by Marty Stolz
A recent news report on National Public Radio’s Morning Edition program featured extended commentary from Professor Christopher Peterson on risky and likely fraudulent subprime lending practices, which contributed to the current national foreclosure crisis and to market instability.
Peterson, an alumnus of and professor at University of Utah S.J. Quinney College of Law faculty, has published widely in the field of consumer law. His research includes a focus on the practices of commercial mortgage lenders.
In the NPR report, a former quality control worker, whose company contracted with banks to review mortgage applications, says supervisors pressured her to rubber stamp bad loans. She is among a growing number of such workers reporting similar experiences, according to the NPR report.
Peterson calls the breakdown in quality control practices a “smoking gun” that explain how so many consumers received loans they could not afford.
“It suggests that auditors working for Wall Street investment bankers knew how preposterous these loans were, and that could mean Wall Street liability for aiding and abetting fraud,” he says.
“People have a tendency to think about economic trends as though they’re an uncontrollable force that no one understands. This isn’t the weather. These are people who are individually making decisions to approve and pass on fraudulent loans.”
Peterson also likens the lending practices to a vendor finding bad apples but selling them anyway.
“They put the bad apples back in the barrel because they knew that they could sell the bad apples along with the good apples and, at least in the short term, nobody would know the difference. That’s why they put them back in —because they made more money that way.”