'If you had a pulse, we gave you a loan'

Through a spokesman, People’s Choice CEO Neil Kornswiet told Dateline NBC his company was “one of the most conservative subprime lenders on the industry.”  He pointed out that People’s Choice did not issue some of the more notorious loan products, like the payment option ARMs sold by Countrywide, in which borrowers could choose to pay less than the standard monthly charge; with the unpaid amount then added to the principal due.

“Less than 40 percent” of People’s Choice loans were stated income, Kornswiet’s spokesman said, claiming that amount was lower than the industry average.  According to First American CoreLogic, a firm that collects such data, on average, what it calls “low documentation/no documentation loans” represented 40 percent of all subprime loans issued from 2004 to 2007.

Kornswiet’s spokesman also said that People’s Choice underwriters did verify that borrowers worked in the jobs they put on their loan applications and checked to make sure the amount of income claimed was reasonable for the occupation listed.

During the peak, in 2004 and 2005, People’s Choice originated more than $5 billion in mortgages a year, including an estimated $2 billion a year in stated income loans. (Ameriquest, the biggest subprime lender, originated more than $70 billion in mortgages during the same period.) 

But a look at some of those stated income loans is instructive. 

James LaLiberte joined People’s Choice in 2004 as the chief credit officer, overseeing the underwriting. Later, he was promoted to one of the top positions, chief operating officer, and was in charge of all operations and setting credit guidelines.

He presented Dateline with a list of nearly 13,000 loans People’s Choice funded in one year from April 2004 through March 2005, totaling more than $2 billion.  Many of the loans, he said, were questionable; some possibly fraudulent.

In an interview, he said that when he came on board, the company’s reputation was “spotty at best,” though he acknowledged the company was more conservative than many other subprime lenders.  

He said he welcomed the opportunity to help raise standards and credited CEO Kornswiet with trying to improve the company.  In the 1990s, he had worked as Kornswiet’s top underwriter at a company called One Stop mortgage, one of several management positions LaLiberte held during more than a decade in the mortgage business.  Before entering the subprime world, LaLiberte spent seven years at traditional lender Wells Fargo. 

Income discrepancies
Dateline independently researched dozens of the stated income loans on the list LaLiberte presented and found many instances where incomes apparently were inflated.

Examples on the People’s Choice list included a registered massage therapist who claimed an income of $15,000 a month ($180,000 a year) and whom People’s Choice loaned $640,000.  According to the Web site Salary.com, which is often used by lenders, the median income in the zip code where the borrower lived is $3,799 a month, about one quarter of the amount the borrower claimed. 

A manicurist who borrowed $445,500 in 2004 claimed monthly income of $16,800, more than $200,000 a year. Later, she filed for bankruptcy and submitted papers to the court reporting her 2005 annual income as $27,092, meaning  $2,258 a month (plus approximately $4,500 a year in child support). 

Another borrower in 2005 listed herself as director of development for a charity earning $15,500 a month ($186,000 a year) and obtained $655,000.  But a review of the charity’s publicly-filed tax returns shows that the director of development that year was paid $69,808, or $5,817 a month. Surprisingly, that person has a different name from the borrower.  A call to the charity elicited the information that the borrower indeed had worked there at the time the loan was issued, but held a position below director of development.

Former People’s Choice COO LaLiberte said that he used the list of loans as a training tool.  He put the spreadsheet up on a screen to highlight the types of loans the company should stop issuing. 

“The initial reaction was laughter,” LaLiberte said. “And then I said, ‘Well, wait a minute here.  Y’all think it's funny.  I think it's funny, too, sort of.  But these are loans that we funded. These are loans that we wired the money on.’"

He said that when he tried to implement more controls, he ran into resistance.  “The chief appraiser once said, ‘Fraud is what we do.’ That’s how we got where we are today.’”  Another former executive told Dateline he was present when the comment was made and confirmed the accuracy of LaLiberte’s account.

Neil Kornswiet’s spokesman said that Kornswiet’s lawyer spoke with both chief appraisers from the time LaLiberte worked at the company and both denied ever making such a statement. 

As for bad loans getting through, the spokesman said that “LaLiberte was the primary architect of the system.  He was in charge of the underwriting guidelines…. It was his responsibility to make certain these issues were addressed and did not happen.”

Eileen Loiacono was an underwriter at People’s Choice from 2003 until September 2005. She said LaLiberte tried to do the right thing, but lost out to more powerful forces. 

She and several other underwriters told Dateline that they felt pressured by sales staff to approve questionable applications. While their work as underwriters was supervised by a chief credit officer, they said that for administrative and basic personnel matters, they reported to sales managers.

One former People’s Choice manager who spoke on condition of anonymity said, “That place was run by the sales people,” some making $200,000 to $300,000 a month.  That did create pressure on underwriters, the former manager said. “There was a lot of ‘keep your mouth shut’ going on, meaning you just didn’t ask questions about things you knew were wrong.”

Loiacono said that the problems and pressure were not restricted to stated income loans, but also involved full documentation applications for which borrowers submitted records to prove how much they made.

Falsified documents
She said she saw numerous instances of falsified W-2s, tax returns, and bank statements, including crude cut-and-paste jobs. “They would use someone else's tax returns, and then they'd put someone else's name in them,” she said.

She said that she challenged about a third of all loan applications but was overruled by company executives the vast majority of the time.

According to Loiacono and several other underwriters, in a few instances, sales people offered incentives to sign off on loans.  Loaicono claimed the offers included breast implants, cars, and cash.  She said she declined all such offers and reported them to the human resources department.  She said nothing was done, as far as she knows.

Loiacono said that some sales people engaged in intimidation, threatening, for instance, to slash the tires of an uncooperative underwriter. Another underwriter, who requested anonymity, told Dateline her car was scratched up with a key by a sales person she crossed. 

The environment became too uncomfortable, Loiacono said, so she quit in September 2005.  “I wanted to be able to sleep at night without feeling like I was coming into a fight every day about something that I knew needed to be done right, and was not being done right.”

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