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How High-Tech Dream Shattered in Scandal at Lernout & Hauspie
By Mark Maremont, Jesse Eisinger and John Carreyrou
Staff Reporters of THE WALL STREET JOURNALDecember 7, 2000
John Duerden wanted his $100 million, and he wanted it now.The chief executive officer of Lernout & Hauspie Speech Products NV had come to South Korea to solve a mystery: why his Korean lieutenants refused to release $100 million in cash they had on their books. Amid a deepening accounting scandal, Lernout & Hauspie, a leading maker of speech-recognition software, desperately needed the funds to stave off bankruptcy.
Arriving at the Seoul office of L&H Korea on Nov. 17, he was kept waiting for an hour before being ushered into a room with a visibly nervous Joo Chul Seo, head of the subsidiary. Mr. Duerden began grilling him about the cash. "Suddenly," Mr. Duerden recalls, "the door was kicked open with a terrific crash and three guys ran into the room, shouting and gesticulating."
The CEO watched in shock as the men dragged Mr. Seo out of the room and into an adjoining office, from where loud shouts and bangs were heard. "I thought the guy was getting beaten up," Mr. Duerden says. After urging employees to call the police, he left the building and high-tailed it out of the country.
http://online.wsj.com/article/SB10001424052748703989304575503500899087566.html
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http://www.investopedia.com/terms/l/liar_loan.asp
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Liar Loan
What Does Liar Loan Mean?
A category of mortgages known as low-documentation or no-documentation mortgages that have been abused to the point where the loans are sometimes referred to as liar loans. On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application. On other loan programs, such as no income/no asset (NINA) loans, no income and assets are given on the loan application form. These loan programs open the door for unethical behavior by unscrupulous borrowers and lenders.
A category of mortgages known as low-documentation or no-documentation mortgages that have been abused to the point where the loans are sometimes referred to as liar loans. On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application. On other loan programs, such as no income/no asset (NINA) loans, no income and assets are given on the loan application form. These loan programs open the door for unethical behavior by unscrupulous borrowers and lenders.
Investopedia explains Liar Loan
These loan programs are designed for borrowers who have a hard time producing income and asset verifying documents, such as prior tax returns, or who have untraditional sources of income, such as tips, or a personal business. These loans are called liar loans because the SISA or NINA features open the door for abuse when borrowers or their mortgage brokers or loan officers overstate income and/or assets in order to qualify the borrower for a larger mortgage.
Low-documentation mortgages usually fall into the Alt-A category of mortgage lending. Alt-A lending depends heavily on a borrower's credit score (FICO score) and the mortgage's loan-to-value ratio (LTV) as tools to determine the borrower's ability to repay the mortgage.
These loan programs are designed for borrowers who have a hard time producing income and asset verifying documents, such as prior tax returns, or who have untraditional sources of income, such as tips, or a personal business. These loans are called liar loans because the SISA or NINA features open the door for abuse when borrowers or their mortgage brokers or loan officers overstate income and/or assets in order to qualify the borrower for a larger mortgage.
Low-documentation mortgages usually fall into the Alt-A category of mortgage lending. Alt-A lending depends heavily on a borrower's credit score (FICO score) and the mortgage's loan-to-value ratio (LTV) as tools to determine the borrower's ability to repay the mortgage.
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A stated income loan is a mortgage where the lender does not verify the borrower's income by looking at their pay stubs, W-2 forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income, and taken at their word. These loans are sometimes called "liar loans"[1]. Stated income loans were originated by Ameriquest.[2]
[edit] Reasons for stated income loans
These loans are nominally intended for self-employed borrowers, or other borrowers who might have difficulty documenting their income. Stated income loans have been extended to customers with a wide range of credit histories, including subprime borrowers. The lack of verification makes these loans particularly simple targets for fraud.[3]Stated income loans fill a gap of situations which normal loan standards would not approve. For example, a standard rule is that a customer's mortgage and other loan payments should take up no more than 45% of the person's income. This would seem prudent for a person just owning their main home. However, a real estate investor may have multiple properties and for each may receive only a small amount more than their loan payments on each house, but end up with $200,000 in disposable income. Nevertheless, a non-stated income loan would decline this person since their debt to income ratio would not be in line. The same issue can arise with self-employed borrowers, where the bank with a fully documented loan would include the borrower's business debt in their debt to income calculation. Stated income loans also help borrowers where fully documented loans normally would not consider the source of income as being reliable and stable, such as investors who consistently earn capital gains. Fully documented loans also do not consider potential future income increases.
