Michael W. Hudson - The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis

A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeless Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebodys signature.

Glover was new to the mortgage business. He was twenty-nine and hadnt held a steady job in years. But he wasnt stupid. He knew about financial sleight of handat that time, he had a check-fraud charge hanging over his head in the L.A. courthouse a few blocks away. Watching his coworker, Glovers first thought was: How can I get away with that? As a loan officer at Ameriquest, Glover worked on commission. He knew the only way to earn the six-figure income Ameriquest had promised him was to come up with tricks for pushing deals through the mortgage-financing pipeline that began with Ameriquest and extended through Wall Streets most respected investment houses.

Glover and the other twentysomethings who filled the sales force at the downtown L.A. branch worked the phones hour after hour, calling strangers and trying to talk them into refinancing their homes with high-priced subprime mortgages. It was 2003, subprime was on the rise, and Ameriquest was leading the way. The companys owner, Roland Arnall, had in many ways been the founding father of subprime, the business of lending money to homeowners with modest incomes or blemished credit histories. He had pioneered this risky segment of the mortgage market amid the wreckage of the savings and loan disaster and helped transform his companys headquarters, Orange County, California, into the capital of the subprime industry. Now, with the housing market booming and Wall Street clamoring to invest in subprime, Ameriquest was growing with startling velocity.

Up and down the line, from loan officers to regional managers and vice presidents, Ameriquests employees scrambled at the end of each month to push through as many loans as possible, to pad their monthly production numbers, boost their commissions, and meet Roland Arnalls expectations. Arnall was a man obsessed with loan volume, former aides recalled, a mortgage entrepreneur who believed volume solved all problems. Whenever an underling suggested a goal for loan production over a particular time span, Arnalls favorite reply was: We can do twice that. Close to midnight Pacific time on the last business day of each month, the phone would ring at Arnalls home in Los Angeless exclusive Holmby Hills neighborhood, a $30 million estate that once had been home to Sonny and Cher. On the other end of the telephone line, a vice president in Orange County would report the months production numbers for his lending empire. Even as the totals grew to $3 billion or $6 billion or $7 billion a monthfigures never before imagined in the subprime businessArnall wasnt satisfied. He wanted more. He would just try to make you stretch beyond what you thought possible, one former Ameriquest executive recalled. Whatever you did, no matter how good you did, it wasnt good enough.

Inside Glovers branch, loan officers kept up with the demand to produce by guzzling Red Bull energy drinks, a favorite caffeine pick-me-up for hardworking salesmen throughout the mortgage industry. Government investigators would later joke that they could gauge how dirty a home-loan location was by the number of empty Red Bull cans in the Dumpster out back. Some of the crew in the L.A. branch, Glover said, also relied on cocaine to keep themselves going, snorting lines in washrooms and, on occasion, in their cubicles.

The wayward behavior didnt stop with drugs. Glover learned that his colleagues art work wasnt a matter of saving a borrower the hassle of coming in to supply a missed signature. The guy was forging borrowers signatures on government-required disclosure forms, the ones that were supposed to help consumers understand how much cash theyd be getting out of the loan and how much theyd be paying in interest and fees. Ameriquests deals were so overpriced and loaded with nasty surprises that getting customers to sign often required an elaborate web of psychological ploys, outright lies, and falsified papers. Every closing that we had really was a bait and switch, a loan officer who worked for Ameriquest in Tampa, Florida, recalled. Cause you could never get them to the table if you were honest. At company-wide gatherings, Ameriquests managers and sales reps loosened up with free alcohol and swapped tips for fooling borrowers and cooking up phony paperwork. What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documentsthe ones indicating the loan had an adjustable rate that would rocket upward in two or three yearsnear the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.

At the downtown L.A. branch, some of Glovers coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out, and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the offices break room with all the tools they needed to manufacture and manipulate official documents. They dubbed it the Art Department.

At first, Glover thought the branch might be a rogue office struggling to keep up with the goals set by Ameriquests headquarters. He discovered that wasnt the case when he transferred to the companys Santa Monica branch. A few of his new colleagues invited him on a field trip to Staples, where everyone chipped in their own money to buy a state-of-the-art scanner-printer, a trusty piece of equipment that would allow them to do a better job of creating phony paperwork and trapping American homeowners in a cycle of crushing debt.

Carolyn Pittman was an easy target. Shed dropped out of high school to go to work, and had never learned to read or write very well. She worked for decades as a nursing assistant. Her husband, Charlie, was a longshoreman. In 1993 she and Charlie borrowed $58,850 to buy a one-story, concrete block house on Irex Street in a working-class neighborhood of Atlantic Beach, a community of thirteen thousand near Jacksonville, Florida. Their mortgage was government-insured by the Federal Housing Administration, so they got a good deal on the loan. They paid about $500 a month on the FHA loan, including the money to cover their home insurance and property taxes.

Even after Charlie died in 1998, Pittman kept up with her house payments. But things were tough for her. Financial matters werent something she knew much about. Charlie had always handled what little money they had. Her health wasnt good either. She had a heart attack in 2001, and was back and forth to hospitals with congestive heart failure and kidney problems.