OC's subprime cesspool

Ever wonder how those OC subprimers could amass so many mortgages from so many unsuspecting borrowers? The answer that's laid out in the new issue of Bloomberg Markets magazine is an army of independent mortgage brokers who handle as much as 70 percent of subprime originations. That's right, outfits like New Century and Fremont General outsourced the bulk of their sales - and let's just say that no one seemed interested in following the house rules. The piece, written by L.A.-based Seth Lubove and Daniel Taub, opens with 27-year-old Taher Afghani being told by friends about the riches that awaited him at Secured Funding. After tagging along with a buddy on a company junket to Los Cabos ("It was crazy. All these kids, literally 18 to 26, were loaded - the best clothes, the cars, the girls, everything'), Afghani went to work reeling in borrowers. In one case involving another lender, $5,000 was temporarily deposited into the bank account of a potential borrower to inflate his or her assets. The money was then taken back or loan fees were increased. Nice bunch, eh?

Secured Funding's success was fueled by sales leads generated by millions of pieces of direct mail and Internet trolling, Afghani and other former salesmen say. Typical of the direct mail was a credit card offer. When potential customers called to activate the card, they were instead hooked up with a Secured Funding account executive such as Afghani. Afghani describes chaotic office scenes that recall "Boiler Room,'' a 2000 movie about stock brokers at a Long Island wire house. To spur sales, Secured Funding broke its salesmen into color-coded teams. "If you weren't turning those calls into applications, they would drag you out and make your life miserable,'' he says. "The turnover was unbelievable,'' says Afghani, who says he watched eight people pass through the neighboring desk in seven months. ``If you didn't cut it right off the bat, you were just fired.'' Dane Marin, who worked at Secured Funding for a year, says managers harangued everyone. ``If you weren't on the phone very long, you'd get an e-mail saying, `Get your head out of your ass,''' he says.

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The proliferation of lightly licensed sales branches was enabled in part by a patchwork of regulations that cover independent mortgage brokers and lenders. While banks are overseen by federal and state regulators, mortgage brokers and independent sales outfits are overseen by a menagerie of state authorities, some of which also look after barbers and masseuses. In California, which accounts for about 40 percent of subprime borrowing in the U.S., no one even knows how many people are originating loans, according to an October 2006 report by the California Association of Mortgage Brokers. That's because while the state licenses individual mortgage brokers, anyone can work for a big lender under the umbrella of a single corporate license. The group estimated that a minimum of 600,000 people were peddling loans in the state last year.