In August 2006, Steven Krystofiak, president of the Mortgage Brokers Association for Responsible Lending, in a statement at a Federal Reserve hearing on mortgage regulation, reported that his organization had compared a sample of 100 stated income mortgage applications to IRS records, and found almost 60% of the sampled loans had overstated their income by more than 50 percent.[4]
U.S. Senator Chuck Schumer is currently leading an effort to restrict stated income loans;[5] his Borrowers Protection Act of 2007 would essentially forbid them.
http://en.wikipedia.org/wiki/Ameriquest
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Ameriquest was one of the United States's leading wholesale lenders. Ameriquest was founded in 1979, in Orange County, California, as a bank, Long Beach Savings & Loan. The bank moved to Orange County in 1991 and was converted to a pure mortgage lender in 1994, renamed Long Beach Mortgage Co. In 1997 part of the business (funding loans made by independent brokers) was spun off as a publicly traded company. Originally founded as a subsidiary corporation under the name Ameriquest Mortgage, it was now renamed Long Beach Mortgage, while the retail part of the business was renamed Ameriquest Capital and remained private. (In 1999, Washington Mutual purchased Long Beach Mortgage.) Ameriquest Mortgage was a private company held by ACC Capital Holdings, which was owned by Roland Arnall.
On August 31, 2007, Citigroup completed its acquisition of its wholesale origination-lending unit, Argent Mortgage, and its loan-servicing unit, AMC Mortgage Services, and shut down its retail-lending unit, Ameriquest Mortgage.
Ameriquest was among the first mortgage companies to use computers to search for prospective borrowers and to speed up the loan process and originated the stated income loan allowing a borrower to state his/her income without any process of verification.[1]
Ameriquest was widely known in the United States. It advertised widely on television, had blimps that flew over football and baseball stadiums, and sponsored the Rolling Stones (2005 U.S. tour) and NASCAR drivers. Its ad slogan is "proud sponsor of the American dream."
The home stadium of the Texas Rangers was called Ameriquest Field until March 19, 2007, when in an undisclosed agreement between the two entities, Ameriquest relinquished the naming rights, and the stadium was renamed to the "Rangers Ballpark in Arlington".
Subprime lenders made $587 billion in new mortgages in 2004, up from $390 billion in 2003, according to National Mortgage News. Ameriquest's share of that is estimated at over $50 billion.[2].
On August 31, 2007, ACC Capital Holdings announced that it was closing Ameriquest by no longer taking loans and selling its loan-servicing unit to Citigroup.
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[edit] Predatory Lending Allegation
In 1996, the company agreed to pay $3 million into an "educational fund" to settle a Justice Department lawsuit accusing it of gouging and predatory lending practices against older, female, and minority borrowers. Prosecutors accused it of allowing mortgage brokers and its employees to charge these customers an additional fee of as much as 12% of the loan amount. As part of the settlement, Ameriquest (then still known as Long Beach Mortgage) agreed to use the educational fund to train its employees in proper mortgage techniques (training which most observers agree never actually occurred to any substantial degree), and to refrain from utilizing predatory lending techniques (such as "bicycling"), but only within the State of California. Shortly after entering into this settlement agreement, the company "switched" names with its subsidiary and began aggressively seeking refinance-mortgage business throughout the United States.In 2001, after being investigated by the Federal Trade Commission, the company settled a dispute with ACORN, a national organization of community groups, promising to offer $360 million in low-cost loans.
In February 2005, reporters Michael Hudson (reporter) and Scott Reckard broke a story in the Los Angeles Times about “boiler room” sales tactics at Ameriquest. Their investigation found evidence that the lender had in various questionable practices, including “deceiving borrowers about the terms of their loans, forging documents, falsifying appraisals and fabricating borrowers' income to qualify them for loans they couldn't afford.”[3]
On 1 August 2005, Ameriquest announced that it would set aside $325 million to settle attorney-general investigations in 30 states to settle allegations that it had preyed on borrowers with hidden fees and balloon payments.[4] In at least five of those states—California, Connecticut, Georgia, Massachusetts, and Florida—Ameriquest had already settled multimillion-dollar suits. Brian Montgomery, the Federal Housing Administration commissioner said that the Ameriquest settlement reinforced his concern that the industry was exploiting borrowers, and that he "was shocked to find those customers had been lured away by the “fool’s gold” of subprime loans".[4]
In May 2006, Ameriquest Mortgage announced it was closing all of its retail offices and in the future would make its loans through mortgage brokers, a channel that is not covered by the predatory-lending settlement with the Attorneys General.
On June 13, 2007, lawyers for borrowers, who are seeking to combine 20 suits into one class-action suit, asserted in a filing [5] in Illinois Northern District Court that "Assets of the Ameriquest entities were transferred to (the owner of Ameriquest) Arnall with the actual intent to hinder, delay, or defraud the plaintiffs in this action."
The issues confronted by companies like Ameriquest could be a major contributing factor to the rapid rise of Certified Mortgage Planners, certified industry experts that work in concert with Certified Financial Planners in harmonizing the home-finance products utilized by consumers with their larger financial portfolios.
