We Sell Money: Part I The Habitual Offenders

So, I guess the time has come to address some of the loans we made while at the Bank of Hell.  This is tricky for me because I could write an entire book on this subject alone and it would probably trigger your gag reflex and a pained expression of righteous indignation.  I'm going to try and take this slow and do this in installments in an attempt to lessen the odds you want to beat up your local banker.

Make no mistake about it, a loan officer is a salesman.  Unlike people who peddle things you don't want and don't need, loan officers peddle money.  Being a loan officer was a little like what I imagine it is like to be Santa Claus, you have something almost everyone wants and you make people happy.  Now I recognize that I am a shitty Santa Claus, the kind that would get you a house and allow you to run up all your credit cards and then my bank will come take it away before you were even done playing with it.

I did so many loans for some customers that three years later I still remember their phone numbers and addresses.  These customers were either people that I refinanced multiple times to take cash out of their homes or people who were bit with the speculation bug and were investing in lots of properties.  The latter included people buying houses to flip and slumlords.  A. Hole reminded me this morning that I once told a customer working on becoming a slumlord that he had been a very busy boy and was wearing me out.  I believe my frustration with him peaked that day because he was signing his fifth contract on an investment property in four weeks, and every loan was a nightmare.  I had quite a few of these pain in the ass customers who expected my bank to finance properties for them ad nauseam and for awhile, we actually did. 

Banks typically limited the number of properties they would finance for one customer, usually this number was around ten.  Ten properties, with at least ten loans to one customer, is a considerable amount of risk for a bank to bear on the residential side.  What it allowed investors to do was to capitalize on great residential loan terms and rates instead of getting  a commercial loan.  Commercial loan rates are higher, require larger down payments, and must make sense in terms of cash flow while residential loans do not have these downfalls.  There was a point at the Bank of Hell where I had four deals for one borrower who was purchasing four rental units and I was able to finance these for him with no down payment and an interest only mortgage payment.  That was selling money at its finest.

What banks didn't limit was the number of times you could refinance the same home which was a huge relief to the customers that I refinanced anywhere from five to six times in a three year period.  This is the phenomenon that made me aware we were headed into a recession in late 2006.  The spiral of doom began with me refinancing someone and getting them cash out of their home to consolidate other consumer debt, resulting in a lower monthly mortgage payment and cash in hand for the customer.  Feeling wealthier because of the cash in hand and the appreciation in their home's value they would proceed to spend money like a drunken sailor, to be fair here I must point out some actually were drunken sailors, but I digress.  Once the money ran out they would start using their credit cards again to maintain the standard of living they couldn't afford because their wages weren't rising but they didn't care because they knew their home value was appreciating.  Once they had run up more debt they would return to the Turdy Ferguson ATM again and apply for another cash out refinance.

The scariest customers were those who were simultaneously becoming slumlords while also using their primary homes as an ATM to purchase more real estate.  I had a few of these customers as well.  You might wonder whether I ever considered telling them this was a bad idea.  The answer is no, why the hell would I tell them that?  Every loan they signed for made money for me and at the time, I was in true believer mode.  True believer mentality in the mortgage industry was that we were making people wealthier.  I used to have my prepared sales pitch about why customers should not put money down on their homes and it went a little like this:

Customer:  "How much money do I need to put down?"


Turdy:  "Well that is the great thing, I can get you a loan with no down payment."


Customer:  "Isn't that risky?"


Turdy:  "Not for you, why should you bear the risk of the investment?  Banks are institutions set up to take risks, they are experienced at it.  Let them take the risk for you."


Customer:  "Hmmm, I never thought of it like that."


Turdy:  "Let me put it another way, not putting money down allows you to maximize your return on the investment in the house.  You can invest the money you would have put down on the house in the stock market and earn a rate of return on that.  Then every single penny of equity on your new home is pure return because you didn't make an investment to get that return.  Being fully leveraged means pure profit."

Customer:  "Wow, I had no idea  I could do that.  When can I close?"

