World Of Trouble

Scott Pelley Reports

(CBS)  Her husband, Ronnie Townes, was dead. World Savings noted that in her papers. But his former income was used to qualify Betty.

Maeve-Elyse Brown, a lawyer for a non-profit group working to save homeowners from foreclosure, says Betty Townes' actual income was about $1,875, but that the income written on her loan application was over $4,000.

Asked who did that, Brown told Pelley, "The interviewer that's listed is a staff person for World, for World Savings, according to the loan documents."

"What does that tell you?" Pelley asked.

"Looks like whoever typed up this document put in the number that they thought was the right number to get the loan approved," Brown said.

"The term was 'packaged.' It had to be packaged correctly when it got to the underwriter," Bishop told Pelley.

Bishop says a story like Betty's was common at his former office.

He says facts were manipulated on some loan documents to get past company underwriters who approved the loans. "You know, let's not say this. Let's delete these items that they're probably not gonna check on. Let's add this. Let's just move it around."

"Packaging the loan meant modifying [the loan]…to make sure it would pass the underwriters' inspection?" Pelley asked.

"Correct. It was one grand wink-wink, nod-nod," Bishop said.

One person you won't see in this story is Herb Sandler. For months, 60 Minutes invited him to sit down for an interview. But instead, he sent these letters. He says it is "categorically false to suggest that we trained or permitted employees to falsify a borrower’s income." Sander called it "totally unacceptable in our culture."

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Read Herb Sandler's first letter and his second letter to 60 Minutes.

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But Paul Bishop says he watched the bank famous for quality begin to emphasize quantity. World relied on outside mortgage brokers to bring in 60 percent of its customers. The more loans that were approved, the more the brokers, and World Savings, made in fees.

"We would have these instant underwriting events in an office where we would assemble five underwriters right there," Bishop told Pelley.

Asked how many loans would be covered in a single day, Bishop said, "80, 90, we would keep track of it. 80, 90, 100 would be reviewed, yeah. Oh, yeah."

By 2005, 38% of World's clients had subprime credit scores. And customers were shown fliers that told them their income would not be checked by the bank.

"So I don't really need to know what you make. I don't need proof. You tell me you make $200,000 a year? You make $200,000 a year," Bishop said.

"No verification?" Pelley asked.

"Not gonna check," Bishop replied.

Herb Sandler told 60 Minutes if there was no income verification, the bank still checked credit reports and appraisals. But 60 Minutes spoke to two former World salesmen and a former executive who made similar allegations to Bishop's. One said, "It was all about volume, quantity over quality."

To understand what was happening in the mortgage industry, 60 Minutes went to Bob Simpson, whose company, IMARC, investigates failed mortgages.

"When one lender dropped standards, another lender felt that they had to do the same," Simpson told Pelley.

[ExWS-UW]

I worked for World Savings for almost 5 years and will vouch for this article. It is terrible what is happening to every homeowner across the nation. World Savings is only one of thousands of lenders who was practicing this type of lending. I was an underwriting manager based out of Southern California who moved up the ranks for fast and quickly learned that everything you heard on this episode of 60 Minutes was true. Every sector of this bank was lead by "sales" professionals. If an underwriter was not comfortable with approving the loan, it would be repackaged to make it work under guidelines. The word guidelines is used loosely internally, meaning it is a portfolio loan and "we make our own guidelines" if we have compensating factors. This means ASSUMING the market will continue to get better, we can almost disregard income and utilize value with credit history to make the loan work. If the underwriter still feels that they should not make the deal, then the "origination manager" aka bottom line sales manager who needs to line their pocket to compete with other branches and ultimately other institutions, can make override the denial and "just their name on it" to approve the deal.

I am glad this made it primetime...but just a little too late. I left right after the merger was completed...

[lemaitbr]

You unfortunately concluded your excellent report with an inaccurate information. You claim that Wells Fargo bought Wachovia with taxpayer bailout funds. This is not true. After announcing the purchase of Wachovia, Wells Fargo went to the market to raise money... Their $10 billion offering was oversubscribed and WF ended up raising more than $11 billion IN THE MIDDLE OF A FINANCIAL CRISIS... The $25 billions in taxpayer money was received later and it has been well publicized that it was at the request of the government.

[novsable]

This was the most informative session I have seen that shows the common borrower what happened to them. Although other segments of the mortgage industry shoulder and should shoulder the blame, it is imperative that borrowers understand what happened. We hear on the news about investors, bundling of packages, and collateralized debt obligations, the common borrower only knows how much they borrowed and how much their monthly payment is. The rest of what has been reported in the news is way above their heads.

