AMERICAN PREDATORY
LENDING AND THE GLOBAL FINANCIAL CRISIS
ORAL HISTORY PROJECT
Interview with
Greg Sayegh
Bass Connections
Duke University
2020
PREFACE
The
following Oral History is the result of a recorded interview with Greg Sayegh
conducted by Maria Paz Rios on October 22, 2020. This interview is part of the
Bass Connections American Predatory Lending and the Global Financial Crisis project.
Readers
are asked to bear in mind that they are reading a transcript of spoken word,
rather than written prose. The transcript has been reviewed and approved by the
interviewee.
Transcriber: Maria Paz Rios Session: 1
Interviewee: Greg Sayegh Location: Durham, NC
Interviewer: Maria Paz Rios Date: October 22, 2020
Maria Paz Rios: I'm Maria Paz Rios, an undergraduate student and member of
the Bass Connections American Predatory Lending and the Global Financial Crisis
team, and it is October 22nd, 2020. I'm currently in Durham for an oral history
interview with Greg Sayegh, former Executive Vice President at Countrywide and
former Senior Vice President at Washington Mutual, who has joined me via Zoom.
Thank you for joining me today.
Greg Sayegh: Got it— thank you!
Maria Paz
Rios: I'd like to begin by
establishing a bit about your background. I believe that you got a degree in
Business Management from California Polytechnic State University. Is that
right?
Greg Sayegh: Actually, no. I never finished my degree. I went to Cal
Pol [and] Pomona, but never finished my degree. I got into the business world
as a really young guy and was achieving or exceeding my financial goals, so I
just continued down that path.
Maria Paz
Rios: In the context of your work
life, when and how did you first become involved with residential mortgages?
Greg Sayegh: I started in real estate at the end of 1977, and real
estate is very closely intertwined with mortgage, so I learned a lot about the
financing aspect of a real estate transaction as a real estate agent. And then
in 1983, I joined Merit Savings Bank as an account executive in home mortgage. So my career started in April or May of '83.
Maria Paz
Rios: And were you based in
California when you started?
Greg Sayegh: Absolutely, yes.
Maria Paz Rios: How did the mortgage market change from the time you began
your professional career with Merit Savings Bank to when you joined Washington
Mutual in 1994?
Greg Sayegh: A number of changes— one was an expanded product.
Instead of the typical 30-year fixed-rate loan program, variable rate mortgages
started to surface and to give borrowers more options on managing their
mortgage payment. Also, I think the number of competitors— typically in the
early '80s, if you needed a mortgage, you'd have a smaller set of mortgage
lenders competing for your business predominantly managed by and run by banks….
And when I went to Washington Mutual and Countrywide, by then, it was much more
fragmented— many more competitors. The growth in mortgage brokers and mortgage
bankers started
happening in the '90s, so your neighborhood Savings & Loan wasn't
necessarily the only go-to for a home loan.
Maria Paz
Rios: What do you think drove
this increase in market players?
Greg Sayegh: I think the home mortgage is a profitable business and it's a— I'll call it a repeatable business— in that if
you're a bank or any company doing home loans in an environment where the
economy is really strong, people are buying homes and building. In an
environment where the economy is challenged, typically rates drop, and then you
see an increase in refinances. So, it became … a good margin business [and] a
company can be successful in any economic climate. You also saw an increase in
home values, which meant the loan amounts that you were making were higher too,
and that was a big part of it. Additionally, I believe that some of the larger
banks saw the home mortgage as an anchor product—
that if I was Wells Fargo and I made a loan to you as a home buyer, then I
could cross sell into checking accounts and equity lines or second trustees or
charge cards, that kind of thing. So it was really an
anchor product for a bank, and I think that helped fuel the growth as well.
Maria Paz
Rios: You also mentioned the
rise of alternative products, like variable rate mortgages. Could you talk to
me a little bit more about what the other products or practices that arose in
the decade before 1994 were?
Greg Sayegh: Sure. In the '80s mortgage products were really created to
benefit the bank or the lender more than the borrower. An example, you might
have a variable rate mortgage, they were called VRMs, and there would be no cap
on the interest rate, or there might be no limit on the amount of payment
increase year over year. So, where that might benefit the bank, because in a
rising rate environment I'm able to continue to raise my rates on that loan, it
put the borrowers potentially at risk because now my payments went up and I
can't afford it. And that's a bad thing. So, as you moved into the '90s, there
was a balance between what's good for the borrower typically was also good for
the mortgage lender. There also was more different
types of products available that were ARM [adjustable-rate mortgage] loans. So
instead of there being a variable rate mortgage where payments might adjust
every month, there were loan programs where the interest rate may be fixed for
three years and then it would adjust after. So during
that initial period of time after you obtained the loan, you had some security
that your payments would stay fixed and then it would increase. So there was a lot more product options available for ARM
loans.
