The Elbert Files: Holding lenders accountable
Friday, May 23, 2014 6:00 AM
The Barrent Group, an Urbandale business that performs forensic reviews of home mortgages, has compiled a remarkable record.
During five years of operation, the company has recovered hundreds of millions of dollars for scores of investors directly and through legal proceedings – all without ever having a court trial.
Since 2009, The Barrent Group has reviewed more than 45,000 home mortgages that were made during the years leading up to the 2008 financial collapse, according to founder Richard Barrent who estimated that at least half of those loans had underwriting problems.
The worst case resulted in a $785,000 repayment to an investor for just one loan, Barrent said.
I first met Barrent and his business partner, legendary Des Moines businessman and banking expert Richard Levitt, when they were just getting The Barrent Group off the ground five years ago.
At the time, there were still a lot of unknowns about mortgage-backed securities and the defaults that had prompted a worldwide financial collapse.
Five years later, the litany of fraudulent practices is well-documented.
There were “liar loans,” in which prospective homeowners were encouraged to lie about their ability to repay home mortgages. There were appraisals that overstated property values to qualify borrowers for larger loans.
Finally, there were the investment houses that packaged the bad loans and the ratings agencies that overstated their values before they were sold to unsuspecting investors.
By now, all have had to make repayments to varying degrees.
That’s largely because many of the investors who bought mortgage-backed securities have hired The Barrent Group or similar agencies to go through huge mortgage portfolios and identify problems associated with specific loans. The mortgage detectives then helped investors obtain refunds for individual loans in some cases or for whole packages that were sold under false pretenses.
Richard Barrent created a forensic mortgage review service in 2007 while he was working for Des Moines-based Wells Fargo Financial, the successor of a business that was once called Dial Finance. (Dial Finance had been owned by the Levitt family and was run by Richard Levitt until it was acquired in 1982 by Norwest Corp., which later became Wells Fargo & Co.)
When the financial collapse occurred, Barrent and Levitt realized that if the investors who purchased fraudulent mortgages were ever going to get their money back, they would need experts who could identify the fraud and catalog it in terms so compelling that those who sold the mortgages would have to take them back.
So, they created The Barrent Group. They started with 12 employees, and today they have 97.
At the beginning, no one knew how long it would take to unwind the mortgage mess or how much competition The Barrent Group would have in detecting mortgage fraud.
When I talked with Barrent and Levitt earlier this month, they said there are currently about a half-dozen operations around the country doing what they do, although there have been as many as a dozen.
Some competitors have 500 to 1,000 employees. “We’re on the smaller, boutique side” of the business, Barrent said.
It’s a business with “a short life expectancy” at this point, Levitt said. Three years from now, the mess should be pretty well cleaned up, he said.
But the forensic skills that The Barrent Group has will continue to be in demand, the men said.
“We’re actively looking for a sensible way to pivot” into new operations, Levitt said.
The Barrent Group is already doing post-closing quality control for lenders and regulators who are attempting to restart the secondary market for mortgage securities, Barrent said.
“Our skill sets fit very nicely into doing this,” he added.
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