While my skills at selling were admirable, no one was better than the Mortgage Devil.  He was a true believer of epic proportion.  When A. Hole ran into him shortly after the bubble burst all the Mortgage Devil could say was, "Look how those greedy bastards on Wall Street fucked it up for the rest of us".  Irony with your nonsense, Sir?

That my friends is today's lesson on how you inflate a bubble.

Damn It Feels Good To Be A Gangsta

I was realizing that working for a bank rather than a broker meant fewer assholes could cause me grief.  Instead of dealing with underwriters and closers from 30 different companies,  I only had to deal with those assholes in my company.  The downside was that since I had to actually know these people, as in meet them face to face and have a working relationship, it was expected that I wouldn't tell them that they were, in fact, raging assholes.  I functioned o.k. with this expectation to some degree, I didn't stand up and yell, "You Lie" at office meetings nor did I call anyone a nasty word to their face but I did not hide my disdain for the Bank of Hell or its employees well.

I really just wanted to get my customers loans and go to happy hour but the Mortgage Devil and the Bank of Hell had other expectations of me.  The first being that I would do virtually all the work on my loans, even if it was the work of my loan processor and underwriter.  For those who don't know, most loan officers take the application from the customer and counsel the customer on what they should provide in terms of documentation (when there was any) to get their loan through underwriting and approved.  The loan processor and underwriter are to verify all the information on the application, request additional supporting documentation, and send out forms like verifications of employment or rental history.  The idea behind loan officers not doing these sorts of tasks is that it creates an opportunity for fraud and in fact, most company policies would have prohibited loan officers from doing this.  Policies and rules were there but, in practice, well that is another story.

The power struggle begins.  I don't want to do the jobs of my processor and underwriter, not because I was infuriated by the ethical aspect, no really, I just didn't want to be bothered with it.  It wasn't my job to do it and so I didn't.  This made many of my loan settlements last minute fire drills.  My typical week would be four days of boredom followed by 1 day of frantic phone calls, panic, and unimaginable stress.

My lack of willingness to do her job pissed off my bat shit crazy underwriter/processor who complained to my operations manager about my lack of support for her.  The phone call went like this:

Ops Manager:  "Bat shit crazy says that your loan files are incomplete and you are making it hard for her to get through your loans."

Turdy :  "Hmmmm."

Ops Manager:  "This is a serious problem, why do you think you are so special that you shouldn't have to do the extra work."

Turdy :  "Well I guess that would be because none of the other loan officers have to do this stuff and I am pretty damn special."

Ops Manager:  Not amused...."Well if we could ever get you to training in Dante's Inferno I think it would solve the problem."

Turdy:  "The Mortgage Devil told me when he hired me that I would not have to attend this loan officer academy and I'm not planning on it."

Ops Manager:  "He can't make that decision, it is mandatory for all loan officers."

Turdy:  "Well be that as it may, I'm not going.  He promised me and he can get me out of it."

Ops Manager:  Sigh....Huff...."I have never had this much of a problem getting someone to corporate for training."

Turdy:  "See, I am special."

(Sound of Opertions Manager slamming her phone down)

This training thing was a joke.  If I had gone to Dante's Inferno and the loan officer academy, I wouldn't have been trained on how things actually functioned at the Mortgage Devil's branches.  Instead, I would have been trained on how the company wanted things done which was completely at odds with the real experience of working where I was at.  The Mortgage Devil had his own set of rules and procedures that you would not find in the company's manual.(more on that later.)

In the end, I never went to the five day loan officer training in Dante's Inferno.  I was of the mindset that if they fired me for not going it would be a blessing and I dug in my heels and refused to do what they told me.  After a few months at Bank of Hell I basically ignored everything local management told me to do, sometimes because what they were asking was unethical and sometimes just because I felt like being an asshole.  My attitude about the whole thing is best summed up by one of my favorite lines from the movie Office Space: 

"The thing is, Bob, it's not that I'm lazy, it's that I just don't care."