Another thing that happened, if you look at the difference
between the two eras, was the qualification. When I started in the business,
every loan had to be fully documented. You needed a file this thick to qualify
a borrower. Tax returns, W2's, bank statements, that kind of thing. And loan
qualification guidelines were pretty consistent company to company, product to
product. As you moved into the late '80s and '90s, you saw the availability of
quick qualifier loans or stated income loans. So you
might indicate on your application that you made $4,000 a month—
provided you had good credit, and you had money for the down payment, and you
were buying a property that did not have any risk associated with it,
potentially then income was less important. So you saw
the rise of those stated income loans, but that wasn't the case when I got in
the business. The guidelines were pretty restrictive and for the most part
consistent across each company.
One other item to think about too is,
you also saw an explosion in [the] secondary market where Wall Street started
looking at these mortgage instruments as a vehicle to invest. So mortgages started to get not only more commoditized, but
there were more investors interested in buying that product because one, it was
a secured investment, two, it was underwritten and hopefully to well-qualified
borrowers so the risk is mitigated, and three, it's a huge segment of the
market. So, you look at the home mortgage as a multi-trillion-dollar industry,
Wall Street started getting interested. So instead of your typical Fannie
[MAE], Freddie [MAC] investors, Wall Street investors and conduits directed
that business toward Wall Street investors and started to really expand the
scope of the business.
Maria Paz
Rios: And when would you say
this was, when Wall Street started paying attention?
Greg Sayegh: I would say really, late '80s, maybe early '90s, I think
you saw more of that. Certainly 1990 was probably a tipping point there.
Maria Paz Rios: With the promulgation of more diverse products, adjustable-rate
mortgages and such, I'm guessing homeowners weren't always familiar with the
[different] types of products. How often would you see homeowners reaching to
external counseling services when they went to get their mortgage?
Greg Sayegh: That really wasn't prevalent. It was the loan officer or
the real estate agent who were the trusted advisors, or the banker, who was the
trusted advisor to review the loan program [and] guidelines with the borrower.
There also was— in terms of disclosure and documentation that explained
how the programs worked, there wasn't a standardized set of documents. For the
most part, every company had their own way that they disclosed how programs
worked. But I'd say generally outside counseling services really didn't even
come into play until the early '90s when if you were going to do a 3%, 5%, 10%
down [payment] loan, you might need home loan counseling.
There's one other thing that I just
thought of that I really believe drove some of the things that we'll talk about
with the mortgage crisis, and that was— buying a home became less about a home
and more about an investment, I think. And I certainly saw that in California.
If I was in Oklahoma, where you had very little appreciation, that may be
different, but in markets where there was good appreciation, and across the
country, you bought a home and you'd say, "Well, if I stay here two or
three years, then I could sell it, make money, move up to the next house.” So the buying patterns changed where it wasn't necessarily
plant a flag and live in my house forever. It was used as a vehicle for upward
mobility, and I think also that drove some of the decisions that the borrowers
might make on the loan program or the house that they bought.
Maria Paz Rios: So now [moving] into the '90s, you joined Washington
Mutual, if I'm not wrong, in 1994, right?
Greg Sayegh: I guess it was '93, I think, but
yes. I joined American Savings in '93 and American Savings was acquired by
Washington Mutual in '97 I think, or '96.
Maria Paz
Rios: Could you describe the
nature of your role within Washington Mutual? What elements of the origination
process were you responsible for and did that change over your time there?
Greg Sayegh: For the most part, the elements
did not change. I managed mortgage production through the external retail loan
officer, and when I left the company, I was running the national platform for
the loan officers. There were other business channels, but I managed the retail
channel. In the past, the responsibility of that role managed all of the sales
of the product, the marketing of the product, creating the relationship with
the real estate agents, for example, and you managed all the way through to the
closing of the loan. So you had processing and
underwriting and closing, as well as managing the loan officers, but that also
started to change around 1990, early '90s, to where most companies ended up
having a sales organization and then an operations fulfillment organization. So my responsibilities changed in that I was really only
responsible for sales.
