We Sell Money: Part II Liar's Loans, The Ninas

Even people living in a van down by the river have heard of Liar's Loans and some of these van dwellers may have actually gotten one at some point, hence their new digs.  When I first encountered the media's reporting on sub-prime loans I observed that they really didn't get it and this trend continues with their coverage of Liar's Loans.  I offer this post so that you might educate yourself as I shock and awe you with tales of giving Liars money.

These loans came in many forms and were known throughout the mortgage industry by acronyms.  As with most things in the world, the longer the acronym the more fucked up the description behind it. 

What the media refers to as liar's loans were mortgages made to people without verifying whether at least some of the information on their loan application was actually true.  A typical loan application(1003) was four pages long and contained information as simple as name, property address, birth date, social security number, employer, income, assets, liabilities, other properties owned, address history and required the signature of the loan officer and the borrower.  The reason the loan application is known as a 1003 in the industry is that it is actually Fannie Mae form number 1003.

Most people who have a mortgage loan probably provided myriad paperwork and documentation to get their money, but between 2003 and 2007, quite a few people were able to get money with a driver's license and credit score and nothing else.

The Liar's loan that sensible people will find most shocking is the No Income, No Asset, No Employment loan or what the industry referred to by the very descriptive acronym of NINANE.  I used to sing song the acronym so that it came out like Nina Nee, which sounds like the name of someone who should be rocking out in Minneapolis with Prince rather than the name of a loan product so ridiculous that even a complete moron knows it doesn't make sense.

The Nina Nee loan didn't just stop at allowing you to not provide proof of your income, assets, and employment, no that just wasn't risky enough for Nina Nee.  Nina Nee didn't even want you to write this on your loan application, it literally was a loan application that was more than fifty percent blank.  If the loan could talk, then Nina Nee was saying, "I don't want to hear about your job and ability to repay this loan.  I just want to know that you have a social security number and a credit score.  Details, Schmetails."  Imagine lending hundreds of thousands of dollars to someone with the implicit assumption that they had no money and no job. 

In defense of this loan, it did require a down payment  or some equity in your home, so it wasn't risky to the degree of say, oh I don't know, lighting a match after dousing yourself in gasoline.  I only did one Nina Nee during my time in the industry and it was for a gentleman who had a perfect credit score but thought it was a complete invasion of his privacy to ask for any of his personal information.  He was one of my favorite customers ever, he actually owned a company and made a fortune.  He just didn't trust banks, the government, postal workers, people who drove minivans, the color yellow...I guess pretty much everyone and everything.  Oddly enough, he is one of the few customers that I am absolutely positive has still not defaulted on his loan, go figure.

The best I can figure is that the Nina Nee was invented for drug dealers or people in witness protection because they wouldn't qualify for Nina Nee's cousin, Nina.  The Nina was a slightly less risky loan where you didn't have to tell us whether you had money or what you earned but we at least asked that you tell us where you worked.  So if you were a drug dealer and you came to me for a loan, I couldn't get you a Nina unless I thought I could convince an underwriter that you were a self employed Pharmaceutical Sales Rep.  The scary thing is that if a drug dealer did call me and ask for a loan and he could get an accountant to say he was self employed in pharmaceutical sales, I could have gotten him a Nina instead of the Nina Nee.  For the record, I never did list a drug dealer as a pharmaceutical sales rep on a loan application, I'm just saying I could have.

Nina was a tool for people who couldn't state their income on the loan application, remember I didn't say verify, I only said state.  As an example, if a convenience store worker needed to make $5000 a month to qualify for a loan he wouldn't be able to do a stated income loan because no underwriter would believe that the income made sense for the job title.  Nina was so generous that if a convenience store cashier had great credit and wanted to refinance or purchase, the underwriter would simply call the company and verify that they had a job and not even calculate debt to income ratios to see if the loan made sense.

I did one Nina at the Bank of Hell that sticks out in my mind because it forced me to have a meeting with my Operations Manager and the Mortgage Devil at the same time in the tiny little closet she called an office.  These occasions were so awful that I typically left the meeting and immediately went in search of alcohol.  Fortunately, there was a lot of liquor hidden in the break room so sometimes you didn't have to go far.

