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The deepening of the financial crisis has led to a new round of finger-pointing. The blame game can go too far, of course, but on the whole I think it’s healthy for a society to pause and figure out what went wrong before it blunders ahead. As George Santayana said, those who cannot remember the past are condemned to repeat it.
With that philosophical preamble, allow me to point you to an excellent article that appeared last March in The Oregonian newspaper. It exposed a memo by someone inside JPMorgan Chase (we still don’t know who) instructing lending officers how to commit fraud and get loans approved by the bank’s computer, known as Zippy.
The memo’s title says it all: “Zippy Cheats & Tricks.”
It is a primer on how to get risky mortgage loans approved by Zippy, Chase’s in-house automated loan underwriting system. The secret to approval? Inflate the borrowers’ income or otherwise falsify their loan application.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.