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Comment by photochemsyn | Hacker News Reader

This is a good story to compare and contrast with the 2008 subprime fraud cases, for example 'Crazy Lloyd Blankfein' of Goldman Sachs.

https://www.cbsnews.com/news/feds-open-criminal-probe-of-gol...

"Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO, CBS 2010"

The amount of fraud committed was far greater than that, and there were no criminal charges involving jail time for any of the culprits. Kind of like doing armed robbery at a bank, getting away with $100K, then being fined $50k for the crime with no jail time. A profitable business model in other words.

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Never hear anyone suggesting we start charging people who lied on their loan applications even though it was rampant.

People frequently would say they were going to make $X/yr where that number came from the amount of money they expected the home to go up, not actual income on a W2. Banks were selling the loans so they often didn't care to get real documentation of income either.

I've often seen this take, but what it misses is that at the height of the liar loan boom, those loan applications with the lies were often filled in by the loan originator, knowing it was a lie, and they would then sell that loan off as soon as it was issued. The borrower often didn't even know what was on the form.

They thought they could get away with it because they believed real estate could only go up, so if the borrower defaulted the lender could get the house and still make money.

Yep. Happened with my mortgage; I only know about it because the bank actually asked for evidence to support a level of liquid assets that I never claimed to have. In my case, it wasn't really a problem as the mortgage was in line with what I knew I could afford. What was surprising, however, is that the bank offered to loan me considerably more than I could afford. I found it all very odd, but I didn't understand the meaning of it at the time. A few years later when it all blew up, I realised what had been going on. Again, I was fine as I did my own math, but I can imagine many people were sold on mortgages that they were never going to be able to afford.

Yep, happened with me too.

I remember my wife being adamant about a fixed rate mortgage while the banker was being super pushy about doing a 5 year arm. About a month after we got our house, we started getting the letters, "Your loan was sold to Bank XYZ, your new loan holder is ABC company." Literally every month our loan was getting sold multiple times.

Then Wells Fargo started calling about re-financing our mortgage around late 2006. We were like, "Huh? We're on a fixed rate." and the guy was like, "Says here your 5-year ARM you signed is expiring in 2008 and your rate is going to go way up."

Alarm bells started going off. We made an appointment to sit down with the guy at Wells Fargo. Sure as shit, the guy who was pushing us to do a 5 year ARM falsified our loan papers. Inflated a bunch of our assets to get us qualified for a bigger loan that we didn't need. He put us into a 5 year adjustable rate that was set to increase wildly in 2008. We refinanced and got our mortgage into a fixed rate again. We talked to an attorney about suing them, but by then the crisis was starting to gain some real steam and the company who did our original loan had already been out of business for six months.

In the late 90s I decided on an ARM with a teaser low rate for the first year, then it would jump up. So I refi'd after one year for another. Refi'd a year later. I think I did this 3 years in a row, then sold the house.

I read the mortgage agreements carefully. I didn't write them, and the contracts allowed this.

A side effect was each refi came with a home appraisal, paid for by the mortgage company. Every year, my property tax valuation went way up, every year I appealed, attached the bank appraisal, and got it back down.

That worked when interest rates were declining; now they are going up, so refi'ing at a better rate might not be an option.

I really feel like we need more stories like this catalogued. Glad it seems like it all worked out.

It didn't all work out for many: when real estate crashed in 2008 a lot of people lost everything: they had huge negative equity in a house that was suddenly worth 20% or more less than what they paid with 5% or less down payment, lost the house and their savings and wound up bankrupt, at a time when the economy was tanking so many lost their jobs as well. Many people had invested their retirement savings in bonds based on all these crappy loans, thinking that this was a conservative investment (real estate! Only ever goes up!).

OK charge the originator then too.

You're not wrong, but I always wonder why this is a reply when suggesting we charge and prosecute the bankers. To create an equivalency? To change the subject? Why?

Because the investment banks took loans and repackaged them, then didn't do anything illegal. The most sketchy thing they were accused of was repackaging loans when they should know the documentation was fraudulent, ie borrowers were lying on their forms. Its a long chain of paper pushers who are blaming each other, I'm not convinced anyone is worse than the others, just GS is most famous.

> Because the investment banks took loans and repackaged them, then didn't do anything illegal.

They did very illegal things. They lied, flat out lied, to their customers about what was in the financially engineered structures. Lied.

That is a crime (in civilised jurisdictions, and in the USA)

Please tell me which customers you are talking about? Is it the hedge funds who bought billions of CDOs but says they didn't understand what they were? Are they the people you're concerned about.

The banks they sold them to. And yes, the hedge funds.

They misrepresented these products. The learnt that the ratings agencies had made a mess of the rating too late, they were on the books. So they sold them as fast as they could, lying to the customers.

It does not matter if the customer was a hedge fund, a bank, or you. Lying about financial products is a crime.

They didn't lie they passed on the documents that were signed by the borrowers.

They lied. They also passed on the documents that were signed by borrowers, who were also lying.

Actually, the transfer and repackaging of loans was not done legally, and courts had to rubber stamp massive amounts of backdated paperwork when cleaning up the mess so the houses could actually be foreclosed upon.

There's a certain group of people who self-identify with the super rich, even with the ones that are orders of magnitude more wealthy than them. An attack on the rich is perceived as an attack on "their group". So they retaliate, usually against the poor, which they otherize.

The bankers were doing what we wanted them to do by giving us loans, even when we didn't qualify. Now they're continuing to do what we want them to do by being the villains. As long as they get paid...

Bankers where ultimately using other peoples money to issue loans so they didn’t care if the information was accurate and therefore not only didn’t check but actively falsified the information themselves.

That’s how you get this kind of crap: “How much do you make? It varies, I made 50k last year. That’s going to be a little tough, hmm let’s say next year went well, how much could you make? I don’t know 60-70k. Great 70k is going to make this all very smooth.”

The applicant assumes he’s being clear when getting a loan from the company he’s talking to. Meanwhile the company is only interested in selling Fake AAA bonds and just needs warm bodies to sign some paperwork.

It's because these loans usually don't make it through underwriting. Most of the time they don't even make it past the originators desk. Banks have no incentive to prosecute people who "forget" to mention there's a lien on their house. Also, who is to prosecute in cases where documentation of income isn't required? For instance, if I say I make $200k/yr because my boss told me I'd make that much in this new sales job am I lying if it turns out I won't make that much and documentation wasn't required?

People have such a school-house view of how the world works.

> Never hear anyone suggesting we start charging people who lied on their loan applications even though it was rampant.

Loan industry operates on “victim blaming” philosophy. If you give money to someone who could not afford the loan you are on the hook. That’s reasonable.

> were going to make

That's a documented risk the lender knew about and encouraged.

Banksters really got away with a lot in the States.

Iceland at least held theirs accountable.

https://www.independent.co.uk/voices/iceland-has-jailed-26-b...

This is the context of that story, right? https://en.wikipedia.org/wiki/Goldman_Sachs_controversies#20...

I think one important difference is that the story in the OP is fraud directly against individual retail investors (and the government, to be fair), whereas the Goldman story is a conflict between two hedge funds and an investment bank.

That seems important for the subtext of what you're saying.

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