Maria Paz
Rios: Could you talk to me a
little bit more about retail lending?
Greg Sayegh: Sure. So retail is a very broad
description, but what I was responsible for was loan officers who were
commissioned salespeople that reported up through my organization. They may
have reported to a local market manager, who reported to a regional manager,
who reported to a division manager, who reported to me. The loan officers,
their job was to go out into the community and work with real estate agents,
home builders, financial planners, attorneys, it might even be the bank
branches, to promote our home loan products to these companies and these
individual contributors. So that was what I was responsible for. I think
Washington Mutual had, when I was leaving the organization, about 4,000 loan
officers across the country, and that's what I would call retail. I wasn't
responsible for any call center activity, the 1-800 number, or if there was business
through a website— my group was
all distributed outside salespeople.
Maria Paz Rios: How would you train and retain your salesforce? What sort
of tools and incentives were they provided with?
Greg Sayegh: I'm going to give you a general answer, but it's pretty
consistent company to company, but there may be variations. If I just take
training, product knowledge as an example, everybody that joined the company
had to go through a one-week training program that was on-site. There were
training videos and training material that would be sent out or communicated if
there was a change in product or a new product added. We also had ongoing
classes around sales, around product, around how to prospect for business,
around the property appraisal process. So I've been
very proud of the fact that my team and my teams were always highly trained. I
always believed that that knowledge creates confidence, and to be effective at
sales, especially to treat the customer right, you really need to know what
you're doing. So, knowledge in the industry, product knowledge, and knowledge
on how transactions work, and how to put the right borrower into the right
loan, was highly critical. But it also meant that we were very limited in terms
of who we would hire. If you didn't have experience, if you were new to the
industry, the learning curve is so steep that we typically wouldn't hire those
folks. We'd hire individuals that were experienced and that had a book of
business. And again, I think that works much better for the customer at the end
of the day.
Incentives were generally based on a base salary plus
commission. Commission would generally be tiered based on the amount of
production. So, if you closed $1,000,000 a month, maybe three loans, you would
make less in terms of percentage than if you close $2,000,000 in six loans. So it was an incentive-based platform that really is pretty
much in place today. Generally, there's a full benefit package, so all the
employee benefits, medical insurance, 401K, that kind of thing, they also would
earn. I'm not sure if there's anything that I didn't answer that you were
looking at.
Maria Paz Rios: Since the compensation was volume based, within your sales
force how would you always make sure that all your sales officers were
prioritizing putting the right borrower in the right product?
Greg Sayegh: So to me, I think you gotta be
proactive and you gotta train across the product
line. And there was enough business intelligence to see if the loan officers
were selling one product, that typically meant that they didn't understand how
the other products work. Again, knowledge equals confidence. So
we would use business intelligence to say, "It's unrealistic that you're
only selling an adjustable-rate loan when 40% of your peers are selling fixed
rate loans as well." So that would be one way. At both WaMu
[Washington Mutual] and Countrywide, there was a lot of data around disparate
lending. So whether we were meeting the needs of the
communities, was there a disparity in terms of percentage of loans being made
to African Americans in a predominantly African American market, things like
that. We also would look at pricing and say, "Is there a disparity in how
you're pricing loans? Is borrower A getting a different price than borrower
B?"
But again, for the most part, our
pricing was locked in. They couldn't just select a rate and give it to the
borrower. They really had limitations in terms of how we priced. So, the goal
was to be consistent in how we offered individual pricing structures for each
customer. Might there be loan officers that were all about making the sale and
not really taking the time to explain the program to the borrowers? Sure there were. There were loan officers that would close a
deal, they wanted to get the application, go through the application process in
the shortest amount of time possible, which meant that they may not have taken
the time to fully explain how each program works. Could that be true?
Absolutely. And were there loan officers that I noticed doing that? Sure.
I'd say for the most part though, I
think that based on the business intelligence, we could identify them and
address any shortfalls there. The beauty of mortgage, and even at that time,
was the loan officer might meet the customer and go through the loan programs,
options. There would then be a disclosure sent to the borrower that was not
sent by the loan officer— that was sent by what we might call an "opener
position", that would disclose the programs, the rates, how it works. And
then lastly, before closing, there would also be another disclosure that would
do the same thing. So the borrower had multiple
opportunities to understand the program, but I'm not naive enough to believe
that they read everything that they received.