The Secret of My Success

It was later in the afternoon during my first day at the Bank of Hell that the Mortgage Devil finally appeared. He had a few minutes between calls and wanted to share with me how his wonderful system of NEVER missing a closing date works. Bottom line, he wanted to show me the secret to his success. I am curious about this system. He does close a lot of loans.

What it is it you ask? Well…it is a big-ass “Whiteboard”. My reaction…a Whiteboard??!! Seriously?? This is the Secret of his Success. A freakin’ Whiteboard? So, what exactly does this magical Whiteboard do? Nothing. It is a calendar….on a Whiteboard. To be fair, it is a color coded calendar on a Whiteboard. Here is how the magic happens…he takes a marker and writes the customers last name on the date when they are supposed to close on their loan. That’s it. Seriously, that is it.

The color coding came into play as in each Loan Officer has their own marker color. Since I was the last one aboard the U.S.S. Bank of Hell the color that was left for me was brown. Turd brown. I do have a brown tone to my skin, so the marker sort of matched my skin tone. How nice.

I stood there in my shirt and tie looking at the magical Whiteboard. Basically, I felt like Dorothy when she arrived at Oz and discovered that mighty and powerful Oz was just a man behind a curtain pulling levers. The curtain had been pulled back and it revealed a Whiteboard…and colored markers.

Then I was whisked around the office to officially meet the Devil’s Minions. His staff was dressed like they were getting junk ready for a yard sale. I was way overdressed for this place. My reception was less than warm when I arrived…my shelf/desk was on an island…I was underwhelmed by the secret of the Devil’s success…and now I am apparently overdressed. I felt a little like Ben Stiller in the movie “There’s Something about Mary” when he goes to pick up for Mary for Prom. I rang the doorbell and the step-dad (receptionist in my case) wonders why I am here. I had that moment of feeling that I am “all dressed up and no one knows I am supposed to here”. Except in the movie they were “just fucking with” Ben Stiller and “busting his chops”. In my case, they really did not know I was supposed to be there or why I was there. The feeling that I had a made a mistake coming to the Bank of Hell had just increased ten-fold. At least I didn’t get my dick caught in my zipper in the bathroom that day.

Touching It Doesn't Look So Bad

I had been at the Bank of Hell about 2 months before A. Hole joined the ranks. I had already realized that I was miserable but considering my previous boss had told me to touch his male genitalia, I was low on options. This is the phase of my career in the mortgage industry that would be classified by confusion as to what the hell was happening and acceptance that I had committed an egregious error.

The Devil's minions were foul and I didn't really make an effort to be nice to them because my motto was basically, "Fuck you, I have enough friends already and you all suck." See, A.Hole was blessed with an ass kissing gene that I (Turdy) did not get. I couldn't play the game, I still can't. I am 100% unadulterated me, everyday and all day. This made me pretty unpopular at the Bank of Hell where phoniness and the status quo were valued.

So after a week of "training", which was not training at all and involved me being stuck at an extra desk and largely ignored, I decided it was time to move on to the branch I was hired to work at. I was given a key to that office and for months, I was the only one there. No receptionist, no loan processors, no loan closers, and no assholes. It was pretty heavenly but there was a price. Since I basically hid at the beach branch, none of the processors or underwriters at the Mortgage Devil's branch worked on my loans. This led to a ton of stress the day before loan settlements when they would finally pick up my loan to get it approved. Then I would be calling my customers the day before they were to close on their loan to tell them we needed some inane piece of documentation that my processor should have picked up on 30 days before. This also got me some heated phone calls from the Mortgage Devil himself where he would rail on me about protecting his reputation and basically tell me what an asshole and embarrassment I was to him. The truth was, the Mortgage Devil only hired me to keep me from competing with him and because he was mandated to do so by management.

