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Chase Memo Suggests Mortgage Fraud

With more and more families trying to save their homes from foreclosure with refinancing, bankruptcy and other financial scrambling, few people can deny that America is in the midst of a housing crisis. And now, it seems we have a glimpse of how we got there.

A memo written on JPMorgan Chase letterhead outlining techniques for getting questionable loans approved was released to reporters at the Oregonian last week. The memo, called "Zippy Cheats & Tricks," provided tips for sneaking loan applications by Zippy, the bank's in-house automated underwriting system, according to the Oregonian.

The "three handy steps" included for getting loans approved include:

1. Include all tips, commissions and bonuses in borrowers' "base" salaries to make them seem like they earn more and can afford more expensive loans.
2. Make no mention of "gift funds" (e.g. money given to a borrower to make a down payment) on applications.
3. If nothing else works, simply inflate the borrowers' income and assets to try to get the loan you want.

If these suggestions shock you, you're in good company.

The first item refers to "stated income," which has been used to get "liar loans" - apparently, efforts to verify the truth behind income figures were minimal at best. Sources note that most loan applications explicitly ask whether or not gift funds played a role in a borrower's ability to purchase. And the last item quite obviously encourages flat-out fraud.

Reuters notes that Chase's spokesman denied that the memo was company-backed, and said that the bank would neither condone nor tolerate such a document circulating. But the state of the mortgage lending industry suggests that the pointers in the memo were taken to heart by brokers from all major banks.

Tammy Lish, the Chase employee who let the memo leak, has been fired by the bank, according to sources. Lish allegedly claims she's not the text's author, but received it along with other training documents.

And she apparently didn't mean to send the memo either, since Chase has stopped issuing stated income loans as part of its effort to improve the quality of its mortgages.

Other mortgage brokers, though, have reportedly expressed a certain level of relief that the public saw the contents of the memo. Brokers have taken a fair amount of heat for fueling risky lending habits, since many were paid commissions for originating risky subprime loans.

"Cheats & Tricks," the argument goes, shows that such practices were encouraged from high levels of the industry and not simply the result of broker greed.

As the dust of the lending frenzy settles, we're beginning to realize how we got where we are today. If you have questions about saving your home or your finances, consider consulting with a bankruptcy lawyer.

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