On occasion I have been known to watch “South Park”. I love the way they take a current event and then “cross the line” with it. It can be a beautiful thing when the creators are on their game. One episode reminded me of when I first met my co-writer.
The overall theme of the episode revolved around someone not going along with an “agenda”. When this happened the phrase “There is a Turd in the Punch Bowl” was uttered and the person was removed. It was code for we have a “free thinker” and someone who isn’t drinking the “Punch” (or kool-aid if you like). The beauty of this is that my co-writer chose the name Turd Furgeson. Ohh, the cosmic irony.
By now you should know that Turd Furgeson didn’t go along with the Mortgage Devil’s agenda at all. She hadn’t been drinking his Punch in quite awhile. It became a source of displeasure for him and his cohort…who I would like to introduce now. This woman shall be called Cruella Deville from this point forward. She is a middle aged woman who has the most fake laugh…bordering on cackle…that I have ever heard. Her husband is a successful Doctor in the area..so she doesn't need the money. Why does she work in the mortgage industry?....because she is Cruella and she needs to steal puppies to make fur coats?...or to take advantage of mortgage customers to finance her wool sweater and wool skirt habit? I am not sure. She chain smoked cigarettes all day and ran around the office between smoke breaks totally freaking out yelling “I am so SCREWED”…all…day…long. She never met a loan that wasn’t a total crisis. She created more drama than a Broadway production on a daily basis. She would run around screaming, cursing, throwing her hands up…. and then suddenly…the phone would ring. At a quick snap she would transform the rage into a sugary sweet demeanor. It was sickening to watch. It was better not to have eaten any greasy food that could easily come up when you were in her presence. The probability that I would vomit after watching this show was very high.
I recall one evening I am talking to one of the Mortgage Devil’s Minion’s…one that I actually like a little….and here comes Cruella. She is in full on freak out mode:
Cruella: “A. Hole…darling…have you heard that Turd Furgeson is down at the Beach office stealing loans from all of us”.
Me: “uhhh…what?”
Cruella: “Oh yeah, she is down there picking up all of the phones call that could be for any of us…and she is taking the loan applications all for herself”.
Me: “hmmm…Really?”
Cruella: “Yes, the Mortgage Devil is pissed. He said that he explained to her she had to find out who the Loan Officer was that handled the loan and then pass it to them. But she isn’t doing that. He said that wasn’t the deal.”
Me: “Well, I planned to make some stops at the Beach at the end of the week and stop in that office. I guess I will get to meet her.”
Cruella: “Well you need to sit and there and listen to what she is doing and tell the Mortgage Devil. He needs proof. Better yet, tell me and I will tell the Mortgage Devil”.
Me: “Why would I do that? I am not her boss.”
Cruella: “Jesus Christ, don’t you see that she is ripping all us off??!!”
Me: “ I will give you a full report. Happy?”
Apparently, Turd wasn’t going along with the Mortgage Devil’s and Cruella Deville’s plan. So, there was a Turd in the Punch Bowl and I was supposed to help flush it? Not my style. I had no intention of being a spy or tattle-tailing. I just needed a break from Gilligan’s Island and Cruella Deville’s stupid daily shit. I knew none of my clients were being stolen by Turd because I didn’t give out the number to that office to ANYONE. I don’t think I even knew the number for that office. I didn’t even want people calling ANY office for fear the call would be directed elsewhere by the Ever-clear Pickled Bitchy Receptionist. Everyone had my cell phone number and that is how everyone reached me.
