In the years immediately preceding the real estate collapse and the larger crash of the US financial service a handful of the players in the subprime industry became more and more aggressive in the loans they were writing. In order to do so, the lenders lowered their already low borrower qualification guidelines in order to meet their voracious demand for more loans. If a lender closed $10 million in loans in February, managers wanted $20 million in loans the next month. The lenders employed sales agents that would travel door to door t the local mortgage brokerage offices to hand out the “term sheets” or criteria a borrower would have to meet in order to qualify for loans in their new programs. The credit scores began low, than just kept dropping as did the loan to value or the amount the lenders were willing to loan relative to the perceived value of the home.
As the competition and volume heated up, the frenzy of lending turned into an orgy as local mortgage brokers blasted direct mail, phones, radio ads and television, all in an effort to suck in more potential loan leads. Think back and remember those days, your mail was stuffed with mortgage lending junk mail and you couldn’t turn on a tv, radio or email without being bombarded with the most aggressive solicitations.
The brokers could care less if the borrower had any ability to repay the loan or whether it made any economic sense, all they had to do was sell the loan, then wait for the loan papers to be delivered from the likes of New Century, Countrywide or Argent, get the borrower to sign and wait for a big fat commision check. New Century, Countrywide and Argent could care less if the borrower could repay the loan because before the borrower’s ink was dry on the paper, they had sold the loan to Bear Stearns, Merrill Lynch or Deutsche Bank (after they shaved off their commissions) and these Wall Street firms could care less about whether the loan would be repaid because they had already sold the loans off to investment sources like teacher, police and fireman’s unions and other major investment sources.
These end purchasers of this bad debt should have cared about the legitimacy of the underlying debt they were borrowing, but the fund managers were intoxicated by the massive fees they were collecting and they too ignored the common sense impossiblity of the loans they were purchasing. (How could a teacher making $30,000 ever afford a $300,000 mortgage.)
It was all basic math that a fifth grader could have figured out, but the math and the peril it was causing was ignored because the money being made by all the players was far too great. Now given the massive cost to taxpayers, the financial system and the security of the United States of America, you would think government officials would have stepped in to avert this crisis that developed in slow motion, right in front of everyone’s eyes over a ten year period. Again, this was basic math. The volume of loan obligations for the average American grew exponentially, while incomes were stagnant or declining.
The problem with government intervention is officials at all levels, begining with the President of the United States, were corrupted, short sited and afraid to act. This was not a Bush vs. Clinton issue. The crisis ramped up during Clinton (actually it accelerated during Bush 1), and it hit it’s peak during Bush II. Quite simply, when all other sectors of the US economy were down and declining, the Federal Government was loathe to turn the spigot off on the only sector of the economy that was producing jobs and income….a short-sighted reaction to the crisis to be sure.
The major players in this market are now all bankrupt, but the officials and employees who profited so handsomely are living large on the piles of money they made during this decades long debacle. Have a look at some of the numbers:
In 2001 Ameriquest funded $6 billion in subprime loans, 28 percent were stated income loans. In other words, Ameriquest had $1.7 million of their money out on the streets in mortgages with incomes and other factors that were not verified. By 2003, Ameriquest was originating $40 billion a year and 30% or $12 billion of those loans were stated mortgages. In January 2006 Ameriquest entered into a settlement with Attorneys General for several states, and agreed to pay $325 million to settle charges that it engaged in abusive lending practices. Argent Mortgage was the sister wholesale lending branch and between the two, and by 2005 they were the number one sub prime lender in the United States, funding almost $75 billion in subprime loans.
New Century Mortgage
In 1996, New Century Mortgage funded or originated $357 milliion in subprime loans. The following year its loan volume increased more than fivefold to nearly $2 billion dollars. In 2004 New Century raised almost $1 billion in a REIT offering. By 2006, it did business with up to 47,000 mortgage brokers scattered around the country with a retail network of 222 branch offices. In late 2005 New Century reported its most profitable year ever, $400 million in profit on $56 billion in loan volume. When earnings were reported in 2006, investigators became suspicious of several accounting issues and on April 2, 2007, New Century filed for bankruptcy and immediately fired 3,200 people.
The information contained in this blog is taken directly from “Chain of Blame”, http://www.chainofblame.com/a fascinating commentary on the meltdown of the American financial system which was named one of the ten best business books of the year by Bloomberg News. http://www.bloomberg.com/apps/news?pid=20601088&sid=am5wffhiJV9c
Understanding the larger issues that caused the meltdown is key to resolving foreclosure cases for individual consumers. Knowing what role your lender or servicer played in the crisis is a key component to understanding what kind of relief is available in your foreclosure case. For more information visit my website at www.mattweidnerlaw.com