In early 2006, Darcy Parmer began to worry about her job. She was a mortgage fraud investigator at Wells Fargo Bank. Her managers weren't happy with her. It wasn't that she wasn't doing a good job of sniffing out questionable loans in the bank's massive home-loan program. The problem, she said, was that she was doing too good a job.
The bank's executives and mortgage salesmen didn't like it, Parmer later claimed in a lawsuit, when she tried to block loans that she suspected were underpinned by paperwork that exaggerated borrowers' incomes and inflated their home values. One manager, she said, accused her of launching "witch hunts" against the bank's loan officers.
One of the skirmishes involved a borrower she later referred to in court papers as "Ms. A." An IRS document showed Ms. A earned $5,030 a month. But Wells Fargo's sales staff had won approval for Ms. A's loan by claiming she made more than twice that"”$11,830 a month. When Parmer questioned the deal, she said, a supervisor ordered her to close the investigation, complaining, "This is what you do every time."
Amid the frenzy of the nation's mortgage boom, the back-of-the-hand treatment that Parmer describes wasn't out of the ordinary. Parmer was one of a small band of in-house gumshoes at various financial institutions who uncovered evidence of corruption in the mortgage business"”including made-up addresses, pyramid schemes, and organized criminal rings"”and tried to warn their employers that this wave of fraud threatened consumers as well as the stability of the financial system. Instead of heeding their warnings, they say, company officials ignored them, harassed them, demoted them, or fired them.
In interviews and in court records, 10 former fraud investigators at seven of the nation's biggest banks and lenders"”including Wells Fargo (WFC), IndyMac Bank, and Countrywide Financial"”describe corporate cultures that allowed fraud to thrive in the pursuit of loan volume and market share. Mortgage salesmen stuck homeowners into loans they couldn't afford by exaggerating borrowers' assets and, in some cases, forging their signatures on disclosure documents. In other instances, banks opened their vaults to professional fraudsters who arranged millions of dollars in loans using "straw buyers," bogus identities, or, in a few instances, dead people's names and Social Security numbers.
Corporate managers looked the other way as these practices flourished, the investigators say, because they didn't want to crimp loan sales. The investigators discovered that they'd been hired not so much to find fraud but rather to provide window dressing"”the illusion that lenders were vetting borrowers before they booked loans and sold them to Wall Street investors. "You're like a dog on a leash. You're allowed to go as far as a company allows you to go," recalled Kelly Dragna, who worked as a fraud investigator at Ameriquest Mortgage Co., the largest subprime lender during the home-loan boom. "At Ameriquest, we were on pretty short leash. We were there for show. We were there to show people that they had a lot of investigators on staff."
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