I was there for some peace and quiet and to relax a little without the constant stream of people “buzzing” my Island like Crop Dusters. I pull into the parking lot and see what I believe is the Turd’s mode of transportation. A Volvo Station Wagon. That is odd? The Mortgage Devil had a Volvo Station Wagon (and 10 other cars) too. I guess I didn’t get the Corporate Memo about Loan Officers driving Volvo Station Wagons. Oh, well. Boring Car…hopefully she is not as boring as her mode of transportation. When I walk past it I notice a Chicago Bears magnet attached to it. I figured it must be her husbands and he must be from the Mid-West. I roll in and the greeting was less than warm. Great, who pissed in her Cheerios? No worries, I have some chicken and it is quiet…except she talks very loud on the phone. Hopefully, she can stop talking for a few seconds while I check out some Washington Redskins news and plan for my next tailgate. I am at this office for some rest and relaxation not hear her blabber all day with lunatic customers. So, I notice this little window between the offices. Weird? What the hell is that for…passing joints…passing a flask of whiskey back in forth? Who knew?
So, I am doing my usual method of getting to know someone...it involves me sitting and observing…not saying much. What have I observed? She talks loud and is constantly on the phone…and she doesn’t like me. Ok, this is going to be challenge to figure out who she really is…so, I make it my personal mission.
The next several times I stop by the office…she started an annoying habit of running out the back door to talk on her cell phone as soon as I walked through the door. But due to the volume she speaks on the phone…and the thin walls in this office…I could figure out she was inviting her friends to the office. So, her friends would stop by…one that talked as much as her and the other seemed drunk or high or both all the time. After this scenario unfolded the same way several times…I figured this was intentional because she needed a buffer between us. She hated me. Why? Because she thought I was one of Devil’s Minion. She had no idea I was smiling and nodding to the Mortgage Devil while I was planning on how I could take him down. We had the same goal but were stuck in an ultra-competitive environment (created and encouraged by the Mortgage Devil), so we didn’t realize that we should be allies not foes.
I don’t recall the exact conversation, but I think we were talking about our children and she suddenly started not hating me so much. Then we got to know each other a little better and we realized we both had a deep hatred for the Mortgage Devil in common. Then things got really interesting…stay tuned folks.
Thursday, May 27, 2010
The Mortgage Devil Does A Loan For Me, Sorta
A few months into my tenure at the Bank of Hell, I put my house on the market. It was my first home and it was a major project, ironically, I had bought it after it went to foreclosure. It was an 80 year old colonial that was in such bad shape that when I stepped foot into it for the first time it had kelly green carpet with dried up dog shit on it. I remember commenting to the realtor, "Perhaps they thought the green carpet would make the dog think it was grass." I was pretty sure they ran some kind of phone sex operation there and made meth in the carriage house but, it was love at first sight for me. The house had great bones. You had to be a visionary to see it through the dog shit, plaster falling off the walls, landscaping growing through the windows, and the hideousness that was carpet over original pine flooring. I saw it for what it was intended: a majestic home in a poor town. It was the mayor's house of Hillbilly Ville and it was perfect for me.
The home was 15 minutes from the ocean and 15 minutes from the nearest city where people actually lived and shopped. I purchased the house for $80,000 in 2002 and got my mortgage through Countrywide, with 10% down. At the time, it never crossed my mind that I would be a loan officer; I was working as a mate on an offshore fishing boat and "writing my dissertation.". When I wasn't fishing for tuna, marlin, and big tips in a leopard print bikin, I was renovating the house and learning things most women never do...and for good reason. I tore up carpet, drywalled, painted, tore up landscaping, and learned to disguise flaws in a home to the naked eye. My husband started calling me, "Contractor Jane". I went to auctions, rummaged dumpsters, and turned old barn doors into charming dining room tables to capture the essence of the home. I was in my element.
I had a few minutes of buyers remorse, not because of the constant work and money that the home needed but, instead it came when I went to the local tavern and met people that scared the crap out of me. There were people using the "N" word and not at all in an ironic fashion. There were huge Nascar fans with less teeth than an infant, no view out of their window, and to make matters worse, they looked at me like I was a city girl. Fortunately, I can adapt to most situations, but I left the bar the night we moved in a little bit drunk and pretty sure I was going to get robbed and raped. At first my friends made fun of the purchase, I had purchased a home in a town where non-residents don't even like to stop for gas. I got the last laugh.