Former employees from Ameriquest, which was United States's leading wholesale lender,[6] described a system in which they were pushed to falsify documents on bad mortgages and then sell them to Wall Street banks eager to make fast profits.[6] There is growing evidence that such mortgage fraud may be at the heart of the Financial crisis of 2007–2010.[6]
[edit] Charity
Ameriquest operated the Soaring Dreams Fund, which gives money to initiatives that help children. During the 2006 NASCAR Busch Series season, the fund was promoted on race cars, whose designs were picked in a contest.http://www.mortgagestracker.co.uk/articles/companies.htm
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Mortgage Companies
Mortgage companies are the key players in the mortgage industry. A mortgage company is the lender who offers mortgage solution to people based on their credit rating and requirements. A mortgage school offers learning solutions for those who want to know about mortgages. In a mortgage school information regarding your credit, down payments, loan qualifications, special loans and payment default etc is given to interested learners. Mortgage companies have mortgage solutions for every individual. These companies facilitate a person in acquiring a building like a house or a commercial building on easy installments that he wouldn't have been able to afford otherwise. Although most mortgage dealers will try to play safe by offering mortgage solutions to people with good credit rating but as the trends in the industry have changed a new market segment has emerged and is being catered by many companies. This market segment is of bad credit mortgages.Some mortgage companies are being introduced to you below:
National City mortgage:
National City mortgage is a division of the National City bank. It was established in 1955 and is currently headquartered in Miamisburg, Ohio. The homeowners of US have trusted the company for many years for the biggest decision that one ever gets to take. National City originates and sells mortgage solutions to interested parties. These solutions are sold through three channels retail, wholesale and telemarketing. They have a well placed network of offices that helps service the US clientele. They have 350 offices in 37 states and the rest of the customers are serviced through the efficient telemarketing channels. National City Mortgage is one of the top ten mortgage originators in US. The company mortgage solutions are sold by the best of the mortgage industry. Our sales team is dedicated to offer solutions to your problems.
Countrywide mortgage:
Since the company's incorporation in 1969 Countrywide has been drawing the best people in the indfustry to work with them. Their workforce has always been like family to them. Countrywide is a financial services company that offers products in a diverse array. Their main concern in real estate finance and mortgages etc. The company has been enabling people achieve their dream of getting a home of their own through their Countrywide loans. These loans are not just targeted at buying homes they can be used to buy any real estate that a person may desire. Countrywide HOME is a financial program initiated by the company to help people buy homes and retain them. They are catering to hispanic, Asian, and African American populations. It is also a fortune 500 company and is currently ranke at 91.
GMAC Mortgage:
The company was established in 1985 by acquiring mortgage loan operations of Norwest Mortgage. The company has three business units in financial services GMAC Mortgage, Home services and a bank. The financial services offered by GMAC are available in diverse product ranges. Other members of the GMAC family include: General Motors, financial services, Capmark group, GM family first, Caldirect etc. GM motors is a trusted name in the automobile industry and it is a strong competitor.
SunTrust Mortgage:
SunTrust mortgage is a wholly owned subsidiary of The Bear Sterns. They offer competitive priced services and unmatched portfolio management. The company started off with 10 employees in 1990 and currently has over 1,400 professionals working under its roof. In 2004 the company was given a new and brighter vision. Management with the help of associates successfully implemented this new vision of fulfilling dreams through realizing that people are our strength. Now this vision has become a part of the culture and environment at SunTrust mortgage. In order to help them adapt to the change a series of workshops were held that helped employees familiarize with the new set of values. In 2004 the company established a non-profit organization that provided under privileged kids with books etc. The vision of people- our strength is practiced by promoting team work at the organization that keeps communication and the work environment open and healthy. Due to such practices the employees have evolved as an integrated family unit that operates in accordance to each other.
Chase Mortgage:
JpMorgan's Chase is a financial firm currently operating in more than 50 countries. Chase is headquartered in NewYork. They serve a vast number of customers in US and also other corporate, government and institutional customers. Millons have been serviced by the chase online services and chase insurance solutions. Employeeing over 170,000 people Chase offers financial solutions to many financial services scustomers.
The consumer businesses under chase include: Chase insurance, auto and education finance, small business finance, credit cards and home loans etc. Banking solutions include equipment lease, credit, and commercial real estate financing etc. chase.com offer chase online services to client world over.
Ameriquest Mortgage:
Ameriquest was founded in year 1979 as a bank. It grew famous as a wholesale subprime lender. Previously Ameriquest was a privately owned company but it was acquired by Citigroup on August 31, 2007. Citigroup after the acquisition kept its lending unit Argent mortgage and AMC mortgage services while Ameriquest Mortgage was shut down. This company was among the first ones to use computers to speed up the loan process.
The "proud sponsor of the American Dream" has been sponsoring not just dreams but NASCAR drivers and the Rolling Stones 2005 US tour as well. This compoany has been helping children through the Soaring Dreams fund. During the NASCAR 2006 season tis fund was promoted through cars which were designed by a design contest.
EMC Mortgage:
EMC Mortgage has always remained focus at customer services and has provided the best solutions and services to borrowers and investors. The company has always encouraged innovative thinking and through non stop efforts very individual in the service delivery process works towards value maximization. Training is one aspect at EMC Mortgage that is given critical importance and employees are kept up to date ion the terms of their skills and they promise that they will offer the best solutions to their clients while ensuring ethical practices to create an environment of trust.
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