We were basically hired because the second biggest producer in the whole area decided to jump ship. The Mortgage Devil was previously partners with the Barbie Doll that A. Hole mentioned in his post on the clown. The two of them were so successful and overexposed that they had water bottles, frisbees, golf balls, and other crap with their pictures on them. The pictures were actually pretty funny because they both are the size of Romanian gymnasts, so when they pose in their "We are a team" fashion they look like they are part of an 8th grade cheerleading pyramid. I guess that was to inspire trust that they could get your loan done or alternatively, they could cheer you on to homeownership. Whatever, it was stupid. Despite their small stature, they were intimidating to the rest of us assholes in the business that weren't even well known enough to get recognized in person let alone to have our own line of bottled water.

To make a long story short, the Barbie Doll ditched the Mortgage Devil to go to another company. The Mortgage Devil was devastated and felt betrayed, you know, because he was such an ethical and upstanding individual that it rocked him to his core that someone wouldn't be loyal. This is why A. Hole and I were hired, to fill the void her production had left in the local market. And really, we were hired because he didn't want to lose any of his minions and if production fell, he would have to lose some of his dirty deed doers.

So I was promised the branch she had worked in and all her customer lists, connections, etc. This never happened. The Mortgage Devil took all of her contacts and left me to hope one of her customers would just call out of the blue and ask for a loan.

When I complained that I had no support in the beach branch and my loans weren't getting the attention I was promised by the Mortgage Devil (notice a reoccurring theme here), they got me a receptionist. I didn't get a Bank of Hell sanctioned receptionist, I got a temp from a local agency for three days a week. She was either a crack head or a meth addict, for real. One day she went to lunch and never came back. Doesn't that inspire trust that in an office with people's social security numbers, tax returns, and valuable personal information, the Mortgage Devil so carefully vetted the person who would have access to that information? I am still not sure whether it was legal for her to be there, but I suspect it at least violated the corporate policy of the Bank of Hell.  At least, I would hope so.  

So, while I waited for A. Hole to join me, I basically questioned my decision everyday. I closed loans, endured flack from the Devil, and often times thought a boss who asks you to touch his dick really isn't that bad after all.

Here on Gilligan's Island

I joined the Bank of Hell after five hours of face-to-face meetings with the Mortgage Devil. I was sold on how wonderful things were in Hell and how I could be part of a “team” and make lots of money. Everything sounded great…a team that was trained to complete your loans quickly, lots of loan products to sell, I would be given a certain amount of the “up-calls” (people calling in just to check rates and terms on loans) and I would work with Bank branch referrals in our area.

I was leaving behind my antiquated small Bank for a shiny new toy, the grass was greener, blah, blah, blah. I was frustrated by my current employer’s lack of moving towards technology available in the industry and the fact that I would have to wait 10 years (at least) to get a promotion. The next step up for me would have been to run the Mortgage Department. The person that held that job currently had no plans to retire within the next decade. He was basically riding the gravy train…being paid handsomely for doing very little. In his situation, why would he retire? Two meetings a week and a few loans a month is all he did. Ohh, I almost forgot the frequent smoke breaks he took while walking around the building. I often thought he must have incriminating evidence against the President of this small bank. Perhaps a photo of him “bending” an intern over his desk (or something similar). While some might think I am just being a smart-ass about this alleged photo…my thoughts about this photo are grounded in reality. While I was an employee of this small Bank, the President held a tearful staff meeting to announce that he was being accused of sexual harassment by a female teller that had quit and filed charges. I think the case was settled out of court. Anyway, it is not a far stretch that this photo exists.

So, I resign from my current job. That did not go well. Once I announced that I was going to work with the Mortgage Devil I was basically kicked out of the Bank. I had a company car at this Bank and I was told to turn over the keys right on the spot and hand over my cell phone. Basically,this sucked because the cell phone was in the Banks name and I had no ride home. So, I walked down the street to a friend’s office and called a cab. A lot of my referral sources had my cell phone number and this created the headache of distributing my new number to everyone. Advice to anyone in sales…ALWAYS make sure the cell phone is in your name and the company pay you a cell phone allowance each month instead of the company paying for the cell phone directly and having the phone number in their name.