After a few years in the home and countless trips to Home Depot, my mommy mechanism kicked in. I had a boy about to turn three and was thinking that perhaps, we should move somewhere with more people like me. I realize now that there is no neighborhood on earth with people like me, but at the time, I really held out hope that the suburbs and a culdesac would give me moms who cussed like sailors, drank wine, and were worldly when it came to politics and economics. Naive, much?
After searching for the perfect home I decided to build one in a planned urban development (PUD) full of brick homes and large lots. It was right in the middle of a culdesac and I designed it myself to be fabulous. I put our now renovated colonial on the market for $260,000 and got offers immediately. Two and a half years in the home and we got an immediate offer at more than triple what we paid. Because we did so much work on the home in what they call "sweat equity", we made out like bandits.
The new home was to be finished by Christmas, which was perfect because I had moved my parents out from the Midwest to live with us and had designed them an in-law suite attached to our new home. This was in the peak of the housing boom however, and the home was delayed. At first the builder told me it was a six week delay, then two months, and in the end it turned out to be 5 months late. I was now pregnant with my daughter, living with my elderly and often critical parents in a 3 bedroom colonial, and working as a loan officer in a pressure filled situation. I was on the verge of insanity.
The insanity and delays led me to keep upgrading things in my new home, so much so that I came in $75,000 over budget. I wanted to do my loan through the Bank of Hell and because the Mortgage Devil was all about his glory, I had to ask him to do the loan. He responds, "Of course, I do all the employee loans. But you will have to do your own application, send it through underwriting, and get all the documentation." Basically, I was to do his job for my own loan. By the way, this is totally unethical. I was under direct orders to basically be the loan officer on my own loan, of course, the Mortgage Devil didn't have time for his minions. I did as told and moved into Suburbia, earning the Devil a small commission for which he did nothing.
The craziest part of this is that after I moved into my home I started receiving his mass mailings offering to refinance me. Wonderful postcards with his picture telling me, his employee, that it was a great time to refinance. WTF? I went into his office one day and told him, "You could save some money by taking me off your marketing list, I know who you are and I don't need constant reminders." He responded with, "Well, you would be surprised how few loan officers remember to refinance their own homes." Gee, really? I watch interest rates everyday and just closed two months ago on my home and you think I need to be told its time to refinance? The only thing bigger than that man's ego is the national debt.
As though it wasn't bad enough having to deal with the asshole everyday, I now was one of his customers which entitled me to countless newsletters, magnets, and stupid bullshit reminders that he had money to sell. At one point, my now three and a half year old picked up one of the Mortgage Devil's newsletters and without missing a beat said, "Isn't this your asshole boss?" Well put, little man. Well put.
Note: I did correct my son with respect to his language, but I did take the time to compliment him on his amazing insight into people's true personalities. Now you know.
The home was 15 minutes from the ocean and 15 minutes from the nearest city where people actually lived and shopped. I purchased the house for $80,000 in 2002 and got my mortgage through Countrywide, with 10% down. At the time, it never crossed my mind that I would be a loan officer; I was working as a mate on an offshore fishing boat and "writing my dissertation.". When I wasn't fishing for tuna, marlin, and big tips in a leopard print bikin, I was renovating the house and learning things most women never do...and for good reason. I tore up carpet, drywalled, painted, tore up landscaping, and learned to disguise flaws in a home to the naked eye. My husband started calling me, "Contractor Jane". I went to auctions, rummaged dumpsters, and turned old barn doors into charming dining room tables to capture the essence of the home. I was in my element.
I had a few minutes of buyers remorse, not because of the constant work and money that the home needed but, instead it came when I went to the local tavern and met people that scared the crap out of me. There were people using the "N" word and not at all in an ironic fashion. There were huge Nascar fans with less teeth than an infant, no view out of their window, and to make matters worse, they looked at me like I was a city girl. Fortunately, I can adapt to most situations, but I left the bar the night we moved in a little bit drunk and pretty sure I was going to get robbed and raped. At first my friends made fun of the purchase, I had purchased a home in a town where non-residents don't even like to stop for gas. I got the last laugh.