Maria Paz Rios: How was the dynamic between the wholesale division and the
retail division in terms of competing against them [wholesale], since they were
using third party lending through brokers? So how was that felt internally
within the institution and also how was that felt by the officers themselves?
Greg Sayegh: That's a great question. Loan officers by nature are
competitive and they're also somewhat provincial, right? They believe their way
is the best way. So we had a policy that whoever took
the application first, it was their loan. And even if it meant that we would
lose the loan, then we would rather lose the loan than impact the loan officer
or the mortgage broker client. We never wanted the perception that we were
going to cannibalize our own business. So it was first
application in wins, and if the borrower chooses to go with the other provider,
then they'd have to go somewhere else. But was there competition? Absolutely.
Was there a belief that if I was a retail loan officer that wholesale had an
advantage? They might think they had a better advantage— price advantage, or
whatever. They'd always point to retail as “retail got better underwriting
guidelines”, and that might be true because we knew the borrower, right? We met
the borrower, we understood their intentions versus maybe working through a
third party. But what's really interesting about that whole dynamic there is—
we priced the same. So if you went to a loan officer
or through wholesale through a mortgage broker, the broker could not offer a
price that undercut retail. And we structured our rate sheets that way to make
sure that we didn't build in disparity by channel.
Maria Paz
Rios: And what about internally
within the institution at a higher level, within management? How was that felt
too?
Greg Sayegh: Well, I always look at the apex— where do the channels
meet? And at Washington Mutual, they met at the president of home mortgage. So where I might be the head of retail and my peer was the
head of wholesale, we still reported to the head of mortgage, and the buck
stopped there. And I think what happens— in every organization that I've
worked for, the more senior level leader for the most part is thinking more
about the enterprise than they are about their own business unit— the success
of a company. And that's where I think when you look at incentive programs—
and there might be stock-based performance or stock-based compensation—
is you want your senior level leaders thinking about what's best for the
company. Not necessarily what's best for my team. And I'm pretty proud to say
that for the most part, we experienced that.
Countrywide was a little bit unique
in that, at WaMu, the apex was lower. At Countrywide,
the apex was at the top of the house. So we never
really met, communicated with, engaged with, our wholesale peers or other
channels at Countrywide. At WaMu, we would have sales
rallies together, we'd have business meetings together, we would have
recognition events together, where at Countrywide, it was siloed for the
consumer markets group. And I think the relationship we had at WaMu was really strong for that reason. The president of
home loans, a gentlemen named Craig Davis, really
understood that dynamic and he managed it beautifully.
Maria Paz
Rios: What prompted you to
move to Countrywide? And how would you describe the different cultures within
Washington Mutual and Countrywide?
Greg Sayegh: You've done your homework. That's a good question. I
really loved the company, at WaMu. Loved it. Loved my
team. I feel like I was a big part of the development of a company, from
American Savings, [a] California based company, to the WaMu
acquisition, and then ultimately being the number one lender in the country.
But there was a change of leadership. The gentleman that hired me into the
company, Craig Davis, who I mentioned, left the company and they replaced him
with a gentleman that came from an acquired company. And to be honest with you,
we were oil and water. Totally different. I probably could have been a little
less cavalier, and I think he could have been a little more supportive, and at
the end of the day, I just said, "You know what? We have philosophical
differences. You're in the seat that I'm not, so I'm going to leave." So
that's what prompted me to go to Countrywide. I just did not have a positive
experience in being underneath that individual's leadership. [Then I] went to
Countrywide and Countrywide at the time was growing, they needed somebody with
my background that came out of the bank environment versus a mortgage bank
environment. I think I was the first bank senior leader that they hired in the
organization. So, they needed somebody with my background and so that was a
good fit for me.
Culturally though, Washington Mutual
was much more of a simple company to operate in. They really believed in basic
principles of customer service, recognition, positivity, a learning
environment, and collaboration. Very easy company to navigate through, and I'm gonna use this term and I know it's going to be on video,
but they kind of dumbed the business down. They dumbed it down so that each
individual had to manage two or three disciplines effectively to be successful.
And it was positive and supportive, and even though it was competitive, it was
complementary. Countrywide was the opposite. Countrywide was highly
competitive, male dominated, kind of caustic at times. Really though, treated
their management team up, down and across, as mature leaders. They managed a
much more complicated business. They allowed their managers the autonomy to
make decisions where WaMu was more— there was less
autonomy. The control was really pushed up. Countrywide pushed the control and
the decisioning down to the local levels. And I think that helped develop
leaders more so than maybe I saw at WaMu.
