Now it turns out that some Banks were....well.....here's the memo, written by a Chase loan staffer, as reported in the Portland Oregonian, describing how to game Chase's loan-scoring system:
3 handy steps" for getting a questionable loan approved by JPM Chase's automatic system:
1. Lump all of an applicant's compensation as the applicant's base income, rather than breaking out commissions, bonuses and tips.
2. Do not disclose use of gifts for down payments.
3. If all else fails, simply inflate the applicant's income. "Inch it up $500 to see if you can get the findings you want. Do the same for assets.
My, my. The Oregonian article goes on:
Chase, the nation's second-largest bank, originates mortgage loans itself but also operates a wholesale arm that underwrites and funds loans brought to them by a network of mortgage brokers. The "Cheats & Tricks" memo was instructing those brokers how to get difficult loans approved by Zippy [the nickname of the automated system.]
"Never fear," the memo states. "Zippy can be adjusted (just ever so slightly.)"
The Chase memo deals specifically with so-called stated-income asset loans, one of the most dangerous of the mortgage industry's innovations of recent years. Known as "liar loans" in some circles because lenders made little effort to verify information in the borrowers' loan application, they have defaulted in large number since the housing bust began in 2007. . .
Note that there is speculation that the "memo" published by the Oregonian may have been the work of an in-house Chase jokester. It's also possible, of course, that the "memo" describes actions that were taken by some loan officers/brokers, and memorialized by the "memo."
Chase, of course, says that the "memo" does not represent official policy. Doh.
Here's the stuff that actually counts:
"During the boom, it was common for lenders and brokers to get paid more for risky subprime loans than for 30-year fixed-rate loans because the higher-interest loans fetched a higher price on Wall Street.
Like your Momma always said: "Follow the MONEY."