After a few years in the home and countless trips to Home Depot, my mommy mechanism kicked in. I had a boy about to turn three and was thinking that perhaps, we should move somewhere with more people like me. I realize now that there is no neighborhood on earth with people like me, but at the time, I really held out hope that the suburbs and a culdesac would give me moms who cussed like sailors, drank wine, and were worldly when it came to politics and economics. Naive, much?
After searching for the perfect home I decided to build one in a planned urban development (PUD) full of brick homes and large lots. It was right in the middle of a culdesac and I designed it myself to be fabulous. I put our now renovated colonial on the market for $260,000 and got offers immediately. Two and a half years in the home and we got an immediate offer at more than triple what we paid. Because we did so much work on the home in what they call "sweat equity", we made out like bandits.
The new home was to be finished by Christmas, which was perfect because I had moved my parents out from the Midwest to live with us and had designed them an in-law suite attached to our new home. This was in the peak of the housing boom however, and the home was delayed. At first the builder told me it was a six week delay, then two months, and in the end it turned out to be 5 months late. I was now pregnant with my daughter, living with my elderly and often critical parents in a 3 bedroom colonial, and working as a loan officer in a pressure filled situation. I was on the verge of insanity.
The insanity and delays led me to keep upgrading things in my new home, so much so that I came in $75,000 over budget. I wanted to do my loan through the Bank of Hell and because the Mortgage Devil was all about his glory, I had to ask him to do the loan. He responds, "Of course, I do all the employee loans. But you will have to do your own application, send it through underwriting, and get all the documentation." Basically, I was to do his job for my own loan. By the way, this is totally unethical. I was under direct orders to basically be the loan officer on my own loan, of course, the Mortgage Devil didn't have time for his minions. I did as told and moved into Suburbia, earning the Devil a small commission for which he did nothing.
The craziest part of this is that after I moved into my home I started receiving his mass mailings offering to refinance me. Wonderful postcards with his picture telling me, his employee, that it was a great time to refinance. WTF? I went into his office one day and told him, "You could save some money by taking me off your marketing list, I know who you are and I don't need constant reminders." He responded with, "Well, you would be surprised how few loan officers remember to refinance their own homes." Gee, really? I watch interest rates everyday and just closed two months ago on my home and you think I need to be told its time to refinance? The only thing bigger than that man's ego is the national debt.
As though it wasn't bad enough having to deal with the asshole everyday, I now was one of his customers which entitled me to countless newsletters, magnets, and stupid bullshit reminders that he had money to sell. At one point, my now three and a half year old picked up one of the Mortgage Devil's newsletters and without missing a beat said, "Isn't this your asshole boss?" Well put, little man. Well put.
Note: I did correct my son with respect to his language, but I did take the time to compliment him on his amazing insight into people's true personalities. Now you know.
Tuesday, May 25, 2010
Burn it Like Beckham
My thoughts range from jello salad to lawns in need of care and perhaps, I have lost my mind. I realized today that the global economy is similar to a home in foreclosure with a seriously shitty yard. You have seen those, right? The yards so full of weeds and crap that the best options are to set fire to the whole thing or tear it up; that is our economy. The scary thing is that it isn't just our economy anymore, it belongs to everyone across the globe.
I always found debt fascinating as a student of economics and as a mortgage originator. Debt can do wonders for people, corporations, and as Ross Johnson once said, the sphincter. I have no intrinsic problem with debt, if you have read this blog then you know that I have at times encouraged people to acquire debt to degrees formerly considered stupid. But, what scares me now is how many countries are in debt and printing money. It is all fine and good when we you just have Hitler or Bernanke printing money in solitude, at different points in history....but when all the major players are printing money at the same time with no economic backing, we should be very afraid for the future. There is no economic growth to base money supply expansion on and this should scare the crap out of people. For those of you who hate economics, let me make it very simple. Inflation is inevitable. It has to be.
