Rising star or…

Another sample of business ethics out the window

According to this Bloomberg story,  Eve Mazzarella, a high school drop-out and former maid from Seattle moved to Las Vegas and started a real estate career in the year 2000.   Evidently, she and her husband are now allegedly charged with fraud.  The story goes on to say that she was highlighted in the National Association of Realtors “30 under 30” list, which names the best young real estate agents in the country.

The NAR “30 under 30” article reminds me of the story of Puget Sound Business Journal and Washington CEO Magazine’s “40 under 40” story on a local young CEO.

From the Bloomberg article:

“The day before, the U.S. Attorney for Nevada had indicted the couple on 6 counts of bank fraud, later revised to 13. Prosecutors say the pair recruited fake — or “straw” — buyers to apply for loans to purchase 227 properties worth $107 million. They told the straw buyers they would pay the mortgages. Then they skimmed thousands of dollars from each of more than 432 transactions, the indictment says, stashing the cash in 80 bank accounts.”

Will the real estate community, Lending Brokers, Real Estate Brokerages or regulating bodies of each State do a better job of getting rid of the people who had a direct role in bringing down the housing market and impacting those who had nothing to do with it?

Yikes, that was close. Or, was it? Convicted felon making loans.

Man convicted as being a key player of “swindling” $50 Million likely to begin serving 15 yrs. in prison and reportedly has been selling “reverse mortgages” to senior citizens while waiting for date to report to prison.

Evidently, The Washington State Dept. of Financial Institutions (DFI) denied his loan originator license on Dec. 17th of last year. DFI get’s it right, but it still begs the question: How did this fellow get through internal controls at the company he last worked for? Sloppy at best.

Bill Morlin reports from the SpokesmanReview.com:

“Michael Duane Smith has worked as a “reverse mortgage planner

MILA shuts down

MILA, a subprime wholesale lender based in Mountlake Terrace, WA just north of Seattle, closed it’s doors Friday afternoon, leaving the remaining 100+ employees (down from 600 last fall) only 15 minutes to check their emails and clear out their desks. MILA had been making staff reductions as far back as February of 2006.

The Seattle Times reports that a potential buyer of the company spent a week wandering around MILA headquarters, but no deal materialized.

Real estate agents: Loans in process but not yet funded now must be resubmitted to other lenders. 

For your reading entertainment, here are a couple of articles from the archives. The ad on the left is promoting a pay-option ARM.

What Bubble?
Despite forecasts of gloom and doom, broker innovations have kept the future bright
Layne Sapp, Founder and CEO, MILA Inc.

Inc. Magazine
2005 Entrepreneur of the Year
Layne Sapp

Local Lending Company Soars
After Flying Under the Radar
Seattle Times Oct 2004

When MILA first started out here locally, they ONLY worked the hard money side of the business.  When subprime loan originations skyrocketed, so did MILA’s growth.  When the subprime market started to fold this spring, MILA ceased doing subprime loans and instead focused only on the Alt-A and Prime mortgage market. However, there is now tremendous competition for Alt-A and Prime loans.

I question whether or not the company had any duties to notify employees and the general public that they were running out of cash. On the one hand, the company owes duties to its shareholders and any potential buyer NOT to speak too soon about problems that may have a negative effect on the value of the company, especially if cash problems appear to be temporary. On the other hand, what about duties of good faith owed to the general public or to its employees? 

Your thoughts?

This Just In: Zero Interest Loans, at a Cost of Zero, with a Monthly Payment of Zero (APR 0%)*

This is part three of a four-part series of blog articles about the subprime mortgage problems facing the real estate industry. In part one I sketched the rise and fall of subprime loan products and their relation to predatory lending practices within a capitalist system. In part two, I examined the structural relationship between a professional and his or her client. In today’s blog article, I will compare the subprime problems with a classic business ethics case study.

The space shuttle Challenger accident has frequently been used as a case study in the study of engineering safety, the ethics of whistleblowing, communications, and group decision-making.  With Challenger, an O-ring eroded on earlier shuttle launches. Morton Thiokol (MT) managers believed that because it had not previously eroded by more than 30%, that this was not a hazard. During a pre-[photopress:morning_1_2_3.gif,thumb,alignleft]launch conference call with NASA, the MT engineer most experienced with the O-rings, Roger Boisjoly, pleaded with management repeatedly to cancel or reschedule the launch. He raised concerns that the unusually cold temperatures would stiffen the O-rings, preventing a complete seal. MT senior managers overruled him and allowed the launch to proceed. Challenger’s O-rings eroded completely as predicted by Boisjoly resulting in the disintegration of Challenger and the loss of all seven astronauts. Boisjoly concluded that the caucus called by managers who decided to launch, was an unethical decision-making forum which came about because of intense customer intimidation. “Roger Boisjoly and the Challenger Disaster: The Ethical Dimensions