Finally we get the truth from the mainstream media about the sinister nature of the subprime scam which has plunged our country into near financial collapse. Read the full Transcript. Excerpt Below:
How did the mortgage industry destroy itself and set off an economic collapse that ruined the finances of millions of Americans? Executives tend to hold themselves blameless, saying that no one could have seen the disaster coming.
Well, judge for yourself after you hear the story of Paul Bishop, who worked at the nation's second largest savings and loan. World Savings Bank was among the industry's most admired mortgage lenders. But Bishop says the kind of lending practices he saw were leading to a world of trouble that would ultimately result in billions in losses and a federal investigation.
What does Paul Bishop say he told executives at World Savings, three years before the crash?
"We're breaking the law, okay? We're breaking the law. You know we're breaking the law. I know we're breaking the law. What the hell do you think is going on here? You know, you're granting too many people loans who simply can't qualify," Bishop told 60 Minutes correspondent Scott Pelley.
Bishop's story is a rare inside look at forces that tore the economy apart, as seen by a plain-spoken loan salesman who is now suing World Savings, claiming that he was fired for telling executives what they didn't want to hear.
"I definitely talked to him about Enron. I said, 'We're sitting on an Enron.' This is…bigger than Enron. I mean, we’re doing four billion a month in loans. If housing drops, housing value drops, people start to default, you know? This is a nightmare. These people will not survive it," Bishop told Pelley.
Bishop was a mortgage salesman at World Savings San Francisco Loan Origination Center. He'd been a top salesman at IBM and spent years as a stock broker. Most everywhere he went, he had a reputation for speaking his mind and ruffling feathers. He joined World in 2002, in part, because of its history.
Bishop says the owners were Herb and Marion Sandler.
"And their reputation at the time was what?" Pelley asked.
"It was flawless, near as I could tell," Bishop said.
In fact, Herb and Marion Sandler were legendary. In 1963, they started Golden West Financial and grew to 285 branches under the name World Savings. The Sandlers' were known for careful, conservative lending. They've given away millions of dollars to charity and started an advocacy group for low income borrowers called the Center for Responsible Lending.
In 2006, just before the housing crash, the Sandlers sold their bank to Wachovia and pocketed $2.3 billion.
Trouble is, some of their money came from people like Betty Townes, who is financially ruined after being sold a series of World Savings mortgages she couldn't afford.
Asked how many times she refinanced, Townes said, "Well we refinanced practically every year."
World salesmen convinced Betty to refinance her mortgage four times in four years. She got about $20,000 each time. "Well, all I know that they told me this loan was best for me," she told Pelley.
But how could it be best when Betty's pension couldn't qualify her for the loans?
"They told me that they would go by my husband's payroll," she said.
"Even though he'd been laid off from the shipyard?" Pelley asked.
"No, he'd passed away," Townes replied.
[...]The loan World was selling was potentially risky. It's called an option ARM, but at World it went by the cheerful name "Pick-A-Payment." The monthly statement offered four different payment amounts that the homeowner could actually choose from. But, the lowest payment didn't even cover the interest on the loan. Deferred interest would add up month after month, leaving the homeowner farther and farther behind.
That's what happened to Betty Townes. World sold her four Pick-A-Payment loans, racking up $40,000 in fees and deferred interest for the bank. Now her full payment is larger than her monthly income.
"Hard to think of Betty without a home," Pelley noted.
"It’s horrifying to think of her without a home. It’s just unacceptable," Maeve-Elyse Brown said.
And she's not alone. Between 2003 and 2006, the total amount of deferred interest from World borrowers, choosing that lowest payment, jumped from $21 million to $1.2 billion.
"That’s the borrower saying to you 'I can’t make my payment' or 'I’m not making my payment.’ Now that was increasing at $100-million a month," Bishop said.