In a break with tradition, I have a solution or two. Here they are, in no particular order of importance:
1. Burn the whole fucking disaster down. Get rid of the Fed, Federal regulatory agencies, the FDIC, Fannie Mae, Freddie Mac, and anyone else who has an incentive to make the government bigger and hose the taxpayer.
2. Replace government regulators with private sector regulators and MAKE THEM BID FOR CONTRACTS ANNUALLY, and maybe make private firms decide who gets the contracts. As an example, in the oil business you would have smaller companies regulate the larger ones. Recognizing that this is a collusive industry, you would want to bring in new potential competitors to regulate the long standing firms. It cannot be BP regulating Exxon. That would be like fraternity boys policing themselves in a date rape, not cool.
2a. For all the hits capitalism is taking, it is the best system for improving human welfare, if you don't think so than I have to infer you have not read much about history and I am sad for you. We need to quit confusing capitalism with cronyism and we need to recognize what it needs to work better. We need to look at our legal system and government institutions that ruin what is a competitive environment that actually helps consumers.
2b. In the banking industry, I could see this as a way to save small banks. Let smaller banks audit the big banks and serve as an enforcement mechanism for regulations in place. Give the private banks an incentive not to take bribes or get ahead other than the fact that they could grow and prosper, unlike government regulators, who have no incentive to do right. The truth is that more regulations solve nothing unless they are enforced and no one is enforcing them. The banking and financial industry is very much like OPEC, a very close knit oligopoly that can allow oil to go from $14 to $56 a barrel quicker than you could get Jessica Simpson to say something stupid. This is not capitalism or competitive economics. Do not be confused. This is consolidation of economic power that results in a strange form of economic totalitarianism.
I am just beginning to mull this around. I want to avoid the inherent problems in government regulations and the crazy game theory dilemmas that these arrangements create. I want a system where potential competitors police behavior because it reduces barriers to entry and levels the playing field for everyone and at the end of the day, that is good for the consumer.
If the effing Beckhams can float freely between continents without anyone regulating the transmission of stupidity, surely, we can figure out how to regulate behavior without the government? Right?
Your thoughts are welcome....unless, you think Congress can fix it. If that is your suggestion, then please feel free to hang out with Posh Spice in another delusional land. I am setting fire to this one.
I always found debt fascinating as a student of economics and as a mortgage originator. Debt can do wonders for people, corporations, and as Ross Johnson once said, the sphincter. I have no intrinsic problem with debt, if you have read this blog then you know that I have at times encouraged people to acquire debt to degrees formerly considered stupid. But, what scares me now is how many countries are in debt and printing money. It is all fine and good when we you just have Hitler or Bernanke printing money in solitude, at different points in history....but when all the major players are printing money at the same time with no economic backing, we should be very afraid for the future. There is no economic growth to base money supply expansion on and this should scare the crap out of people. For those of you who hate economics, let me make it very simple. Inflation is inevitable. It has to be.
In a break with tradition, I have a solution or two. Here they are, in no particular order of importance:
1. Burn the whole fucking disaster down. Get rid of the Fed, Federal regulatory agencies, the FDIC, Fannie Mae, Freddie Mac, and anyone else who has an incentive to make the government bigger and hose the taxpayer.
2. Replace government regulators with private sector regulators and MAKE THEM BID FOR CONTRACTS ANNUALLY, and maybe make private firms decide who gets the contracts. As an example, in the oil business you would have smaller companies regulate the larger ones. Recognizing that this is a collusive industry, you would want to bring in new potential competitors to regulate the long standing firms. It cannot be BP regulating Exxon. That would be like fraternity boys policing themselves in a date rape, not cool.
