Countrywide, Bank of America, Met Life Bank and a One Hundred and Twenty-three million dollar fine over mortgages
From Denver, news has been announced that Met Life has entered into an agreement to pay 123 million dollar penalty in response to allegations from the government that MetLife Bank approved loans that did not comply with federal underwriting standards and therefore the borrowers did not qualify for the loans approved by MetLife Bank.
The US Attorney in Colorado announced the agreement recently stating that MetLife Bank approved loans for borrowers who did not comply nor qualify under government rules and regs for federally backed mortgages.
Basically, the allegation is that Met LifeBank approved borrowers who did not qualify for FHA loans and put those loans into the FHA insurance program expecting HUD to pay the banks should those loans go into default. If a loan certified for FHA insurance defaults, the holder of the loan may submit an insurance claim to the FHA for the losses resulting from the defaulted loan.
The US Attorney stated “MetLife Bank took advantage of the (Federal Housing Administration) insurance program by knowingly turning a blind eye to mortgage loans that did not meet basic underwriting requirements, and stuck the FHA and taxpayers with the bill when those mortgages defaulted,”
“MetLife Bank took advantage of the (Federal Housing Administration) insurance program by knowingly turning a blind eye to mortgage loans that did not meet basic underwriting requirements, and stuck the FHA and taxpayers with the bill when those mortgages defaulted,” the US Attorney stated.
MetLife Bank, Walsh said, was among many banksc ountry whose irresponsible lending practices contributed to a “catastrophic wave of home foreclosures across the country.” MetLife Bank, which was headquartered in Bridgewater, N.J., merged in June 2013 into MetLife Home Loans, an Irving, Texas, mortgage finance company. It had been a “Direct Endorsement Lender” in the FHA’s insurance program.
“MetLife Bank’s improper FHA lending practices not only wasted taxpayer funds but also inflicted harm on homeowners and the housing market that lasts to this day,” said acting assistant attorney general Joyce R. Branda of the Justice Department’s civil division.
From September 2008 through March 2012, MetLife Bank repeatedly certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements.
Between 2009 and August 2010, up to 60 percent of the loans administered by MetLife Bank had “the most serious deficiencies,” the news release says. MetLife Bank’s senior managers, including the CEO and board of directors, were aware of the troubling statistics, according to the release.
(Opinions expressed herein are editorial in nature and based on opinion summarized from factual events and in no way is based on the case and facts cited above)It is important to remember history is the indicator here. There once was a giant banker in California called “Countrywide” that was feared by its’ competitors because they set up branches everywhere, gave their employees the ability to approve mortgages and were a monster origination firm.
Met Life, an insurance company, decided to get into the mortgage business. That makes sense because insurance companies buy mortgages as an investment to get interest payments to pay out on life insurance premiums, using the proceeds of life insurance payments from the insured.
This was done before in the late 80’s and early 90’s when various well known insurance companies opened up mortgage bankers.
It was viewed as a way to get mortgage backed loans by insurance companies, as investments at a lower price point, than buying them through retail channels after those loans are funded, sold, bundled and ready to go.
When Countrywide stumbled, Bank of America (BOA) took them over. BOA did so at the behest of the US Government in its’ attempt to stop the financial meltdown.
BOA has a strong interest in Countrywide at that time. BOA was very interested in using the Countrywide origination software platform and integrating that into the BOA platform. The Countrywide software was called “CLUES” and it was powerful in it’s day. It was a front end and back end IT magical system that integrated so many moving parts of the mortgage process that it made originating and closing a loan almost seamless. BOA saw value in that. It was the backbone that made Countrywide a powerhouse mortgage company.
After acquisition, BOA found out what everyone in the mortgage business who did not work at Countrywide knew: Countrywide valued quantity and profit to such a degree that the used car salespeople of the mortgage world went to Countrywide to get bigger commission and in turn brought more business because they cut corners (broke the law in many cases) and their Realtors (r) did not care “so long as the deal closed” - cutting out the reputable professional loan officers who made sure that their loans complied with the credit policies of the product their borrower was applying. As a result, the professional loan officers lost business, were shut out and moved to other industries because the wild west Countrywide loan officers were eating their dinner, desert and leaving no crumbs behind
BOA knew they had quite a few bad apple loan originators when they took over Countrywide. To their credit they quickly made adjustments in pay, systems, and other areas to stop the wild cowboy atmosphere at Countrywide. To BOA’s shame, the countrywide CLUES system was good they proceeded anyway, which in the end caused BOA to pay out on legacy Countrywide loans that soured.
The Countrywide loan officers were known as used car salespeople by their competitors at Banks, Bankers and Brokers who were true professionals. BOA should have looked at that as a very strong indicator of what they were purchasing in Countrywide, instead of thinking that they could become the new Countrywide in the new mortgage world order
As a result of the changes by BOA, the former Countrywide loan officers became unhappy with the “constraints” that BOA placed on them following their freedom at Countrywide. Many made upwards and over $200,000.00 dollars a year in commissions simply for taking a mortgage application and had in-house staff that approved those loans (no "Chinese wall" to stop influencing of processors with credit approvals and in some cases, those who approved the loans reported to the sales manager and not an Operations Manager -a case ripe for abuse).
