Real Stories from the 'Loan Abuse' File Cabinet.

How much will the current mortgage liquidity crisis cost? Answer: no one knows for sure. The problem with asking such a question is context. Are we talking about losses incurred by investors in subprime bonds, shareholders who invested in now-defunct publicly traded lenders, mortgage bankers that lost money by originating and servicing loans? Really, what are we talking about here?

The meltdown in the "nonconforming" market (subprime, alt-A, payment-options ARMs) has caused losses wide and far. Lots of numbers are flying around, flowing out of the mouths of industry experts who are spewing out loss estimates faster than an auctioneer can shout "sold!"

Then there's the consumer. Depending on who you believe, two million to seven million homeowners could lose their primary residences over the next two years. Trillions in "home equity" could be wiped out. Then again, maybe not. But let's drill down to the mortgage experience - where the consumer obtains a loan from either an LO or a broker. Over the past three months I've been interviewing mortgage professionals, asking them about abuses they saw in the market place. Below is a sample of what I've heard. It's told in their words, some of which I edited for brevity and grammar. The mortgage professionals are identified by their initials only.

* JM: "In 2004, I had one account executive tell me to use the interest-only program for my borrowers so they could qualify for a bigger house, the Realtor would make more commission and I would be paid more based on the higher loan amount."

* BG: "I am a contract loan processor and have been in the business for many years. I currently support several different brokers who, in turn, are approved with many lenders for purchase and refis. A couple of months ago I started getting totally amazed when the AEs at the lenders started offering to self-fraud the files being submitted. ...