Countrywide understood it was a complicated business, and
in terms of— to give an example, we would have a two-day meeting monthly
to go through a stack of reports like this, and the meetings might be from
eight to eight, [for] two days. And we'd go through every metric— very, very
metric focused. WaMu was much more about market
share, customer service, recruiting, and loan officer productivity. So
completely different cultures. And I'm not saying one's better than the other,
but Countrywide was known as a pretty tough place to work for that reason.
Culturally, there was a lot of friction.
Maria Paz
Rios: What were some of the metrics
that you would evaluate within Countrywide?
Greg Sayegh: It would be— I could send you the stack and
you probably would be bored to death— I'm just kidding you. But it might be
volume growth in units and dollars, it might be volume growth per loan officer,
an average productivity, service timeframes, cost per loan, commission expense
(variable) versus fixed expense net profit, might be profit per product. Might
be recruiting— how many loan officers did you hire? How are they doing? What is
their ramp time? What's your turnover percentage? How are you doing against
your peers? Loan quality statistics— were you closing loans with deficiencies?
What's your fallout rate? What kind of adverse action experience do you have,
or are you denying certain percentage of loans? You might look at ethnic makeup, so in terms of pricing
disparity or lending disparity, that might be the metric you might look at, but
there were many.
Maria Paz Rios: It seems like many of these metrics are volume driven, for
example, “how many officers did you recruit”, whilst at Washington Mutual you
mentioned that you really emphasized the training of the officers. So I guess you have to forego a bit of volume [of officers]
for a bit more training, and you also mentioned that training was the [mechanism]
for placing the right home buyer with the right product. So
it seems like at Countrywide was a bit more volume oriented [than Washington
Mutual]. Do you think that translated into less supervision of the loan
officer's practices, or less training, or how do you think that translated?
Greg Sayegh: Countrywide was an amazing training organization. So I don't think the training made a difference. I also
don't think it had to do with a focus on volume over WaMu.
It also was not related to the recruiting in terms of who you're hiring,
because for the most part at Washington Mutual, we recruited experienced loan
officers. At Countrywide, we would not take chances and hire folks that did not
have experience. I think the difference may be the level of autonomy, that when
you push down decisioning down to a lower level, you may lose some control in
terms of the kind of decisions that are getting made, whereas at WaMu, where you're pushing the decisioning up higher, it's
easier, I think, to manage to a more standard set of requirements than when
you're letting your field managers make their decisions.
At WaMu,
the sales managers and production managers did not have responsibility toward
credit decisions. At Countrywide, that peer position also managed credit. So I'm in the same office, if I'm a loan officer, with my
underwriter. And if the underwriter didn't like my loan, I could sit in front
of the underwriter and negotiate and push to try to get that loan made, where
at WaMu there was distance. And I think they both
work well, but I think it had all to do with, if you have individuals that have
autonomy, but they don't have the right intention, or they don't have the right
skill level or experience, you might have some bad decisions getting made—
where those decisions, basically due to that "dumbed down" factor,
were taken away from that peer position at WaMu.
Maria Paz
Rios: Within Countrywide, you
were also within retail [lending], right?
Greg Sayegh: Correct.
Maria Paz Rios: So at Washington Mutual, … whoever the borrower picked, you'd go with and
you would have identical pricing. Does the same hold true for Countrywide or
how did that territorial dynamic work at Countrywide?
Greg Sayegh: It was the same. There might be
local market adjustments where, an example, if I'm in— where are you at?
Maria Paz Rios: North
Carolina.
Greg Sayegh: Okay. So if— I'm just trying to
think of a parallel— if I'm in one market, the competitors that I'm competing
with in that market, I may have to align my price with those competitors. If
I'm in Charlotte, then my list of competitors may be different, thus their
pricing structures may be different. So I might adjust
my pricing by markets at a Countrywide, where WaMu
had a much more of a standardized pricing structure around the company. There
wasn't as many pricing markets at WaMu as there was at
Countrywide. But, going back to that same autonomy conversation, the branch
managers at Countrywide had the ability to make pricing exceptions based on the
profitability model, where [at] Washington Mutual, they had ability to make
some pricing adjustments, but really very limited. So again, going back to that
same premise, if you had a manager who had the wrong intention, or wasn't
trained, or made bad decisions, they might create pricing disparity because
they had the authority to make decisions there versus at WaMu,
that decision was taken away.
