Bear Sterns was founded in 1923 by Mr. Bear and Mr. Sterns.  The trading company eventually grew into a multi billion dollar, international corporation that employed over fourteen thousand people and specialized in a gambit of corporate finance and investment services.  Several times the company had been honored by Forbes magazine as one of American’s most admired companies.

Boy, how things have changed… America’s most admired company is admired no more… actually it’s exists no more.  Bear Sterns is yet another former financial warrior that has succumbed to the mortgage crisis of 2007.  As of May 30^th, the company was acquired by power player, JP Morgan Chase for only $2 dollars a share.  This equates to just over $236 million dollars - nearly a fraction of Bears Sterns market value a year ago.

Throughout the entire year of 2007, the now defunct Bear Sterns was thrown hurdle after hurdle.  Aside from the billions of dollars in losses resulting from lending in the subprime mortgage market… Merrill Lynch seized nearly a billion dollars of Bear Sterns assets.  The assets were used as collateral in a bail out loan… a loan for which the company could not repay.

Also before the acquisition, the company had been sued by investors and the Federal Trade Commission.  Last week the FTC suit was settled for $28 million. EMC Mortgage, a subsidiary of Bear Sterns, was the named defendant in the FTC suit.

EMC Mortgage was the subprime/alt A mortgage lending arm of Bear Sterns and serviced nearly a half a million loans with balances totaling $86 billion dollars. Subprime lending is when banks loan money to those with bad credit.  Alt A lending is when banks loan money to those bordering on bad credit.)

So what is EMC guilty of? A bunch of dirty tactics which involve deceiving and defrauding mortgagees… FTC Act Violations, Fair Debt Collection Practices Act Violations, Fair Credit Reporting Act Violations and Truth in Lending Act’s Regulation Z Violations.

FTC Act Violations

The FTC Act makes it illegal to use unfair or deceptive practices in business.  EMC disregarded this act by charging unnecessary fees.  They charged late fees, inspections fees and other fees without provocation.  They also were careless in ensuring that the amount due as shown on mortgage billing statement was actually the amount due.

Fair Debt Collection Practices Act Violations

Debt collectors have been known to play dirty.  They would call at midnight, 2 am and 4, they’d swear, falsely threaten to take legal recourse that strong arm people into paying, lie about being a debt collector… all kinds of stuff.  EMC engaged in similar ploys.  But the Fair Debt Collection Practices Act exists to protect consumers from such abusive debt collection practices.

Fair Credit Reporting Act Violations

The Fair Credit Reporting Act entitles consumers to a free annual credit report.  It also spells out what must be reported to credit agencies and how long negative items can appear on a credit report.  EMC reported that consumers owed a debt, however it failed to report when a consumer disputed a debt.

Truth in Lending Act’s Regulation Z Violations

The Truth in Lending Act requires a lender to fully disclose terms and conditions of a loan. EMC charged its borrowers a loan modification fee, rolled the fee into the principal balance and never disclosed to the borrower that they were doing so.

I think it is horrible that EMC chose to prey on the American people.  What is even worse, the people they preyed on were those who could least afford it.  Subprime and Alt A borrowers were duped once with all of these creative mortgage products… no interest loans, teaser rate adjustable mortgages, and so on.  Shame on EMC for sticking it to consumers a second time… charged unauthorized fees, not disclosing all fees and being a bullying debt collector. And what is so disappointing about the whole thing… EMC was a subsidiary of Bear Sterns… American’s most admired company.