I spent the weekend preparing for my new job. I had to gather my contact list, I had to get a new cell phone, and prepare to transfer for my business over to the Bank of Hell. After the long weekend, I show up with my pile of papers and files.

I head right up to the mortgage division and the over-baked fake tanned Receptionist is on the phone. She transfers a call and smiles at me and asks, “May I help you”. I tell her my name and announce that I am the new Loan Officer starting today. The smile instantly turns into a look of annoyance and disgust. The first words out of her mouth “Great…another new one. I have no idea where they are going to put you”?

Whaaaat?? No idea where they are going “to put me”? Where is my office, desk, laptop, keys to the kingdom? So, I wait several minutes while she goes into the back. I have no idea what she is doing, talking to the Operations Manager, talking to the Mortgage Devil, taking a nip of Vodka….who knew? She comes back out and without any words to me, starts answering the phones again. Ok, I am feeling stupid at this point.

Finally, the Operations Manager (Op’s Manager) comes out and asks me to come back to her office. Her “office” is basically a walk-in closet in the corner. Since I am a larger individual I have to wedge myself in sideways to sit across from her at the desk. She asks me to fill out a bunch of paperwork, forms, etc. Informs me they are ordering a laptop and passwords. Ok, soooo….basically no one knew I was coming. I guess the red carpet was in an off-site storage space (more on that another day). No balloons or confetti for my arrival?

She then shows me my office…err desk. It is basically part shelf/part table that is set up in a middle of a walkway. No walls or even cubicle walls. I did have a phone but no chair. They found a chair that was currently being used in the lunchroom to use. So, I left a private office with a cherry desk and leather chair for a shelf/desk and a lunchroom cast off chair.

I feel like I am out on an island. I am trying to make calls and there is a constant parade of people walking past. They are constantly talking on their headsets like they are the old "Time-Life" operators from the commercials many years ago. After a few hours of this...I realize...I made a mistake. This is a joke. Except it is not funny to me because the joke is on me. Here I am....a prize new recruit stuck "Here on Gilligan's Island".

Forms and Regulations? We don't need any stinking forms and regulations!

I had been at the Bank of Hell for a few weeks when a staff meeting was held, for my benefit, to fill me in on the nuances around the local Bank of Hell branch. The Mortgage Devil had called the meeting under the guise that it was to help me but like everything he does, it really was all about giving him an hour of floor time so that we might be enlightened as to why he was God's gift to the mortgage industry and a fabulous boss.

I was still adjusting to the fact that everyone in that office seemed to hate me right off the bat and it was pretty obvious that they didn't take well to newbies. If I hadn't been so distracted by the office bitchiness and what was proving to be an interesting case study in sociology and anthropology, I would have realized that something was seriously wrong.

In the interest of full disclosure, I have to point out that at the time of this meeting I was still largely ignorant of the internal functions of the mortgage industry. Compounding this ignorance, was an unfamiliarity with the processes of working for a bank rather than a broker. As a broker, my company did not service any of its own loans and I had two outlets for lending. The first being the correspondent loan channel, where we underwrote loans internally according to the investor's guidelines and then they purchased the loan after double checking that we handled the loan according to their standards. The other channel was the broker channel, where I sent the loan to another company to be underwritten and it closed in that company's name. This didn't necessarily mean that the loan would be serviced by the company I shipped the loan to, just that it never had the appearance of being my company's loan product. Basically, I was leaving an environment where I sold other company's loan products to join an environment where I sold the Bank of Hell's loan products. This distinction is tremendously important to the incentives facing decision makers within these firms.

The meeting starts with the Mortgage Devil pontificating about how great the Bank of Hell is and how his production stacks up in the company. At this point, I am a bit in awe of him, I still think he might be a mentor and help me become more successful. So like a complete asshole, I nod and smile at all his accomplishments while ignoring the eye rolling and under the breath comments of his assistants. During staff meetings they would pass notes and call him an asshole and douchebag under their breath while sporting fake smiles to go with their fake tans, fake hair, and fake intelligence.

