This WSJ article highlights how lenders shoped their loan portfolios to a wide array of rating firms like Standard & Poor’s and Moody’s, looking for the best rating, and taking their business elsewhere if the ratings were not as high as they would have liked:

When Wall Street first began securitizing subprime loans, rating firms leaned heavily on lenders and underwriters themselves for historical data about how such loans perform. The underwriters, in turn, assiduously tailored securities to meet the concerns of the ratings agencies, say people familiar with the process. Underwriters, these people say, would sometimes take their business to another rating company if they couldn’t get the rating they needed.

“It was always about shopping around” for higher ratings, says Mark Adelson, a former Moody’s managing director, although he says Wall Street and mortgage firms called the process by other names, like “best execution” or “maximizing value.”

Every rating system gets worked, from the lanuage used to classify investments (junk vs subprime) to how investments are mixed and rated. The problem with this sort of cozy relationship is that end investors typically remain ignorant to the process until it stops working. And then nobody could have seen it coming, but once the rating firms give a bit here or there the relationship heads down a long slippery slope that virtually guarantees it will fail. Even Alen Greenspan endorsed subprime loans, but now Angelo R. Mozilo, the CEO of Countrywide, said home prices were falling “almost like never before, with the exception of the Great Depression.”

The NYT recently ran an article about how confusing the mortgage market is, discussing how adjustable rate mortgages are quickly sold to consumers under false pretense, then resold to other investment firms who are not held liable for fraud in the initial loan deal.

Even if circumstances suggest fraud when a loan was made, lawyers say, the various parties protect each other by refusing to produce documents.

Compounding the problem is a law stating that when a loan is passed to another party, that entity cannot be held liable for problems.

Even if the mortgage brokers outright lied to sell it, the consumer is stuck footing the bill until their house is foreclosed upon.

A borrower in good standing since 1998, she said a local broker persuaded her to combine her debts in a fixed-rate loan of $65,000 in 2003.

But at the closing, she was presented with an adjustable-rate mortgage from the Argent Mortgage Company, carrying a low teaser rate for two years. When she objected, the broker assured her that rates would fall and she could get a better fixed-rate loan later. She said she believed him.

The bait and switch pricing fraud may not be a few isolated incidents. In some cases, deceptive pricing may actually be a market standard. Last year the Pittsburgh Post Gazette published an article highlighting that Bankrate advertisers may offer one price on the Bankrate site, then charged another when consumers clicked through to the end merchant site.

If a consumer gets scammed it is their fault and they are stuck paying it. There is virtually no protection against mortgage fraud, especially for poor citizens who do not have enough capital to sue and reshape broken laws. Pretty sick, especially considering that the 2005 consumer bankruptcy bill was drafted by MBNA.