2a. For all the hits capitalism is taking, it is the best system for improving human welfare, if you don't think so than I have to infer you have not read much about history and I am sad for you. We need to quit confusing capitalism with cronyism and we need to recognize what it needs to work better. We need to look at our legal system and government institutions that ruin what is a competitive environment that actually helps consumers.
2b. In the banking industry, I could see this as a way to save small banks. Let smaller banks audit the big banks and serve as an enforcement mechanism for regulations in place. Give the private banks an incentive not to take bribes or get ahead other than the fact that they could grow and prosper, unlike government regulators, who have no incentive to do right. The truth is that more regulations solve nothing unless they are enforced and no one is enforcing them. The banking and financial industry is very much like OPEC, a very close knit oligopoly that can allow oil to go from $14 to $56 a barrel quicker than you could get Jessica Simpson to say something stupid. This is not capitalism or competitive economics. Do not be confused. This is consolidation of economic power that results in a strange form of economic totalitarianism.
I am just beginning to mull this around. I want to avoid the inherent problems in government regulations and the crazy game theory dilemmas that these arrangements create. I want a system where potential competitors police behavior because it reduces barriers to entry and levels the playing field for everyone and at the end of the day, that is good for the consumer.
If the effing Beckhams can float freely between continents without anyone regulating the transmission of stupidity, surely, we can figure out how to regulate behavior without the government? Right?
Your thoughts are welcome....unless, you think Congress can fix it. If that is your suggestion, then please feel free to hang out with Posh Spice in another delusional land. I am setting fire to this one.
Monday, May 24, 2010
Too Small to Succeed: The Plight of Jello Salad and Small Banks
I spent a good chunk of my weekend contemplating the future extinction of Jello salad. It started at a friend’s birthday party for her daughter when her grandmother made a pineapple Jello salad and the kids couldn’t get enough of it. I don’t make Jello salad, in fact, I don’t even make Jello, unless it is for shooters but I’m even getting too old for that. So this party had me thinking that as grandparents die off so will Jello salad, because it is only loved by the very old and the very young and very few in my generation make the stuff. I find this kind of sad, although the truth is that I don’t even like Jello salad, probably because my mom shoved it in my yapper at every kind of celebration when I was a child. If I fell off my bike I was told, “Here have some Jello salad, you will feel better. It will fix you right up!” You are probably wondering what this has to do with the mortgage and banking industry. Well at first glance, absolutely nothing but, it made me realize that Jello salad is like small banks, neither one will be probably exist in twenty years.
A glance at the FDIC bank failure list shows a number of regional and small community banks shutting their doors. I guess they are too small to succeed, while their larger national counterparts are benefitting from the notion that they are too big to fail. Our government is helping to decide who the winners and losers are and we are footing the bill.
Some of these failures are due to market forces, particularly small community banks in rural places where populations are declining and so are economic prospects. Bad investments by banks can also account for a portion of the closures, particularly those regional banks that put a considerable amount of their resources into financing home builders and commercial developers in places like Nevada, California, and Florida.
What seems odd to me is that smaller banks that didn’t take on the kind of risk that plagued the banking industry during the housing boom are failing at a much higher rate. By all accounts, they were still lending more responsibly than the rest of the industry and since many of them subjected loans to traditional underwriting by committee, they should have been more insulated than the big banks using Fannie Mae products to get nearly anyone a loan. Perhaps, a larger portion of the failures are those banks that in response to the increasing competitiveness of the banking industry and its consolidation, were encouraged to take on more risk than realistic for their asset size and local economic conditions. I still question however, that all these explanations can account for the higher failure rate. I'm sure the rest is explained by the collusion of the large banks to receive bailouts and pass on risk and exposure to the small banks.
