CBS’s 60 Minutes documents how wrongful wealth was created in the run up to the mortgage crisis.
Mortgages are ‘originated’ between the borrower and the original lender through the services of it’s brokers. The originating lender then may keep the loan, or may decide to resell the loan to another lender. Originating lenders can also bundle loans into a package and then resell the package. The originating lender makes money from the fees charged to originate the loan, and from selling the loan to others.
When reselling the loans to other lenders, the originating lender represents that the loans meet certain guidelines pertaining to the ability of the borrower to repay the loan and the value of the collateral. High risk loans (sub prime), with less qualified buyers and less collateral, command higher fees and higher interest rates, and earned higher profits for the originating lender. Much higher.
If the originating lenders made loans that did not meet the standards, and then knowingly resold these loans to other lenders, they would be profiting from a crime. Managers and executives who received compensation from the resale of the misrepresented loans would be profiting from a crime. If the originating companies stock price rises as a result of the profits from reselling these loan packages, executives made millions of dollars in stock options from a crime. And if the whole thing fell apart, the investors who bought the loans, and the investors who bought the stock of the originating company, would lose billions of dollars from a crime. And if the losses were so large as to endanger the financial system and cause government to bail out the failing loan originator, the tax payers would be paying for the crime.
In the two pieces below, 60 Minutes documents Countrywide and Citicorp both knowingly engaged in fraudulent loan origination. This is the kind of wrongful wealth we can all agree should be stopped.