Neurton bomb loans. Coffee is for closers. Boiler rooms. And a corrupt, unregulated, out-of-control REIC

I've gotta give credit to the MSM lately for doing what they do best - reporting from the scene of a gory accident or triple homicide. Yes, they're lazy and terrible at reporting during the crime, but after the bodies are lying in the street, they wake up and do their jobs.

Here's highlights from a great Reuters expose on the out of control mortgage industry. Read the whole thing. And after it all comes crashing down, you'll know why.

Frenzy of risky mortgages leaves path of destruction

For nearly a decade, investors were rushing to real estate, creating enough capital to build a new class of homeowners -- loaded up with an incendiary mix of debt from car loans, credit cards and mortgages. Federal tax deductions and housing programs also fueled the boom.

Wall Street investment banks funded new subprime mortgage lenders, many based in California, by packaging their loans into mortgage-backed securities. That expanded the size and reach of the subprime lending, dovetailing with a long-held government policy of putting more Americans into their own homes.

The home-ownership rate surged to 69.3 percent in 2004, up 5 percentage points in 10 years. It was a stunning expansion, considering the rate rose only 2.2 percentage between 1965 and 1995, according to the U.S. Census Bureau.

But the subprime market began to sour in 2006 as home values leveled off. Lenders whose profit margins contracted in an increasingly crowded market were forced to repurchase a growing number of bad loans. When they couldn't, Wall Street pulled their funds, forcing many subprime lenders to shut down, sell assets or file for bankruptcy.

Bill Dallas, chief executive of Ownit, the nation's 20th-largest subprime lender in 2006, said he saw the handwriting on the wall in April 2005 after he overheard a rival account executive tell a customer how to get a better rate by committing occupancy or income fraud.

"I just went, 'We are hosed as an industry,"' Dallas said. "I told our guys, 'We're the problem."

The structure of the industry was part of the problem, he said: "Our account reps are talking to the mortgage broker, the mortgage broker is talking to the borrower, and they're teaching them all the wrong things."

'COFFEE IS FOR CLOSERS'

Interviews with borrowers, mortgage executives, loan officers, appraisers and brokers describe a subprime industry engaged in the systematic abuse of prudent lending standards. There also was plenty of outright fraud by lenders and borrowers, they say.

Borrowers lied about their income, sometimes encouraged by unscrupulous subprime sellers.

Property appraisals were faked to justify inflated loan values. Loans were closed at fast-food restaurants or across kitchen tables at midnight. Brokers sometimes skipped the signings altogether, sending a notary to clients' homes.

"They basically put you in the closet, turned out the lights, and said, 'Sign here,"' said Bill Purdy, a California lawyer who represents homeowners with predatory lending claims.

Lenders often teased borrowers with low initial payments that later soared, leading to onerous penalties or higher rates. And better yet, Wall Street investment banks stamped their approval on no-money-down mortgages and loans widely known as "liar loans," which allow borrowers to state their income without verification.

It was a dangerous mix, said Chris Lefebvre, a Rhode Island lawyer who represents families with mortgage problems.

"You had consumers that really weren't creditworthy and lenders who were irresponsible," he said.

Some subprime mortgages had features that were bound to produce disasters. "Stated income" loans didn't require borrowers to produce pay stubs or tax returns. Option adjustable rate mortgages (or option ARMs) typically let borrowers choose a monthly payment, but instead of paying down mortgages they often paid interest-only. That put borrowers deeper into debt after each payment.

Purdy, the California lawyer, calls these "neutron bomb loans" because they clear out the buyer but leave the house standing.

Sometimes subprime lenders drew their inspiration from Hollywood to motivate employees to sell more loans. Branch managers showed movies that celebrated bullying and high-pressure sales tactics.

Account executive Mark Bomchill said he was given his role model soon after arriving at Ameriquest Mortgage. He was Jim Young, the sleazy salesman played by Ben Affleck in "Boiler Room," a movie about a stock brokerage that scams investors by getting them to invest in fake companies.

Bomchill watched the movie as part of training at the Plymouth, Minnesota, branch, where he said he also watched colleagues falsify income statements and push customers into high-priced loans. They would treat borrowers, he said, as if they had no place else to go to buy into the American Dream.

"I was taught and encouraged to close loans without regard to the customers' financial ability to make payments on the loans," Bomchill said in a federal lawsuit against Ameriquest, a leading subprime lender.

Ameriquest said if what Bomchill described happened, it would be against policy. The company closed its network of 229 branches last year.

Others in the industry were told to model themselves after Alec Baldwin's hard-as-nails character in the movie "Glengarry Glen Ross." The 1992 film, based on David Mamet's play, depicts desperate real estate salesmen trying to unload undesirable properties while the home office threatens their jobs.

"Put that down," Baldwin yells at Jack Lemmon's character as he pours a cup of coffee during a sales meeting. "Coffee's for closers only. You close or you hit the bricks."