Amber Barbosa didn't graduate college. But she did get an education — by working for the now infamous subprime lender New Century Mortgage Corp.
Barbosa was a quick study: A few years later, she struck out on her own as a mortgage broker.
"In 2006, I made close to $500,000," she says. Not bad for a 28-year-old with no college degree.
By then Barbosa, who was living outside of San Francisco, had a nice boat, a 27-foot Bayliner. She had several houses, a Mercedes and a Cadillac.
"I was riding around in my '07 Escalade," she says. "God, I had three properties at the time — one right on the water with ocean access, another property worth $800,000."
NPR checked the property records, and Barbosa really did own those houses. Since the crash of the housing market, though, she says she has pretty much lost everything.
But during the height of the housing bubble, brokers like Barbosa were working next to a river of money; all they had to do was reach in and grab some. Basically, the more costly and risky the loans they gave to their customers, the more money they made.
Wall Street Demand for Subprime Loans
Before the bottom fell out of the subprime loan market, many big financial firms had an unquenchable thirst for subprime loans. Firms were making a lot of money securitizing these high-interest-rate mortgages, so the demand from Wall Street for new loans was huge. And that created a big opportunity for mortgage brokers. The industry is very thinly regulated, and many brokers made piles of fast, easy money off the lending frenzy.
Barbosa says she was pretty fair to her clients and got them the best deal she could in the marketplace. But she says there was plenty of incentive not to put the customer first: Lenders would offer her 1 percent or 2 percent of the price of the loan as a kickback if she persuaded her client to take a higher interest rate. That was legal and commonplace.
Then there were the negative-amortization or "pick-a-payment" loans. Those offered low payment options to begin with but often exploded on the homeowner. As interest rates reset, often at much higher levels, homeowners faced larger payments. That's because the minimum payment required at the introductory rate didn't even cover the interest on the loan, let alone the principal.
"The bottom line is that the lender offered an incentive of 3 percent to the broker if they put [a client] into that particular loan," Barbosa says.
On a $500,000 home in California, brokers could make $15,000 to $20,000 or more in kickbacks on every single one of these risky loans.
"Obviously, tons of people got pushed or thrown in that direction," Barbosa says.
From New Century to Nonprofits
NPR spoke with Barbosa while she attended training at the Neighborhood Assistance Corporation of America, or NACA. Some out-of-work mortgage brokers have now found their way to nonprofits like this one. NACA is working with borrowers facing foreclosure all over the country, refinancing or restructuring their unaffordable subprime loans.
Bruce Marks heads up NACA and now helps retrain former subprime loan brokers. Who better to untangle these unaffordable loans than the brokers who helped set them up, he says. The former brokers understand the "exploding ARM loans" and the "pick-a-pay loans," Marks says. "They are the experts, because they were a part of that industry, and they know that business inside and out."
An Industry Riddled with Fraud
Anthony Narag worked as a loan officer for several different mortgage brokerage outfits in Southern California. He says everybody in the industry knew there was fraud all over the place: "It's almost like baseball with steroids. They knew about it, but they didn't do anything about it."
A case in point was the "stated-income loans." These were originally designed to help self-employed people with irregular income streams obtain mortgages. But during the housing boom, most people who got them weren't self-employed. They or their brokers just exaggerated their income to justify a big loan set to adjust to a high interest rate. Narag says to do that, they sometimes needed a supporting letter from a certified public accountant.
According to Narag, an account executive from the now bankrupt lender New Century told brokers like him not to worry about that letter.
"He would tell people, 'I have a CPA in my back pocket if you need one,'" Narag says. Narag says that meant he could get brokers bogus accounting letters so that fraudulent loan applications could get approved. New Century declined to comment for this story.
Narag says he also observed brokers printing fake bank statements or other income documents, and that there was a black market for these items. Everybody — including the lenders and banks buying these loans — looked the other way, Narang says, because the money was so good.
Narag got into the business himself after buying his own house: He saw that his loan officer wore shorts, didn't work that hard and raked in money. So Narag quit his job as a sales manager and was soon making $10,000 to $15,000 a month easily — without gouging his customers, he says. Brokers who did gouge their clients could make much more than that, he says.
The Hard Sell
Deceptive sales tactics were also commonplace. Darryl Toney worked in a local mortgage outfit in Chicago that had dozens of brokers selling subprime loans. The office had "that used car salesman feel," with "ruthless" brokers, he says.
Toney says he was taught to give homeowners the hard sell to get them into aggressive high-interest loans — even if it meant convincing them to refinance, instead of sticking with a better fixed-rate loan that they could afford. Toney says he wasn't dishonest, but a lot of other brokers were because they told people that risky adjustable loans had fixed rates.
After a year of working as a subprime mortgage broker, Toney was getting calls from customers who couldn't afford their loans. The market was falling, and he couldn't refinance them or help them. So he quit.
"I couldn't go for it ... to compromise my integrity — or at least, continue to compromise it, unfortunately," he says.
A Gray Zone
The situation is complicated. Some people were clearly lied to and cheated. Others knowingly borrowed recklessly or bought a house they could not afford. Many people are somewhere in between.
As an independent broker, Barbosa says she was straightforward with people. But a lot of homeowners just wanted to take cash out of their homes and make a low payment — even if the rate on their loans would eventually adjust much higher.
She says she explained all the loan terms to them: "They knew about the adjustments and fees." But she says, "They just wanted their money and they wanted the deal to close. Whatever we would say to them, they would take the loan anyway."
Barbosa, Toney and Narag all say they're happy to be starting their new jobs as mortgage brokers with a nonprofit. Now they're helping people who can afford a reasonable interest rate to save their homes.