This is on my mind because of the proposed financial regulations that will do precious little to insulate us from having another financial meltdown in the future. With the loss of small banks, we are losing tremendous information and relationships that can help foster economic growth and stability in a region. Bankers who know their customers can assess risk better than automated underwriting; tools such as credit reports, which are not always reflective of risk, cannot replace the knowledge found in a more personal banking system. The consolidation of the banking and mortgage industry which has been going on for twenty years is speeding up thanks to the housing crisis, and I’m sure the largest of the banks couldn’t be happier about it. Couple this with the melding of banking and the insurance industry and we are at more risk than ever.
So when small banks go, so does competition in the industry, leading to a cartel of banks…oh yeah, we have that already, it is called the Federal Reserve. The impact on consumers will be profound in terms of fees for everything from overdrafts, wire transfers, stop payments, and on and on. Cartels do not price competitively, they don’t have to. Will customers appreciate the convenience of large banks; of course they will. What I fear customers won’t recognize is that a less competitive banking industry can hamper our future economic growth and lead to greater risk in our financial markets.
If you haven’t read Barbarians at the Gate or Liar’s Poker I recommend you go out and get them right now. What I take from these two books is that particularly in financial markets, the consolidation of power and resources creates greater incentive for rent-seeking and collusion, leaving taxpayers more at risk to anti-competitive and harmful behavior. From junk bonds to mortgage backed securities, a very small group of players are determining behavior in financial markets and where wealth flows. Think of it this way, if you only had to answer to people just like you with the same incentives and goals you would probably behave however you wanted without fear of repercussions, there would be no reinforcement mechanism to check your asshole behavior. Ever go out drinking with a bunch of drunks? Yeah, its like that. Banks, Wall Street, the Federal Reserve, and the government agencies that are there to check them represent this giant club of assholes who have no incentive to check one another’s power.
I don’t have the answer but I know that the proposed regulations won’t work. My gut feeling is that half ass regulations will only make it worse. I want a competitive banking industry, which is impossible with the Federal Reserve and the government involved in the capacity they are working towards. This I know for sure: Clever people will always find a way around regulations and the more time goes on, the more damaging their escapes prove to be for taxpayers.
For the last twenty years, the comparative advantage of the United States has been in making debt, not creating wealth. Clever people will figure out how to make debt look like something it isn’t and it will continue to finance our economic growth much like junk bonds and mortgage backed securities have in the past. This is what we are good at as a country and the expense of it gets more burdensome every year.
Like I said, I don’t have all the solutions. Perhaps, we can save Jello salad with a few cookbooks and some help from our Grandmas, but I think small banks are on the verge of extinction. With the power of the banks and their links to Wall Street, the Federal Reserve, and the U.S. Government, there is no hope for small banks and all the Jello salad in the world won’t make it better.
A glance at the FDIC bank failure list shows a number of regional and small community banks shutting their doors. I guess they are too small to succeed, while their larger national counterparts are benefitting from the notion that they are too big to fail. Our government is helping to decide who the winners and losers are and we are footing the bill.
Some of these failures are due to market forces, particularly small community banks in rural places where populations are declining and so are economic prospects. Bad investments by banks can also account for a portion of the closures, particularly those regional banks that put a considerable amount of their resources into financing home builders and commercial developers in places like Nevada, California, and Florida.
What seems odd to me is that smaller banks that didn’t take on the kind of risk that plagued the banking industry during the housing boom are failing at a much higher rate. By all accounts, they were still lending more responsibly than the rest of the industry and since many of them subjected loans to traditional underwriting by committee, they should have been more insulated than the big banks using Fannie Mae products to get nearly anyone a loan. Perhaps, a larger portion of the failures are those banks that in response to the increasing competitiveness of the banking industry and its consolidation, were encouraged to take on more risk than realistic for their asset size and local economic conditions. I still question however, that all these explanations can account for the higher failure rate. I'm sure the rest is explained by the collusion of the large banks to receive bailouts and pass on risk and exposure to the small banks.
