The Get-Rich Pitch, Then the Letdown

"RESPA is clear that giving or receiving anything of value in exchange for the referral of business is against the law," Sullivan said.

In their quest for borrowers, Lee's troops are deployed into black communities to sell a particular type of mortgage that some real estate experts say is inappropriate for most people. These salespeople -- many of whom have little if any experience as loan originators -- are sent out to meet borrowers in their homes to conduct what they call kitchen table presentations.

The product they tout is a payment option, adjustable-rate mortgage. It allows homeowners to choose the kind of payment to make each month -- either a minimum payment, principal and interest, or interest-only. With a minimum payment, a borrower could face "negative amortization," which means that the unpaid interest is added to the mortgage balance. With negative amortization you end up owing more on your mortgage than you originally borrowed. That's a bad position to be in if you need to sell or refinance because you could end up owing more than the home is worth.

Under Lee's direction, borrowers are encouraged to make the minimum payment and put the difference into investments, such as individual stocks or mutual funds, rather than pay interest or pay down the principal on their loans. Homeowners are left to figure out for themselves how to invest the money.

David Reed, a veteran mortgage banker and author of "Mortgage Confidential," says Lee is putting people in a dangerous financial situation. What he is preaching to borrowers is "irresponsible at best, inhumane at worst," Reed said.

Lee, of course, sees it otherwise. In a brief interview last month, he said his mission is to teach blacks "money movement strategies."

The secret to financial salvation according to Lee's business model is the payment-option ARM because it's supposed to free up cash to invest.

But Lee doesn't just lead black borrowers astray by pushing unsuitable mortgages. He attaches fees and prepayment penalties to the loans that would be classified as predatory by many consumer advocacy groups.

I asked Reed about the fees Lee charges. Although the total fees a loan originator earns varies based on the loan size, the industry standard is 1 to 2 percent of the loan. A 2 percent fee is high for someone with credit issues and definitely excessive for a typical, no-fuss refinancing, Reed said. Lee is charging many borrowers fees that ranged from more than 3 percent to as much as 5 percent of their loans, according to company documents that Reed and I reviewed.

"It's extremely high," said Reed, who has closed more than 1,000 loans as a loan officer. "It's dumbfounding to me that he can get that much money on a loan. It's sad and it's taking advantage of people."

The loans Lee and his associates push carry what is called a yield-spread premium, or YSP. A yield-spread premium is a fee a lender pays a mortgage broker for placing a borrower into a home loan with a higher interest rate. It's a back-end way for the broker to earn more money. In some cases the borrower could qualify for a less expensive loan.

Though not illegal, this practice can land lenders in trouble as it did subprime lender NovaStar Mortgage. Without admitting wrongdoing, the company settled a class-action lawsuit for $5.1 million in June after borrowers accused it of either not disclosing the yield-spread premium or only telling them about it the day of their loan closings.