If you’ve ever bought a home, odds are, you know exactly what a verified income is. Unfortunately, the former head of the one-time largest mortgage lender in the U.S. doesn’t have a clue.
Whether you’re buying or refinancing to take out equity on your home in order to pay down your credit card debt, most of us know how to define verified income and if we don’t, we can take a guess – after all, it’s pretty obvious.
Someone forgot to invite Angelo Mozilo, the convicted criminal who headed what’s now known as the “most corrupt subprime mortgage lender in the U.S.”, doesn’t seem to know Mortgage 101.
He admitted, during testimony recently, that he didn’t have a clue as to the differences between stated income and verified income. That’s interesting considering many of the mortgages his now-failed lender, Countrywide, signed off on were due to stated incomes.
Stated Vs. Verified
Back before the mortgage meltdown, consumers often sought to either buy a home or refinance their current homes. We’d already felt the winds of change and it seemed big problems were on the horizon in the mortgage sector, if not the entire American (and eventually global) economies.
Many folks thought it was a great time to refinance – and it was. After all, many were getting ready to slow down a bit, maybe retire or at least cut back their hours, but they wanted to get out from under college loans, credit card debt and those payments on that nice yacht. The solution was easy: do a re-fi.
Everyone was getting approved back then, too. One way they were getting approved was via many lenders’ stated programs. These programs were applicable for both new home purchases and refinances.
With a stated program, the borrower simply stated on his application his income, balances and employer information. The loan originators, or in some states, the loan officers, were not required by the banks and lenders to verify that information.
The exceptions were those that were blatantly lying or those whose credit reports had different information. Make no mistake: people with credit scores in the mid-500 range were getting approved for 100% financing.
Just a few years before that, lenders wouldn’t dream of lending more than 80% LTV, or loan-to-value. That meant, of course, that the applicant would be required to come up with the remaining 20% for a downpayment. Soon though, it was 100% LTV for everyone.
Meanwhile, applicants could get away with a lot more then, too, since little of their information provided was actually verified. And of course, we know what happens from that point forward. Well, “we” means everyone except Mizilo.
Oh, the tragic lives of those former banking gods who took hard falls from grace and who now suffer from memory lapse.
During testimony in the long-suffering lawsuit between failed giant Countrywide (now Bank of America) and the insurance company MBIA, Mozilo had the audacity to say he had no clue as to the difference between stated and verified information.
You may recall that the past several years for Mozilo have been anything but pleasant. He was charged with massive fraud and was slated to stand trial in late 2010.
At the last minute, and for reasons most of us simply don’t understand, he was allowed to enter into a plea agreement that equated to absolutely no jail time and a fine of $67.5 million and even then, Countrywide paid more than $20 million of that fine.
To be more specific, Bank of America paid that fine since it had already acquired Countrywide. This was chump change, though, really – especially since Mozilo made an astonishing $500 million in the few years before 2008 when it all came crashing down.
One journalist who has significant knowledge of the ongoing case said,
If you were going to assign blame to any single person for the financial crisis, Angelo Mozilo would rank right up there with people like Lehman’s idiot CEO Dick Fuld…deranged credit-default-swap peddler Joe Cassano of AIG’s Financial Products
He continues to fail to accept responsibility saying that employees put things in front of him and he simply signed off on them. Here is a brief selection of his testimony:
…do you notice that it states, in the list of attributes, “Verified income is $5,848 versus 20,833 stated”? Do you see that?
What does that mean, “Verified income is 5,848 versus 20,833 stated”?
I don’t know.
Doesn’t it mean that he said on his application he earns 20,833 per month, whereas all Countrywide could verify was 5,848?
I’m not sure.
You don’t know. Did you know at the time?
Did I know in 2006? I don’t know what I knew in 2006.
Those are mighty vague statements coming from the man who oversaw one of the biggest and most profitable (for awhile) lenders in the nation. It should be noted, much more of the testimony has been sealed by the judge.
Let’s be honest – in all of the paperwork that’s been admitted into evidence – and there are tons of paperwork – not once does it appear he is confused between the difference in a loan originator verifying the information on the application and a loan officer who accepts the applicant’s word.
And, too, even with this specific example above, even if slightly more than $20,000 could be verified on an applicant, what kind of house could that applicant buy were everything above board?
In essence, it means they were knowingly qualifying applicants who could not afford any kind of mortgage payment.
It should be noted, too, that income is all inclusive of one’s employment, disability payments, income from rental properties, child support and alimony. This was the ‘whole shooting match’, so to speak.
We’re just wondering if he knows how to calculate the APR on his personal credit cards. For now, though, the lawsuit continues to drag on. Mozilo has taken a beating both in legal and media circles and it likely won’t get much better in the short term from this former CEO who was once respected for his brilliant financial mind.