This Week in Broker Magazine

This week's featured story from Broker magazine, our sister publication:

The Inside Corner

By Brad Finkelstein

Whenever the Florida Association of Mortgage Brokers holds its annual convention in the Orlando area, those of us who stay at other hotels in the area and drive to the show are forced to use an overflow parking lot in Disney World.

It was in 2005 on a bus from the parking lot to the convention hotel that I first met Richard Bitner, who was then the president of Kellner Mortgage Investments.

We started talking about the company and one of the things that interested me was his business card, which looked just like a baseball trading card.

Mr. Bitner was a speaker at the conference and talked about, among other things, how mortgage brokers need to rate their wholesalers on the service levels they were receiving.

Among his warnings to the audience was for brokers to look harshly upon any account executive that makes every deal sound like it was a no-brainer.

But later that same year, Mr. Bitner sold his interest in Kellner and left the mortgage industry. He explains the incidents that caused his epiphany in a new book "Greed, Fraud & Ignorance: A Subprime Insider's Look at the Mortgage Collapse." The book, originally self-published, may soon be picked-up by a publisher and reissued under a new title.

The first involved a loan made to a couple with little or no margin for anything that would upset their ability to make the payments. Of course, something did happen that resulted in the borrower not being able to make the first payment and Kellner was forced to repurchase the loan from the investor.

Afterwards, Mr. Bitner did a post-mortem on the situation. Most early payment defaults involve a level of fraud, but in this situation there was none. He then looked for a mistake in underwriting.

But, he noted, the loan was underwritten, funded and purchased by the investor because it fit the investor's guidelines. "This loan was indicative of an industry that had lost its way," Mr. Bitner wrote.

He then picks apart the food chain, starting with the mortgage broker, breaking them down into three groups: honest, dysfunctional and corrupt brokers.

What he says, by the way, may make a few industry participants angry, but for anyone who has closely followed what has been going on in the mortgage business in the past few years, it is not anything they didn't already know.

It is not just brokers he has harsh words for; it's all the participants. The chapter on Wall Street and the agencies is subtitled "Greed at Its Worst."

In addition, while most of his experience is in wholesale, he does bring up the story of the poster child for abusive lending on the retail side, Ameriquest Mortgage.

In his final chapter, Mr. Bitner gives a series of recommendations for the subprime business to fix itself.