Maria Paz
Rios: To what extent, if at
all, did figures within Countrywide express concerns about the changing nature
of credit extension during the '00s, and then did those concerns lead to any
significant internal debates or changes in business practices?
Greg Sayegh: That was at Countrywide you're
talking about, right?
Maria Paz
Rios: Yeah.
Greg Sayegh: Yeah. I think there were— I'm trying to think about this
the right way. It's a complex business, so you might see property values, and
that was at an era, a time, when you saw a real explosion in the industry
around stated income loans. Stated income loans now with lower down payments
and reduced credit requirements. And there was a period of time where Wall
Street would buy product that looked like that— 10% down instead of 20%, [a]
lower credit score versus higher credit score, stated income versus a fully
documented loan. So you started to see that the
majority of the business was moving that way. It was cheaper to process,
borrowers could extend out and buy more because we're using the income they
stated on their application to qualify them. But absolutely, there were
conversations around, “Are we at a point at Countrywide where our property
value is going to continue to climb?” Because I think the additional— borrowers
could qualify for a higher loan which in essence pushed up price more. So I think we were concerned about, “Are we seeing property
appreciation continue at a rapid pace in most markets? And is that healthy? And
is it sustainable?” So, absolutely, there were discussions around that. But
like in any competitive business, you're looking at who you're competing with,
and if you don't offer it, someone's going to offer it. And if they're offering
it, then we want to offer it.
Here's the other thing that I
noticed, and this is a personal opinion. Everybody talks about predatory
lending and the mortgage lender as the problem. But you would have real estate
agents or home builders that they're telling you, "If you don't qualify for
this loan, then I'll take it to another lender." So
you had real estate agents maybe potentially putting buyers into homes that may
be beyond their reach, or home builders that were taking advantage of the
property appreciation, who also were more focused on selling homes than they
were about making the right decisions— you're renting an apartment for $1,200 a
month, and now you're going to buy a house for $4,000 a month. Is that
realistic?
So I think it's a basket of issues.
Ultimately, the lenders want to approve a loan, but I think it became highly
competitive and I think those companies that thought that the merry-go-round
was never going to end, were foolish. And I saw that throughout the industry,
but absolutely, we'd have debates. And they were always interesting debates at
Countrywide, but I think Countrywide went in with open eyes. I don't think
there was any nefarious things happening, at least at the levels I saw, where
we were trying to do the right thing for the right reasons, but the market just
got overheated for all the factors that I shared.
Maria Paz
Rios: Within those
discussions, what were some of the sides that were being taken? What were
people saying, were people raising red flags?
Greg Sayegh: Yeah, for sure. And it might be red flags based on— we
would look at, again, all the metrics. So we'd see
average FICO scores and average loan-to-value, so down payment, we'd see that.
And we’d start to see maybe FICO scores declining, which meant that we're
broadening the net maybe a little bit too far. So
there was those that said, "We’ve got to tighten our standards."
There were others that said, "Yeah, but we've got to remain competitive
because there are now ten other lenders doing this and we're the leading lender
in the country and we have to remain competitive." So yeah, you'd have
those two camps. And I think we did our best. And remember, because you had
decisioning down to the field level, sometimes those communications up top
didn't always percolate effectively all the way down, or there might be a time
gap between these conversations happening and the time it took to change a
policy and get it integrated within the system, and then for behavior to change.
Maria Paz
Rios: You mentioned predatory
lending previously. How would you describe predatory lending?
Greg Sayegh: First, I think predatory lending is, to me, I'd describe
it as the intention to take advantage of a borrower based on their lack of
knowledge. Maybe based on an advantage you have because you know the business,
giving borrowers a loan program or an option that really may not have been the
right option for them. Predatory lending might be, "I'm going to make
every penny, as much money as I can on every loan", and to the detriment
of the borrower, where I might just overcharge— that kind of thing. But
typically, it's with the intention of doing that, or where you have business
practices without oversight that allow those behaviors to happen. To me, at the
end of the day, it takes— a mortgage loan is a complex instrument and to really
help the borrower in the way they need to be communicated with, help them
understand the loan they're getting. And predatory lending to me also means
that you're putting the borrower into a loan without full information or full
disclosure, knowing that it may not be the right fit for them. Typically it's intentional, but there may be some
unintentional behaviors as well that caused that.
