How to find victims of mortgage fraud

David Heath

LAS VEGAS — When he was at The Seattle Times, David Heath produced a compelling story and video about a 90-year-old widow who lost the million-dollar home that she and her husband had built in 1953 because of unscrupulous lending practices.

Now at the Huffington Post Investigative Fund, Heath told IRE attendees how he found her and others adversely affected by Washington Mutual. The Seattle institution collapsed in 2008 in the largest bank failure in U.S. history.

To learn the basics about what led to WaMu’s failure, he started looking for victims by:

• Looking up cases on the federal courts website, Pacer. 
• Running a list of consumer-oriented attorneys’ names through the state court system. That led him to a suit one had filed on behalf of the widow.
• Requesting consumer complaints against WaMu from the state attorney general’s office and the federal Office of Thrift Supervision.

“I talked to a lot of people and heard the same story over and over again — a story of being ripped off,” said Heath, who has been a Pulitzer finalist three times.

He then started talking to bank employees, starting at the lowest level and working his way up. He found some current and former employees by using the social-networking site, LinkedIn.

“A lot of employees were very angry with WaMu” and eager to talk, he said. “One thing I got quickly from employees were the rate sheets on loans. It explained a lot.” Because profit margins were dwindling on traditional mortgages as interest rates rose in 2003, the bank paid brokers enormous fees to make more profitable exotic loans, he said.

To make sure the anecdotes illustrated a systemic problem, he got the “free-writing prospectus” on a mortgage-backed security that listed addresses of the 10,000 WaMu-mortgaged properties that were rolled into it. He took that list to a firm called RealtyTrac, which collects foreclosure data, and asked it to run the addresses against foreclosure records. At least 44 percent of the loans had gone into foreclosure. That tells you there was “something very wrong about way the loans were being made,” he said.