The meeting goes on and we are discussing a few of my loans and I ask a simple question: "Where do I get a condo questionnaire?" The Mortgage Devil says, "What the hell is a condo questionnaire?" I feel stupid because this man has been in the industry 30 years longer than me and if he doesn't know what a condo questionnaire is then perhaps, I shouldn't either. I explain that at my previous company, if I did a loan on a condominium or a loan in certain developments, we had to send out a form to the homeowner's association that would verify if it was "warrantable" and approved by Fannie Mae or Freddie Mac. The Mortgage Devil looked at me like I just suggested that that we should elect Brittney Spears president of the mortgage division. He dismissed me with, "We don't do that here, we are a bank." So I asked if all condominiums are eligible to lend money on at the Bank of Hell and he told me that indeed, there is no such thing as an ineligible condominium and that we don't worry about those matters because we don't have to sell our loans. I was confused but since I really didn't know the channels and approval processes of the bank, I figured I should take the word of the Mortgage Devil. I even remember thinking how great it was to be at a bank since there was going to be a lot less red tape and impediments to getting loans closed. Yippee, more money for me.

For those of you whom have never worked in the mortgage business, this probably seems like an incredibly innocous conversation. But make no mistake, this is an example of what was happening around the mortgage industry during the housing boom that eventually led to the demise of banks, homeowners, and millions of investors. What I didn't know at the time, was that lack of a condo questionnaire was indicative of a more pervasive problem and that ranged from cutting corners to what probably was outright mortgage fraud by the Mortgage Devil and his minions at the Bank of Hell.

The best I can figure now, with perspective and distance, is that if a loan was underwritten in our office, and not sent to corporate headquarters in Dante's Inferno, corners were cut and forms that were actually required by Fannie Mae were either filled out by processors to make the loan look compliant or were just ignored.

In later posts, I will elaborate on why the regulation of banks is so ineffective but I want to at least make a point about the incentive structure that is responsible for a lot of the ills in the mortgage business.

1. At some point, banks became more concerned about the number of loans closed than the quality of those loans. Now this was intertwined with the ability to package and ship ugly loans as mortgage backed securities but also was cemented into policies within the bank that made for fast and loose decision making and underwriting. At some point, the Bank of Hell changed the payment structure for loan processors and underwriters, such that their salary was now tied to the number of loans that they approved and closed. It basically was like putting the gate keepers on commission for the number of people they let through the gate. Ummm, turns out, that is a pretty shitty idea. When you are getting rewarded for opening the gates, you become a greeter rather than a gatekeeper.

2. The compensation structure for loan officers was incredibly lucrative. At small local banks, historically, loan officers were typically paid a salary and then rewarded for the quality of their loans in bonuses. At some point, this model was abandoned in favor of a bank not having to pay their loan officer any kind of base salary. Obviously, this reduced short term expenses for the bank by making loan officers accountable for generating their own salary in commission. The problem is, that a loan officer who doesn't get rewarded for the quality of their loans, has every incentive to go out and get every loan they can to increase their bottom line. And this is exactly what happened. The long term cost of this probably outweighed the short term savings for a lot of companies because it created an environment where everyone who should have known a loan shouldn't get made had every incentive to make that loan.

3. This doesn't even touch the surface of the perverse incentives rampant in the banking and mortgage industry. I haven't even gotten to district managers, vice presidents, and the financial market innovations that allowed risk to be distributed to those people who didn't even know they were taking it.

I don't want to give the impression that everyone in the mortgage industry was an unscrupulous douchebag, some people like A. Hole and myself behaved ethically and didn't realize what was going on around us at the time and how it played into the bigger picture. On the other hand, The Mortgage Devil was an unscrupulous douchebag and our company not only gave gave him every incentive to do so but they rewarded him handsomely for his behavior.

Two weeks in hell, seventy six to go. Stay tuned, it gets ugly quick.