Maria Paz
Rios: Over the last decade, we
have seen a number of different narratives emerge to explain the financial
crisis. How do you understand what caused the crisis?
Greg Sayegh: This is my opinion you're asking, right? I gotta think about that for a second. I think it was a
number of factors that were not entirely the responsibility of the mortgage
lender, and I'm not advocating authority or responsibility, but there were a
number of players involved from the rating agencies, to Wall Street investors,
to mortgage lenders that were trying to take advantage of an extremely hot
market. You had real estate agents who were enjoying the rapid appreciation,
and you basically couldn't make a mistake— if you bought a house, you're going
to make money. So if you couldn't afford it, don't
worry about it, a year from now, sell it, and make money. From property
appraisers, who I think were either untrained, certainly unlicensed, that maybe
were directed by the mortgage lender or the real estate agent to meet this
appraised value. I think home builders also played a part in maybe how they
would price their homes and how they might profile the home buyer.
At the end of the day though, I think the mortgage
lenders, because it became commoditized and it became highly profitable, I
think the mortgage lenders were so focused on competition and profit, that I
think that they didn't pay attention to some of the signs that were pointing
toward a future correction. I think that they felt that this growth in
production would never end, and we all know that markets cycle. And I think
that there was too much optimism about how this might continue on forever, that
there wasn't significant controls put in place. I can
tell you at WaMu and at Countrywide— I'm pretty
astute and very close to what's happening— I did not see anything that was
overt around doing things you shouldn't do; putting programs out there that we
knew were going to hurt the borrower, or misrepresenting, or taking advantage
of customers through disparate pricing or unfair lending practices. I never saw
that. I might see bad behavior by individuals. I might see a lack of oversight,
or a lack of paying attention. But I think at the end of the day, the market
got overheated and highly competitive and I think there was a belief that this
will never end, and I think that was foolish.
Maria Paz
Rios: To what extent do you
see your personal experience as adding something important to our understanding
of what happened in the run up to 2007, 2008?
Greg Sayegh: Great question. So I've been in
the business since '83. I've been a licensed real estate agent since 1977,
although I haven't been a real estate agent, during that period. I know the
business well. I've grown up as a loan officer moving up to senior and
executive level ranks. I've worked for mortgage banks and banks. I've worked
through various market cycles, and so I think I have the experience level to
view, maybe what happened, through the evolution of the mortgage [market]. And also though, seeing a company like a Washington Mutual that
was challenged, and a Countrywide that was challenged, for two completely
different reasons. So, that's why I think I'm probably unique in sharing my
experience.
Maria Paz Rios: When you say they were challenged on completely different
grounds, could you talk a bit more about that?
Greg Sayegh: Yeah. I think Washington Mutual, I think, struggled—
when I left WaMu, a new leadership team came in who I
think may not have made some of the right decisions to protect the company or
take the company in the right direction. I saw a challenge with Washington
Mutual in that there was explosive growth in the subprime business, and our
interest and investment in subprime ultimately I think hurt the company in the
long term because you saw the credit profiles expand, so you'd have— an
example, and this is just off the top of my head, but I know that our subprime
arm when I was there was doing, we'll say a billion dollars a year in volume.
And I think after I left, they were doing a billion dollars a month in volume,
in subprime. And then when you see a change in pricing to where in the past,
you could price toward the risk. So if you're taking a
higher risk on a loan, you would be able to create enough yield to potentially
offset the risk. Well, those boxes started getting closer to where you'd have
now a lower price loan for a higher risk, and you didn't have enough revenue to
offset the risk. And then when the crisis hit— and I wasn't there, obviously—
when the crisis hit, those were the borrowers that I think were the most
challenged. They'd had historic issues with their credit management, and you had
equity to protect you, but now when property values dropped and you no longer
had any equity to protect you from a loss, and you certainly weren't generating
enough revenue on that loan to set it aside to offset any shortfall, then that
was bound for bad things.
So I think WaMu had a lot to do
with the subprime, where I think Countrywide issues had more to do with just
the explosive growth and then the impact of the scale with the collapse of the
market. I think it was totally different. One of the things that I'll say
though, and this is something that I firmly believe in, and I'm sure you, and
maybe your peers might completely disagree with this, but I'm a firm believer
in ARM loans. I don't believe that they are predatory. I don't believe that
they're exotic instruments. They're not for everybody, but when I first started
doing this option ARM— have you
heard of an option ARM?
