rate. Narag says to do that, they sometimes needed a supporting letter from a certified public accountant.
According to Narag, an account executive from the now bankrupt lender New Century told brokers like him not to worry about that letter.
"He would tell people, 'I have a CPA in my back pocket if you need one,'" Narag says. Narag says that meant he could get brokers bogus accounting letters so that fraudulent loan applications could get approved. New Century declined to comment for this story.
Narag says he also observed brokers printing fake bank statements or other income documents, and that there was a black market for these items. Everybody — including the lenders and banks buying these loans — looked the other way, Narang says, because the money was so good.
Narag got into the business himself after buying his own house: He saw that his loan officer wore shorts, didn't work that hard and raked in money. So Narag quit his job as a sales manager and was soon making $10,000 to $15,000 a month easily — without gouging his customers, he says. Brokers who did gouge their clients could make much more than that, he says.
The Hard Sell
Deceptive sales tactics were also commonplace. Darryl Toney worked in a local mortgage outfit in Chicago that had dozens of brokers selling subprime loans. The office had "that used car salesman feel," with "ruthless" brokers, he says.
Toney says he was taught to give homeowners the hard sell to get them into aggressive high-interest loans — even if it meant convincing them to refinance, instead of sticking with a better fixed-rate loan that they could afford. Toney says he wasn't dishonest, but a lot of other brokers were because they told people that risky adjustable loans had fixed rates.
After a year of working as a subprime mortgage broker, Toney was getting calls from customers who couldn't afford their loans. The market was falling, and he couldn't refinance them or help them. So he quit.
"I couldn't go for it ... to compromise my integrity — or at least, continue to compromise it, unfortunately," he says.
A Gray Zone
The situation is complicated. Some people were clearly lied to and cheated. Others knowingly borrowed recklessly or bought a house they could not afford. Many people are somewhere in between.
As an independent broker, Barbosa says she was straightforward with people. But a lot of homeowners just wanted to take cash out of their homes and make a low payment — even if the rate on their loans would eventually adjust much higher.
She says she explained all the loan terms to them: "They knew about the adjustments and fees." But she says, "They just wanted their money and they wanted the deal to close. Whatever we would say to them, they would take the loan anyway."
Barbosa, Toney and Narag all say they're happy to be starting their new jobs as mortgage brokers with a nonprofit. Now they're helping people who can afford a reasonable interest rate to save their homes.
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Before they crashed, those big financial firms had an unquenchable thirst for subprime loans, and that created a big opportunity for mortgage brokers. The industry is lightly regulated at best, and many brokers made piles of fast, easy money off the lending frenzy.
NPR's Chris Arnold takes us into their world where people could get rich peddling risky loans.
CHRIS ARNOLD: If you want a window into how so many people got into crazy loans, meet Amber Barbosa. Barbosa didn't graduate college. She cut her teeth working for the now-infamous subprime lender New Century Mortgage. A few years later, she struck out on her own as a mortgage broker and she was doing really well.
Ms. AMBER BARBOSA (Independent Broker): In '06, I made close to 500,000.
ARNOLD: And how old were you?
Ms. BARBOSA: I just turned 30, so 28.
ARNOLD: So, you're 28 years old, you're making half a million dollars a year selling subprime loans?
Ms. BARBOSA: Yeah.
ARNOLD: By then, Barbosa had a nice boat, a 27-foot Bayliner, several houses, nice cars. She was living outside of San Francisco.
Ms. BARBOSA: I was riding around in my '07 Escalade, had another Mercedes, a CLS500. God, I had three properties at the time — one right on the water with ocean access, another property for about 800,000. I was living.
ARNOLD: We checked the property records and Barbosa really did own those houses. Since the bottom fell out, though, she says she's pretty much lost everything. But back then, brokers like her were working next to a river of money and all they had to do was reach in and grab some. Basically, the more costly and risky the loans that they gave to their customers, the more money they made. Barbosa thinks she was pretty fair to her clients.
Ms. BARBOSA: When you would to shop a loan, you'd tell your client, hey, I'm going to get you the best deal out there based on your particular circumstance.
ARNOLD: But Barbosa says there were a lot of incentives to screw customers over. Lenders would offer her 1 or 2 percent of the price of the loan as a kickback if she got her client to take a higher interest rate. That was legal and commonplace. Then there were the Negative AM or Pick-A-Payment loans. Those had low payment options but later often exploded on the homeowner, costing them very high rates.
Ms. BARBOSA: The bottom line is that the lender offered an incentive of 3 percent to the broker if they put them into that particular loan.
ARNOLD: So, on a $500,000 home in California, brokers made fifteen to $20,000 or more in kickbacks on every single one of these risky loans.
Ms. BARBOSA: So, I mean, obviously, tons of people got, you know, pushed in - or thrown into that particular loan or in that direction.
