World Of Trouble

Scott Pelley Reports

(CBS)  Simpson says World and other lenders were in a ruinous competition for customers. "There are people inside of every institution that have been screaming for years about these terrible loans. Don't fund these. These are horrible loans. And they were routinely ignored inside of their own institutions."

Asked why they were ignored, Simpson said, "Because there's no money in common sense. There's no money in stopping a loan. There's only a payday when that loan closes."

The loan World was selling was potentially risky. It's called an option ARM, but at World it went by the cheerful name "Pick-A-Payment." The monthly statement offered four different payment amounts that the homeowner could actually choose from. But, the lowest payment didn't even cover the interest on the loan. Deferred interest would add up month after month, leaving the homeowner farther and farther behind.

That's what happened to Betty Townes. World sold her four Pick-A-Payment loans, racking up $40,000 in fees and deferred interest for the bank. Now her full payment is larger than her monthly income.

"Hard to think of Betty without a home," Pelley noted.

"It’s horrifying to think of her without a home. It’s just unacceptable," Maeve-Elyse Brown said.

And she's not alone. Between 2003 and 2006, the total amount of deferred interest from World borrowers, choosing that lowest payment, jumped from $21 million to $1.2 billion.

"That’s the borrower saying to you 'I can’t make my payment' or 'I’m not making my payment.’ Now that was increasing at $100-million a month," Bishop said.

And that, he says, is when he began complaining to his bosses. "And basically it was characterized as, 'Look, you're a malcontent. I mean, you're not happy here. You don't like it here. You don't like the way we do business here.' I said, 'You know, it's all true. You know, it's all true. But, you know, you can't continue to do this.'"

Then in the summer of 2005, Bishop saw an article in the Wall Street Journal which Herb Sandler boasted about the soundness of the bank's loans.

Bishop told Pelley he complained, saying to a senior manager: "I think we have crossed the line. And there's no question in my mind that the chairman of the board, the founder of this bank, has no clue what's going on. Or he's indicating that in the press."

"Did you use the term 'predatory lending' with him?" Pelley asked.

"I'm sure I did. 'Fraud' for sure I used," Bishop said.

"And he said what?" Pelley asked.

"He said, 'Well, you know, I'm not aware of that,'" Bishop replied.

After that, Bishop got into a heated argument with a fellow employee and the bank threatened to fire him. He says it was retaliation for his complaints. So he talked to Tim Wilson, the corporate head of sales.

Bishop says he told Wilson: "’This is somebody's home. This is a home they can't afford. Okay? We are complicit in this, okay? You’re granting too many people loans who simply can’t qualify.’ He said, 'I don't have any instance of that.' I said, 'Come down to Vicente Street. Pull 100 loans, any 100…down at my office.' I said, 'I don't have the ability to do that or I'd do it. Come down to the office. Pull 100 loans. You're gonna be stunned at what you see.'"

Asked if Wilson did that, Bishop said "No."

Wilson did write a memo about their conversation, saying Bishop could not point to "any specific examples of employees or loans that do not conform to company policy" and he noted that "random audits are done weekly all over the country."

[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?