I had some friends that were moving to Florida to be closer to aging parents and were selling a home in a overbuilt beach development.  I submitted the loan to my bat shit crazy processor/underwriter who apparently complained to both my bosses about how she was going to have to package it up and send it to Dante's Inferno to be underwritten.  Apparently she didn't feel that it was her job or that she had the time but really, she just didn't want anyone in corporate to be aware of her inherent laziness and corner cutting.  Here is my best recollection of that meeting:

Operations Manager:  "Why do you have to do these crazy loans that have to get sent to corporate to be underwritten?  It is much more work for Bat Shit Crazy to get these files in order and ship them there than it is for normal loans we can underwrite here in the office."

Mortgage Devil:  "And I don't understand why you are doing this loan as a NINA on a primary residence when you could just say it is a second home and do it as a stated income loan."

Turdy:  "Well, I am submitting it as a primary residence Nina because they are actually going to live in the home, which makes it a primary residence.  I can't do stated income because we have no idea how much money he will make in his contracting business in Florida because we don't have a two year history to support it.  Oh and I guess, there is also the hurdle of having to explain why they are selling their primary residence here if they are really buying a second home?"

Mortgage Devil:  "Duh.  That is why we have the exception process through the bank, all you need to do is list it as a second home on the application and under the real estate owned section, just don't mention the house is pending sale.  Then you can finance them at 100% in Florida so that they don't need the money they are getting from the sale of their house here to put down on their new home.  Then it can be underwritten here and won't force us to have to deal with the underwriters in Dante's Inferno.  Problem solved."

Turdy:  "So let me see if I understand what you two are saying to me.  You want me to lie about the purpose of the loan and the income of the borrower because it would be easier for me to do that than for Bat Shit Crazy to have to deal with Dante's Inferno and the extra work of sending a loan there?

Operations Manager:  "I don't understand why you always have to be so difficult and seem to have such a hard time just doing things our way.  Do what you want, Bat Shit Crazy will send it to Dante's Inferno just don't expect it to close anytime soon."

I'm not going to get into the exception process at the bank right now because if you are anything like me, you have a maximum amount of craziness and nonsense that you can tolerate in one sitting and I would like to keep you around as a reader.  I will say this, though.  The Mortgage Devil encouraging me to commit fraud and cut corners was a regular occurrence.  This was a man who once did a stated income loan (not a Nina or a Nina Nee) for two retired borrowers on social security.  WTF?  Can you imagine a stated income loan where the maximum amount a person could possibly earn is a Google search away?  Doesn't it make you wonder why an underwriter didn't stand up and say, "Seriously, Mortgage Devil.  If you have to state income for someone on a fixed income, they probably shouldn't be buying the property."  No underwriter said this because the Bank of Hell gave him an exception to do what is possibly, one of the most egregious liar's loans I have ever heard of.

The subtext of the conversation above is subtle so I must point out what I know now.  The Mortgage Devil and his operations manager, as well as the local processing and underwriting staff, did not want loans going to corporate and for good reason.  The more loans corporate saw, the more attention the branch would get at corporate, and the more likely they would be to start investigating the goings on.  There will be much more on that in later posts...

I guess my problem with the media's coverage of Liar's loans is that it misleads the public by insinuating that anyone who got a loan without verifying some information on their loan application or any loan officer who submitted these loans committed fraud.  This is not the case.  In fact, the least fraudulent loan in the entire world is the Nina Nee.  How in the hell can you commit fraud if you don't even ask any questions that the customer can lie about?  That is not to say that fraud didn't go hand in hand with these loans to some degree but the level of fraud involved in these loans ranged from the egregious to what many in the industry liked to call the grey area.

I might have a few customers living in vans down by the river, it would not shock me.  What might shock you is that the Ninas were not the riskiest loans we did at the Bank of Hell, some of the riskiest were Fannie Mae prime products and bank portfolio products.  Stay tuned, we are getting ready to take our thumbs out of the dike that protects you from the St. Crazy River.