ARNOLD: Barbosa talked to us at a training at the Neighborhood Assistance Corporation of America, or NACA. Some out-of-work mortgage brokers have now found their way to nonprofits like this one. NACA is working with borrowers facing foreclosure all over the country, refinancing or restructuring their unaffordable subprime loans.
Mr. BRUCE MARKS (CEO, Neighborhood Assistance Corporation of America): You got over 100,000 people coming through the process here, gang, so you know...
ARNOLD: Bruce Marks heads up this nonprofit and now helps retrain these former subprime loan brokers. He says who better to now put to work untangling these unaffordable loans — the 228 exploding ARMs, the Pick-A-Pays.
Mr. MARKS: They are the experts because they were part of that industry and they know that business inside and out.
ARNOLD: Some of the brokers here saw some shady stuff going on in that industry. Anthony Narag worked as a loan officer for several different mortgage brokerage outfits in Southern California. He says everybody in the industry knew that there was fraud all over the place.
Mr. ANTHONY NARAG (Realtor, Coldwell Banker Distinctive Properties): It's almost like baseball with steroids. They knew about it, but they didn't do anything about it.
ARNOLD: Narag says take stated-income loans - these were designed for self-employed people, but most people who got them were not self-employed. They or their broker just exaggerated their income to justify a big loan set to adjust to a high interest rate. Narag says to do that, they sometimes needed a supporting letter from a certified public accountant. He says an account executive from the now-bankrupt lender New Century told brokers like him not to worry about that letter.
Mr. NARAG: He would tell people, I have a CPA in my back pocket, if you need one.
ARNOLD: And what does that mean, I've got a CPA in my...
Mr. NARAG: It means if you didn't have a CPA letter, he had one for you that he could call - he'll take care of.
ARNOLD: Meaning, Narag says, he'd get you a bogus CPA letter. New Century declined to comment. Beyond that one company, Narag says he saw brokers printing up fake bank statements or other income documents. There was a black market for fake bank statements.
Mr. NARAG: I've seen it, you know. I have people who were so good at it. I used to work with - they're saying, hey, Anthony, if you ever need anything, bank statements, let me know. Here's the fee, you know. It could arrange anywhere between, like, 500 to $2,500 to fix bank statements.
ARNOLD: You get bogus documents.
Mr. NARAG: Yes.
ARNOLD: One broker says he knew a teller at a local bank who would sell doctored statements. And Narag says everybody, including the lenders in banks buying these loans, looked the other way because the money was so good. Narag got into the business himself after buying his own house. He saw that his loan officer wore shorts, didn't work that hard and raked in money. So Narag quit his job as a sales manager. He says even keeping his nose clean and not gouging his customers...
Mr. NARAG: I couldn't believe the money I was making. It was - making 10 to $15,000 a month easily. It was great.
ARNOLD: Narag says brokers that gouged their clients made much more, and there were a lot of deceptive sales tactics.
Darryl Toney worked at a local mortgage outfit in Chicago that had dozens of brokers selling subprime loans.
Mr. DARRYL TONEY (Mortgage Broker): That used-car-salesman feel. They were ruthless.
ARNOLD: Toney says he was taught to give homeowners the hard sell to get them into aggressive high-interest loans even if it meant refinancing them out of much better fixed-rate loans that they could afford. Toney says he wasn't dishonest, but he says a lot of the other brokers were, telling people these risky adjustable loans had fixed rates.
Mr. TONEY: The minimum payment was fixed for 12 months. So, when they say, oh, is this fixed, you know, yeah, sure. It is fixed. Sign here.
ARNOLD: Toney says he didn't do that, but before he figured out just how bad these adjustable loans were, he says he did convinced people to take them. After a year of working as a subprime mortgage broker, Toney was getting calls from customers who couldn't afford their loans. The market was falling and he couldn't refinance them or help them. So, he says, he quit.
Mr. TONEY: I couldn't go forward, you know. There's not enough money, you know, for to me compromise, you know, my integrity or at least to continue to, you know, to compromise it, unfortunately.
ARNOLD: The situation is complicated. Some people were clearly lied to and cheated, others knowingly borrowed recklessly or just bought way too much house. Many people are somewhere in between. Amber Barbosa says, as an independent broker, she was straight with people, but she says a lot of homeowners just wanted cash out of their homes and a low payment even if the rate was set to adjust much higher.
Ms. AMBER BARBOSA: I explained all the terms to them. They knew about the adjustments, they new the fees they were being paid. We never hid anything from them at all. I mean, it was definitely full disclosure. They just wanted their money. They wanted the deal to close. Whatever we would say to them, they would take the loan anyway.
ARNOLD: Barbosa, Toney and Narag all say they're happy to be starting their new jobs as mortgage brokers with a nonprofit. Now, they'll be helping people who can afford a reasonable interest rate to save their homes.
Chris Arnold, NPR News, Boston. Transcript provided by NPR, Copyright National Public Radio.
