Taher Afghani was working for discount retailer Target Corp. near San Francisco when friends told him about the riches to be made in California’s Mortgage Alley.
It was 2004, and the U.S. real estate market was on fire. Down in Southern California, a hub for lenders specializing in loans to people with weak, or subprime, credit, Afghani’s pals were making a fortune pushing risky mortgages on homebuyers. After tagging along with a buddy on a company trip to Los Cabos, Mexico, Afghani quit Target, headed south and began hustling loans at Costa Mesa-based Secured Funding Corp.
“I had never seen so much money thrown around in one weekend,” Afghani, 27, says of the Cabo getaway. “It was crazy. All these kids, literally 18 to 26, were loaded — the best clothes, the cars, the girls, everything.” Soon Afghani, who’d made $58,000 a year managing a Target distribution center, was pulling down $120,000.
Afghani says sales pitches typically focused on what a borrower could do with all of that money rather than on fees buried in paperwork or annual interest rates as high as 10.5 percent at the time, at least 2 percentage points more than the rates that banks charge people with good credit.
“Even with explanations, most borrowers didn’t really understand what types of loans they were getting,” says Maureen McCormack, another former Secured Funding employee. “They just cared about the monthly payment.”
The sales job was made easier with exotic mortgages such as so- called no-doc loans, which enable borrowers to get loans without having to supply evidence of income or savings, and option ARMs, adjustable-rate mortgages that let people pick how big a payment they will make from month to month. The loans offer upfront teaser rates at the cost of tacking the deferred payments onto the balance of the loan.
“Heavy sales pressure has been part of the most-egregious lenders for a while,” says Kurt Eggert, a professor at Chapman University School of Law in Orange, California, who has studied the role of aggressive sales tactics in subprime lending and sued lenders on behalf of elderly borrowers caught up in home equity scams.
Secured Funding’s success was fueled by sales leads generated by millions of pieces of direct mail and Internet trolling, Afghani and other former salesmen say. Typical of the direct mail was a credit card offer. When potential customers called to activate the card, they were instead hooked up with a Secured Funding account executive such as Afghani.
Afghani describes chaotic office scenes that recall “Boiler Room,” a 2000 movie about stock brokers at a Long Island wire house. To spur sales, Secured Funding broke its salesmen into color-coded teams.
“If you weren’t turning those calls into applications, they would drag you out and make your life miserable,” he says. “The turnover was unbelievable,” says Afghani, who says he watched eight people pass through the neighboring desk in seven months. “If you didn’t cut it right off the bat, you were just fired.”
Afghani says he and fellow brokers dispensed with details about rates and fees and instead talked up how borrowers could use home equity loans to pay down other debts. “It was easier than financing a car,” Afghani says of getting a mortgage.