Real estate has been a swell deal for just about everyone who owned a home in California during the last few years.
For hundreds of Orange County homeowners, it's been even better. Thanks to their mortgage broker, they essentially get paid to borrow money.
Mark Gallagher, the founder and president of Park Place Funding in Laguna Hills, uses a technique that unscrupulous brokers employ to bilk clients.
Gallagher's innovation was to cut his customers in on the action, giving them a share of the premium he earns for placing loans with high interest rates.
The homeowners receive cash on a regular basis they can use for vacations, remodeling or to pay off that expensive house faster. Not surprisingly, they love their broker.
Mortgage lenders were once fond of Gallagher too, helping him become one of the biggest independent brokers in the state.
Recently, however, the relationship soured. No one disputes that Park Place's system is completely legal, but it has suddenly become controversial as well.
Is Gallagher the consumer's champion, as he bills himself? Or do his mortgages, which are refinanced almost as soon as the ink is dry, make implicit promises to lenders and investors they don't keep?
In an attempt to clear his name, the broker has filed suit against some of his former partners. The case opens a window on a bigger issue: In a mortgage system that is loosely regulated but increasingly complicated, who is responsible for ensuring its integrity?
In the last five years, lenders have become increasingly ingenious in their effort to get people whose finances may have seemed dubious into homes.
At the height of the boom, borrowers got loans for 100%, or more, of the value of their property. They got loans without having to prove their income. They got loans with no requirement to pay the minimum interest due each month.
Park Place, by refashioning another part of the mortgage business, stoked demand for its exotic "structured refinancings" from both the loan suppliers and borrowers.
"In boom times, all sorts of crazy things happen," said James Croft, executive director of the Mortgage Asset Research Institute near Washington. "New programs are invented that have no history. You say, 'This is going to work,' and then you find out three years later it wasn't such a great idea."
