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JP Morgan Chase's "Cheats & Tricks"

Written By Brian Hicks

Posted March 27, 2008





Cheats, tricks, and lies.

That was the seamy underbelly of the housing boom–a land of winks and nods.

In it, borrowers lied, fibbed and fudged their way to ill-gotten gains.

And all along the road, willing loan officers coached them and looked the other way.

Sure it was wrong. But if that was how a deal got done, then what was the problem?

It was the new mortgage paradigm and its mantra was simple- whatever it takes.

But the truth is that it was fraud –plain and simple– and in the end, it has costs us all.

Bad mortgage loans, after all, are what is at the very heart of the current credit crisis.

Without them, there would be no need for bailouts at all.

Here’s what part of that world looked like at JPMorgan Chase, one of the nation’s biggest mortgage lenders.

It was nothing more than a world built on lies.


From the Oregonian by Jeff Manning entitled: Chase mortgage memo pushes ‘Cheats & Tricks’

A newly surfaced memo from banking giant JPMorgan Chase provides a rare glimpse into the mentality that fueled the mortgage crisis.

The memo’s title says it all: "Zippy Cheats & Tricks."

It is a primer on how to get risky mortgage loans approved by Zippy, Chase’s in-house automated loan underwriting system.

The secret to approval? Inflate the borrowers’ income or otherwise falsify their loan application.

The March e-mail was sent by Tammy Lish, a former Chase account representative in Portland. Chase fired her days after discovering she had sent it.

"I did not write it," Lish said. "It was sent to me by another (Chase) rep in another office along with some other documents that were more step-by-step customer training documents."

Even if the memo was penned by a single employee, it illustrates an attitude prevalent in certain corners of the mortgage industry during the boom years. In the face of sustained and significant home price increases, much of the industry veered away from traditional notions of safe and sound lending. Loan volume became as important as loan quality, particularly for the rank and file typically paid on commission.

Chase, the nation’s second-largest bank, originates mortgage loans itself but also operates a wholesale arm that underwrites and funds loans brought to them by a network of mortgage brokers. The "Cheats & Tricks" memo was instructing those brokers how to get difficult loans approved by Zippy.

"Never fear," the memo states. "Zippy can be adjusted (just ever so slightly.)"

The Chase memo deals specifically with so-called stated-income asset loans, one of the most dangerous of the mortgage industry’s innovations of recent years. Known as "liar loans" in some circles because lenders made little effort to verify information in the borrowers’ loan application, they have defaulted in large number since the housing bust began in 2007.

The document recommends three "handy steps" to loan approval:


  • Do not break out a borrower’s compensation by income, commissions, bonus and tips, as is typically done in a loan application. Instead, lump all compensation as the applicant’s base income.


  • If your borrower is getting some or all of a down payment from someone else, don’t disclose anything about it. "Remove any mention of gift funds," the document states, even though most mortgage applications specifically require borrowers to disclose such gifts.


  • If all else fails, the document states, simply inflate the applicant’s income. "Inch it up $500 to see if you can get the findings you want," the document says. "Do the same for assets."


The game, as you can see, was rigged all the way. And now that it’s over the bill is due.

Just don’t expect those mortgage crooks on Wall Street to pay the price. Instead they are getting a bailout.

Remember that as you work on your taxes this weekend. 

Free markets my foot.

By the way….Chase was hardly alone in this sordid business. All of them did it—and I do mean ALL OF THEM.