Borrowers who lied about their income, mortgage brokers who flogged risky loans, appraisers who inflated home values, lenders that originated dicey mortgages, Wall Street firms that packaged them as securities and sold them, ratings firms that said those were safe investments - many participants in the market pushed the envelope, or, in some cases, may have committed outright fraud. But as Wall Street realized that there was a vast untapped market of such subprime borrowers - and that it could diffuse their risk by slicing and dicing loans into “mortgage-backed securities” and “collateralized mortgage obligations” - it opened the floodgates to peddle mortgages to them a few years ago. Scores of mortgage brokers, often in sole proprietorships or mom-and-pop shops, sprang into action to cater to the new rush of borrowers, collecting big loan origination fees plus an extra bonus called “yield spread premium” for writing subprime loans. One Bay Area man who worked as an account executive at several subprime lenders said he witnessed mortgage brokers who blatantly falsified information on loan applications. After being probed by the attorneys general of 49 states, it agreed to pay $325 million to settle charges that it misled borrowers about home loan terms, refinanced borrowers into inappropriate loans, inflated home appraisals and charged excessive loan origination fees and prepayment penalties. read more