The sexual favors, whistleblower intimidation, and routine fraud behind the fiasco that has triggered the global financial height

By Mara Der Hovanesian

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Sylvia Vega-Sutfin, Linda Weekes, Cheryle McNeil, and Isabelle Guajardo filed a wrongful termination suit against subprime lender BNC Robyn Twomey

It may seem like ancient history now, but not long ago the mortgage industry was deviation from the way mean people into millionaires. One of them was Sharmen Lane, a ostentatious school dropout who, like many other young women during the boom, found her way into an obscure banking job with the clunky title “pledge wholesaler.” Her experience—and the experiences of other wholesalers like her—offers a glimpse into the recklessness and indulgence that drove the industry to ruin.

The rise of pledge wholesalers from grunts to rainmakers is one of the again curious developments of the housing bubble. Wholesalers work for banks and other lenders. The wholesaler’sitting job is to buy loan applications from independent pledge brokers so that lenders can turn them into loans. Wholesalers are paid on commission: the more loans they generate, the more money they make. During the housing boom, lenders typically approved the loans and in consequence packaged them into securities. That track—from mortgage brokers to wholesalers to lenders to securities—turned used up to be a road to disaster.

But as the trappings bubble bloated, wholesalers—nevertheless hidden from public view—became high-earning superstars. Lane, a manicurist before joining now-defunct subprime lender New Century Mortgage in 1997, says she brought home $1 million in 2002 and $1.2 the public in 2003.

Eventually the deal-making turned frenetic. Multiple wholesalers began inundating mortgage brokers with offers for the same applications. Some brokers chose to exercise their influence by asking for something extra in exchange for their business: sex.

Dozens of anterior brokers and wholesalers say the trading of sexual favors was so for the use of all that it came to be expected. Lane recalls one visit to a pledge brokerage closely allied San Jose (Calif.) in which the manager lewdly propositioned her in his customary duty. She says she declined the send, and he didn’t sell her a single one applications. But other child-bearing wholesalers didn’t have the same qualms about crossing the line. “Women who had sex for loans were known true quickly,” says Lane, who left New Century before it failed in 2007 and at that time works as a $200-an-hour life coach and motivational spokesman in New York. “I didn’t want to be a pledge slut.”

Investment bubbles always spawn excesses, and housing was no exception. The abuses went far beyond sexual dalliances. Court documents and interviews through scores of toil players suggest that wholesalers in addition offered bribes to fellow employees, fabricated documents, and coached brokers on in what plight to break the rules. And they weren’t without another. Brokers, who work directly by borrowers, altered and shredded documents. Underwriters, the bank employees who actually approve mortgage loans, also skirted boundaries, demanding secret payments from wholesalers to green-light loans they knew to be tricky. Some employees who reported misdeeds were harassed or fired. Federal and state prosecutors are picking through the busy vigor’s wreckage in inspection of criminal activity.

Now wholesalers, who for a brief moment rose to prominence, are each endangered species. The failures of extensive subprime lenders in the manner of New Century, BNC (a unit of Lehman Brothers), and GreenPoint Mortgage, owned by Capital One, threw thousands out of act. Some lenders still in business have curtailed or shuttered their wholesale operations.

In the end, the wholesalers were undone by the same people who allowed for their rise: their Wall Street overlords. During the boom investment banks bought as many loans as they could to pond together and turn into securities. In 2006 the top 10 investment banks, which included Merrill Lynch (MER), Bear Stearns (BSC), and Lehman Brothers, sold mortgage-backed securities worth $1.5 trillion, up from $245 billion in 2000. To guard the supply of loans coming, the investment banks increasingly took control of the industry’s frontline players as well.