Released: September 20, 2008

FTC settlement shines light on bad practices

Source: Kenneth R. Harney, Washington Post (Free Registration)

Fannie Mae, Freddie Mac, Merrill Lynch and Lehman Brothers have dominated recent headlines, but a little-noticed $28 million settlement earlier this month between the Federal Trade Commission (FTC) and what’s left of Bear Stearns symbolizes the housing boom era products - and practices - that started a lot of the trouble.

Once the fifth-largest investment bank on Wall Street, Bear Stearns was a major funding source for subprime and exotic mortgages - payment-option plans that allowed borrowers to buy expensive houses and run up debts while making minimal monthly payments, “stated-income” mortgages that required no income or asset verifications, and a variety of other products. Its subsidiary, EMC Mortgage, serviced hundreds of thousands of these mortgages, and had a portfolio of more than 475,000 loans in 2007, according to the FTC.

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