June 27, 2007 (LPAC)--Lehman Brothers investment bank, the largest U.S. issuer of Mortgage-Backed Securities (MBS), issuing annually one-tenth of all MBS, is the subject of 15 lawsuits for falsifying, doctoring, and physically altering subprime mortgages and MBS instruments. The lawsuits, and research by the Wall Street Journal , which published a feature June 27, titled, "How Wall Street Stoked the Mortgage Meltdown," lift a small veil on the Mafia-like operations of the subprime mortgage industry.
In addition to having founded the modern MBS industry, and being the largest or second-largest issuer for 11 of the past 12 years, Lehman is also the eleventh-largest direct subprime lender, through its BNC mortage unit subsidiary. Coleen Columbo, a former mortgage underwriter for Lehman's BNC unit, stated that the mantra at BNC was to do "anything to make the deal work." She and 5 other BNC ex-employees are suing Lehman BNC, because when they openly complained about fraud going on, Lehman BNC fired them. A Lehman mortgage unit manager, Cedric Washington, stated that he saw a fellow manager alter a loan by forging a borrower's initials. The Journal reported that "several [Lehman mortgage] ex-employees said, brokers or in-house employees altered documents with the help of scissors, tape, and Wite-out."
In 1995, a Lehman Brothers vice president, Eric Hibbert, described the operations of a subprime lender, First Alliance Mortgage, in the following words: It is a financial "sweat shop," specializing in "high pressure sales for people who are in a weak state," where employees leave their "ethics at the door." Lehman higher ups were so impressed that they poured $500 million into First Alliance Mortgage Alliance. Federal regulators and seven states investigated deceptive sales practices at First Alliance, and in 2003, a Federal grand jury delivered a $50.1 million verdict against it, with Lehman ordered to pay $5 million.
But Lehman used such practices to drive the volume of the MBS market from $50 billion in 2000, to $503 billion in 2005, and $483 billion in 2006. Lehman issued one-tenth of all MBS instruments. Today, synarchist Felix Rohatyn operates as a senior figure at Lehman Brothers.
