Wall Streetwalkers: The Sleazy Lehman Brothers Subsidiary

Lehman Brothers maintained its squeaky-clean image by relying on its seamier subsidiary. Just call her Aurora.

Once Rodriguez fell behind, Aurora initially promised to work out a payment plan of some kind. But it turned out that the plan was simply to take the house back from her. "The only thing I got from them was the letter of foreclosure," says Rodriguez, 49.

She tried to put together a payment plan and scrounged up enough money to make a substantial payment. But Aurora would not accept the payment.

"They started billing me for penalties and interest, but never gave me a payment plan," she says.

Today, the building is in Aurora's hands. "It's messed up my credit, and my life," she says. "There's a lot of things I couldn't do because of it."

Suzanne McLaughlin, a 37-year-old computer programmer from Melbourne, Florida, didn't lose her townhouse, but she says Aurora put a terrible scare into her earlier this year in a Kafka-esque dispute over whether she had homeowner's insurance—which she did.

McLaughlin says the ordeal began when Aurora wrote her, claiming she had no proof of insurance. She faxed the proof to the company, but the company next told her she had failed to provide proof and threatened to bill her for a $53,000 insurance premium.

She called them and faxed the proof at least two more times, she says. But Aurora kept sending her demands for proof, and finally sent her a formal bill for the $53,000.

McLaughlin was paying $175 a month for homeowner's insurance, and she says Aurora's demand was ludicrous.

"I've never been late on a mortgage payment, so I didn't even concern myself with it," she says. "I thought it was a billing oversight, until I realized it's not going away."

McLaughlin got nervous. She had heard stories about Aurora taking money that was supposed to be applied to mortgage payments and applying it to penalties and other murky costs—like this insurance demand. She called the company repeatedly. She kept getting different people on the phone. No one would give her a last name.

Finally, she got her insurance agent and a local newspaper reporter to make calls on her behalf. Only then did the company finally confirm to her that she had provided proof of insurance.

"Knowing that someone holds your mortgage, and they are billing you an amount you can't possibly pay—that's really scary," she says. "And they won't give an address to send a certified letter. What recourse do you have? I don't know what their goal was, but it sure felt sinister."

Charles Walker, 55, of Missouri, was riding high as a real estate broker. In July 2006, the family's real estate office was raided by authorities reportedly investigating mortgage fraud. No charges were ever filed, but the incident tainted Walker and forced him to give up his business.

"I went from making $500,000 a year to making $9.50 an hour as a customer-service representative working from home," Walker says.

By then, the family had already moved into a new house, purchased in the name of Walker's wife. The couple had been expecting a 30-year fixed-rate mortgage, but at closing, they were offered a different type of mortgage with a much higher interest rate. Because his family had already moved into the new home, Walker felt obligated to accept this different mortgage.

That type of bait-and-switch is something that has come up repeatedly as a problem in the subprime-mortgage mess.

By February 2008, the Walkers' savings were dwindling. The family was still current, but they realized that they would not be able to make the payments in the future. They contacted Aurora in the hopes of discussing some way to reduce their payments.

Aurora, he says, declined to modify the loan because the Walkers were still current on their payments. Aurora referred the Walkers to another lender, who wanted 20 percent down, which wasn't an option for them.

Walker followed up by writing to both Aurora and Lehman Brothers, requesting a meeting to discuss a loan modification. In response, he got a form letter offering options. He wrote again and got back the same forms.

Meanwhile, two other Walker-owned properties were also having problems. The tenants in both places had moved out. The Walkers decided to sell the properties. They found buyers for both. But when they asked Aurora to approve the deals, Aurora didn't respond. After three weeks, the buyers backed out.

Walker was forced to allow those properties to go into foreclosure. He continued to send letters to Aurora, asking to discuss modifying the loan on his home. No response.

Without a response from Aurora, Walker decided to stop making payments. He wanted a sit-down with the company to work out an arrangement that would allow him to keep up.

Aurora began responding with form letters. Then, in early September, Walker received a letter from Aurora stating it refused to work out anything on the loan. He called the company and was told there were missing documents.

Walker sent in the missing documents, even though he had already sent them in at least twice. One Aurora representative refused to tell him who owns his loans. "She says 'It's none of your business,' " he says.

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