They have been sweet-talked into exotic mortgages and do not really understand what they have gotten themselves into. The closing process is very difficult to understand, the package of papers (disclosures) are not easy to understand, and most of the time no one explains what the borrower is really signing. Those interest-only loans look really enticing until you understand that you are not paying down the principal of your loan and at the end of the interest-only period, you have no equity in your biggest investment. I have also seen borrowers given final loan applications to sign that do not remotely resemble the original handwritten application. I believe that it all can be blamed on greed from the loan officers to the investors.

Thanks for bringing the "crisis" down to the level of the people it is most affecting - those losing their homes because they can't afford their newly indexed mortgage payments.

[bamboohaiku]

Will someone please explain to me how World Savings was making money by refinancing a loan on a very modest house every year while giving the borrower $20,000 each time? They did not bundle these loans and pass the bundle off to Wall Street as AAA. They kept the loan in house, which would seem (as Mr Sandler claims) to make it much less likely they'd make low-prime loans they knew couldn't be repaid. [e-mail]

[james-cox]

Nothing like some carefully-worded diction to create sympathy where there shouldn't be any:

"Trouble is, some of their money came from people like Betty Townes, who is financially ruined after BEING SOLD a series of World Savings mortgages she couldn't afford."

The reality is that "being sold" means that this poor woman BOUGHT this loan, under her own accord. That she was taken advantage-of by some on-the-make salesman is a testament to her own inability to read the fine print, and the principle tenet of capitalism "buyer beware" leaves her deserving of the misfortune as a consequence of her own ACTIONS.

60 Minutes is pandering to the sympathies of fellow short-sighted "financially-ruined" individuals who are in denial of who's responsible. The tough fact is that anyone who CHOSE to sign onto a loan they couldn't afford need look no further than a mirror to find the culprit.

"A fool and his money are lucky enough to get together in the first place."

[nox4bsn]

I was a Vice President with Wachovia Mortgage Corp. when they purchased World Savings Bank. Not long after the purchase, the CEO of Wachovia was no longer with Wachovia. Not long after his departure, World staff started moving in throughout the mortgage departments selling the "pic-a-pay" loan. There were training classes everywhere & the push was on to sell, sell, sell. I did not take the training and did not care for the loan product; thirty-six years in the business aided me in my decision about wise financing options..that was not one of them. I told my co-workers at the time of the purchase of World that,in my opinion, it would be the downfall of Wachovia. I retired 10/2007 before it all hit the fan. I feel deep sorrow for those affected by this.

[trumur]

A note on the tax issue. What happens is the loan officers underestimate the taxes to get the initial approval, it could be intentionally but most likely a result of loan officers that don%u2019t now what they were doing. If the underwriter does his or her job properly this is adjusted prior to the loan closing. If the taxes are impounded (collected through payments for the bank to pay), and the amount is not fixed prior to closing, then there will be a shortfall in taxes in the first year that is made up in the second year when impounds are reassessed by the bank. In the third year the taxes (and monthly loan payment) will go down again.

This is not a scam, the bank does not make any money off this, it is actually a cost to them. Customers should always read the title report and settlement statement that is provided prior to the loan closed. The taxes are clearly stated in the title report and the settlement statement shows what is paid on the customers behalf.

As for the gentleman in the story on 60 minutes I wonder why he stayed with a company he knew was so fraudulent? If he was really concerned he should have left before the market dried up. World did not fire him because they were afraid of him, what he knows is one tenth of what was going on there and no different then what happened at Wachovia. I have spent years trying to help clean up practices at similar companies and I know that one sales person does not know enough to frighten a company.

[kmhill88]

Your story about World Savings couldn't come at a better time. I've been in litigation with World Savings for almost a year.
I'm writing to tell you about a much bigger rip off that many mortgage companies have been doing to home owners. I own 5 rentals and I have mortgages with 4 different lenders when my home loan is included and every one of these lenders have pulled this rip off. I have a feeling that many people that think their variable interest rate is what is increasing their payments isn't' what's causing the increase. Variable interest rates are all tied to an index but all of those indexes have been dropping for years now. So, why would their payments go up? They would be going down. The scam has nothing to do with interest rates.
Making a complicated story short the lenders lied to the borrowers what their property tax payments were going to be. The lenders wait for a little over a year and then they spring the trap. The lenders then put up a smoke screen saying the property taxes increased and that's why the borrower's (my) payments have increased by 25% to over 50%.
This is a very sophisticated rip off and it requires very dedicated investigative reporting. PLEASE take the time to look into this. If it happened to every loan I have it must be happening to at least a majority of people that have taken out a home loan within the past 5 years. Please contact me at any time.
Sincerely, Kurt M. Hill

[cam20002]

What happened at World Savings is a disgrace, but did you think to ask the question of poor old Betty Townes, what did she spend the $80k proceeds from the 4 refinancings on?