Rocky Mountain Whack-A-Mole

While privately-held banks (other than Subchapter S and mutuals) scramble to sort out the CPP and decide, in short order, "to be or not to be" in bed with Uncle Sam, other participants in the mortgage market continue to prey on consumers. You thought the bad guys had been driven out of the market because the secondary market for subprime loans went the way of Cloris Leachman on "Dancing With The Stars"? No, they've just oozed their way into other avenues of slime or into new variations of the same old avenues. One state's Attorney General is relentlessly hunting them down and rooting them out (or at least, hosing them down).

Three Colorado mortgage brokers have reached settlements with state Attorney General John Suthers to end what Suthers called the "deceptive use of teaser rates in mortgage-loan advertisements"in Denver newspapers.

The agreements were part of a larger "crackdown on deceptive mortgage brokers and foreclosure rescue firms" involving several other businesses, Suthers' office said in a statement Tuesday. The crackdown especially targeted what Suthers alleged were deceptive practices concerning the offer of so-called option adjustable rate mortgage loans (option ARMs).

[...]

Suthers’ statement said the three companies advertised in the “Mortgage Marketplace” sections of The Denver Post and Rocky Mountain News, offering low teaser rates or low minimum monthly payments associated with option ARMs.

“Disclosures of true interest rates and other loan terms were buried in agate footnotes, if included at all,” Suthers' statement said. "Several of the brokers interviewed during the course of these investigations remarked that these advertisements 'made the phones ring.'"

In the settlement with state prosecutors, the three brokers "agreed to advertise only traditional fixed rate loans or traditional ARMs, not option ARMs," and to disclose loan terms in readable print, Suthers said.

Suthers also filed a civil lawsuit against another firm to stop it from allegedly using "direct mail to market risky option ARM loans to borrowers without disclosing the associated risks." That's one way to stop the option ARM business, or at least a piece of it, I suppose. On the other hand, at this stage of the game, you'd have to be a complete moron to be suckered into an option ARM. Maybe that's who these folks were preying upon.

It's not just options ARMs that have Suthers exercised. His office also announced settlements with one mortgage broker who was putting money into applicants' accounts in order to falsely inflate their net worth to qualify them for larger loans, and with another lender that was sending false advertisements to homeowners that appeared to be from the homeowners' bank, urging them to refinance. Finally, Suthers' office reached cease and desist agreements with seven foreclosure rescue firms who were violating Colorado law.

When times are tough, the corner-cutters get busy, don't they? We've joked before about regulators playing "whack-a-mole" in certain situations. We're glad that guys like Suthers are willing to keep playing that game in a state that's had its fair share of mortgage-related fraud.

As we continue to sink into a massive recession/depression, it's irritating to consider the constant stream of borderline and over-the-borderline fraudsters who are trying to take advantage of other people's pain. One is reminded of the words of H.L. Mencken: "Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and start slitting throats."