So the ex-Countrywide loan officers left.
Where did they all go?
The vast majority went to…………MetLife.
And MetLife kept them on until regulatory changes came along and Met Life had to transition to a Bank in order to keep some of the loan officers who could not be licensed.
Why? Because Sen Warren, in one of the only good things that she did, established the National Mortgage Licensing System (NMLS) - under the Consumer Financial Protection Bureau (CFPB) that set standards and required that people who originated loans be licensed.
To get licensed to originate mortgage loans a person must go through a strenuous background check, a credit check and take courses and then pass various tests.
Unfortunately, many of the former Countrywide,officers could not pass the background test, let alone pass the tests.
Sen Warren, who is anti banking as they come, is not as bright as her liberal mob pit fans think. The reason is she left a huge loophole in the licensing of loan officers that consumers do not know about and she has left consumers exposed and at danger.
The CFPB and the NMLS system forced individuals who worked for Mortgage Brokers and Mortgage Bankers to pass the background tests to become licensed.
Those mortgage loan officers who worked at a bank were exempt from taking the tests and the courses.
That is right, they said that if you worked for a Mortgage Broker or a Mortgage Banker you had to be licensed through the NMLS, have a background, take the courses and pass the tests
But…..yes….it is true as ridiculous as it sounds —— Sen Warren's CFPB exempted banks from this requirement.
Banks simply had to sponsor their mortgage loan officers in the NMLS system and give them an NMLS number.
To the consumer, a bank loan officer had an NMLS number. A Mortgage Banker Loan Officer had an NMLS number. So, there was no difference to the consumer.
In reality, the bank loan officer had no professional requirement to get that NMLS number. It was as simple as entering their name and clicking a button for the bank loan officers.
Met Life for many reasons, but also because they did not want to lose the high producing loan officers who were unable to pass the background tests or unable to pass the courses mandated by the licensing of a non-bank simply applied and became a Bank.
As a result, Met Life Bank no longer required the cowboy high commission loan officers who brought in a lot of business to be go through a rigorous licensing process.
They could get their NMLS numbers at Met Life Bank and continue to be sloppy loan officers driven by commissions with little moral and ethics driving their production.
All they needed was the desire to earn six figures a year. And, this was just fine with everyone.
Not all Metlife loan officers fit this description by a long shot. However, it is a known fact that MetLife Bank had the vast majority of Countrywide loan officers. And, the many of the Countrywide loan officers were high producing loan officers who came from a culture of no restraint, cutting corners and breaking rules in order to sustain the high volume that they produced.
No bank, banker or broker who followed the rules and underwrote loans in compliance with government requirements had a shot at recruiting these loan officers from Met Life.
The result was, literally, Met life Bank had a lot of Countrywide sales managers opening Met Life Bank branches in every town in the United States. In some cases, there were two or three Sales Managers who disliked one another. Met Life simply opened up separate offices in the next town over to assuage the egos of the Managers so they would feel self-important and self-directed, bring their loyal high producing loan officers with them and operate as stand alone branches with autonomy.
This brought in loans to Met Life and this was what Countrywide did.
It also brought in poorly originated, poorly underwritten and most likely non-compliant loans into Met life.
It also brought in poorly originated, poorly underwritten and most likely non-compliant loans into Met life.
At some point Met Life either realized the risk and exposure or had other regulatory concerns. Regardless, Met Life quickly and abruptly exited and closed their mortgage business.
The Met Life loan officers then moved onward and split up in different directions because there was no large mortgage company (like a Metlife or a Countrywide) that would take them all. This is because the mortgage regulatory environment had changed to such a degree that this business model was viewed as too risky for lenders.
As a result, some loan officers left the business because it was clear to them that there was no safe harbor anymore to do business they way they were used to doing it.
Others, found lenders licensed as banks where they could continue onward. This may have been a risk that some of these banks felt they could sustain as they were not taking hundreds or thousands of Countrywide loan officers - just a few high producers who they could monitor from a distance to mitigate risk.
However, there were others who were able to pass the NMLS licensing requirements. That group of ex-Countrywide/MetLife loan officers quickly found small and mid-sized Mortgage Bankers and cut deals. Some cut large commission deals for themselves. Others went to mortgage bankers and brought with them a lot of business with a caveat. They took over the control of the mortgage banker. There is one in that literally changed their name and handed complete control to a Sales Manager to run the entire operation, unknown to Federal and State regulators.
As a result, there are many mid sized mortgage bankers that today are making a lot of money from the ex Countrywide, BOA, Met Life loan officers.
The owners of these Mortgage Bankers are doing exactly what Met Life and Countrywide managers did - -sit back and let those loan officers take control of their operations and systems in return for the commissions and volume. Which is fine, provided they are compliant. However, the ex Met Life Sales Managers no little to nothing about compliance and Operations nor risk management and underwriting.
In time, that will lead those mortgage bankers to the same fate as Countrywide, the same fate as Met life. They will implode and the owner will be left holding the back.
Only BOA was smart enough to say “good bye, it’s our way or the highway” to this group of originators.
And Sen. Warren was stupid enough to allow banks to get away with not properly licensing loan officers - leaving consumers victims to prey by individuals unable to pass basic licensing requirements of the NMLS system.