Maria Paz
Rios: If you want to briefly
describe it, that would be great.
Greg Sayegh: Yeah. Option ARMs were our loans where the borrower would
make the payment at a reduced interest rate, so the payment was tied to a
reduced interest rate and your payment was locked in for 12 months, but the
interest rate might fluctuate and you might defer interest. So [if] you're not
paying enough, your payments are not enough to cover the interest. So that
interest gets added to the loan principal. In the past, when I started doing
that, there were restrictions around the credit profile of the borrower, the
loan-to-value, how the loan was structured in terms of the parameters of the
loan product in particular, qualifying criteria, and so on. And it was a very
safe loan and had been forever. And then I think as the option ARM became more
prevalent, lenders started to massage some of the eligibility requirements. So
instead of a 30-year loan, they'd make 40-year loans. Or instead of a 20% down,
they make it 10% down. Instead of it being a fully documented loan, they would
allow an option ARM to be a stated income loan. And it was never designed for
that.
And I think also companies didn't
understand the intricacies [of] how it worked and they maybe
quoted the program wrong to the consumer. But ARM loans are safe if they're
written right and underwritten correctly— they're not for every borrower, but I
really feel that when they became exotic, considered exotic loans, and
predatory, I think that was a mistake. I think they're good loans, but I think
that they were never designed to do what they ultimately did. And WaMu did a great job in selling the option ARM. We had very
low delinquency, we trained our people, we knew it wasn't for every borrower,
but other companies that had the option ARM later on, basically it was just a
product that they just put in the arsenal without really fully training
everybody on how to present it to the borrower. It got mis-presented— not
misrepresented— mis-presented, to the borrower. And I think borrowers may have
opted for that loan, which may have been the wrong loan for them.
Maria Paz
Rios: What are some products
that you do consider to be more exotic, perhaps more predatory?
Greg Sayegh: There's really not many of out there today. I think that
the old subprime loan, I think was potentially a predatory loan program because
it was based on equity in the property and the equity was more important than
the credit profile, or the borrower's ability to pay. So
I might think that might be predatory. I think that many of the guidelines that
have been written post-recession, I think has really standardized not only the
documentation that goes to the borrower— I think it's much more clear to the
borrower in terms of the loan they're getting; where I think in the past, every
lender had a different way of disclosing how the loan programs worked, and so
that may have caused the borrower to take that loan that they may not otherwise
have taken. But I would say that would be the only thing I might look at, but I
don't know if that's even available today.
I mean, now that you've had
compensation changes where loan officers aren't paid on the type of loan you
bring in, I think that that's a big step, and that's been in place for a number
of years. I think the disclosure process today is much more borrower friendly
than I think it had [been]. I think the level of oversight is appropriate
today. Not to simplify it, but that was a period of time when the market was
overheated and that everybody was a genius because like I said, you could buy a
house today and a year from now make money and assume that you were smart. And
they thought it would never end... I don't think there's many predatory loan
programs out there anymore. Even subprime, you don't see much anymore.
Maria Paz Rios: Looking back on the crisis over a decade later, what do
you see as its most important lessons?
Greg Sayegh: One is, really, do the right thing. Always do the right
thing for every constituent— the borrower, the lender— putting the borrower
into the right loan to help secure their financial future is good business.
Two, is I think, that the disclosure process is not a bad word. Disclose to the
customer in real world the loan they're getting and continue over time to make
sure they understand the loan program. I think those are two good lessons. I
think that another lesson is that, be careful that you don't overreact and
change guidelines or restrictions or rates or requirements to a point that now
borrowers that should be able to get a home loan can't get a home loan, or make
decisions that are gonna drive the cost [to] … make
it prohibitive. So take a balanced view of the
business, understand that it's a dynamic business, and economic cycles and
market cycles change, and anticipate those changes in advance. I also believe
lastly in trust but verify— always pay attention to what the numbers are
telling you. And if you're seeing disparity or you're seeing that a company is
just doing incredible in this one area, dig deeper to really understand what
may be driving that, it may not be nefarious or bad. It just may be, they may
have a great idea, or maybe they're going about something the wrong way that
they need to get corrected.
Maria Paz
Rios: Thank you very much for
joining me today, Mr. Sayegh.
Greg Sayegh: You got it. I appreciate the
time and have a great day.
[END OF
SESSION]