This is on my mind because of the proposed financial regulations that will do precious little to insulate us from having another financial meltdown in the future. With the loss of small banks, we are losing tremendous information and relationships that can help foster economic growth and stability in a region. Bankers who know their customers can assess risk better than automated underwriting; tools such as credit reports, which are not always reflective of risk, cannot replace the knowledge found in a more personal banking system. The consolidation of the banking and mortgage industry which has been going on for twenty years is speeding up thanks to the housing crisis, and I’m sure the largest of the banks couldn’t be happier about it. Couple this with the melding of banking and the insurance industry and we are at more risk than ever.
So when small banks go, so does competition in the industry, leading to a cartel of banks…oh yeah, we have that already, it is called the Federal Reserve. The impact on consumers will be profound in terms of fees for everything from overdrafts, wire transfers, stop payments, and on and on. Cartels do not price competitively, they don’t have to. Will customers appreciate the convenience of large banks; of course they will. What I fear customers won’t recognize is that a less competitive banking industry can hamper our future economic growth and lead to greater risk in our financial markets.
If you haven’t read Barbarians at the Gate or Liar’s Poker I recommend you go out and get them right now. What I take from these two books is that particularly in financial markets, the consolidation of power and resources creates greater incentive for rent-seeking and collusion, leaving taxpayers more at risk to anti-competitive and harmful behavior. From junk bonds to mortgage backed securities, a very small group of players are determining behavior in financial markets and where wealth flows. Think of it this way, if you only had to answer to people just like you with the same incentives and goals you would probably behave however you wanted without fear of repercussions, there would be no reinforcement mechanism to check your asshole behavior. Ever go out drinking with a bunch of drunks? Yeah, its like that. Banks, Wall Street, the Federal Reserve, and the government agencies that are there to check them represent this giant club of assholes who have no incentive to check one another’s power.
I don’t have the answer but I know that the proposed regulations won’t work. My gut feeling is that half ass regulations will only make it worse. I want a competitive banking industry, which is impossible with the Federal Reserve and the government involved in the capacity they are working towards. This I know for sure: Clever people will always find a way around regulations and the more time goes on, the more damaging their escapes prove to be for taxpayers.
For the last twenty years, the comparative advantage of the United States has been in making debt, not creating wealth. Clever people will figure out how to make debt look like something it isn’t and it will continue to finance our economic growth much like junk bonds and mortgage backed securities have in the past. This is what we are good at as a country and the expense of it gets more burdensome every year.
Like I said, I don’t have all the solutions. Perhaps, we can save Jello salad with a few cookbooks and some help from our Grandmas, but I think small banks are on the verge of extinction. With the power of the banks and their links to Wall Street, the Federal Reserve, and the U.S. Government, there is no hope for small banks and all the Jello salad in the world won’t make it better.
Wednesday, May 19, 2010
Mr. Slumlord, A Gift From the Devil
The Mortgage Devil was a ruthless salesman and a horrible boss. When he wasn’t stealing loans from my commission statement he was bitching about the time I was demanding of him. He was a producer, vice president, and in title only, my manager. His management style was unique. One time he had me perform my own performance evaluation saying it was a management technique, yeah right, he was the Sultan of Spin. I knew he didn’t want to waste his time managing his loan officers, he wanted to be originating loans. What a dick.
After complaining profusely about the Devil stealing my loans to anyone who would listen but primarily to my operations manager, henceforth to be known as The Enabler, the Mortgage Devil called me to tell me he was giving me a loan. He was going on and on about how generous it was of him and how the agent on the deal was one of mine, so really it was only fair that I had the loan. It was a $70,000 loan meant as a peace offering to compensate me for the $500,000 in loans he had already taken from me.
What I think happened is that he stole the loan from me before I could talk to the customer. During the phone conversation with the Devil, I was perplexed as to why he didn’t just do the loan. Once I actually spoke to the customer it all became clear. This was not a gift, no, this was the Mortgage Devil pawning off a bat shit crazy customer on me because he figured that a $500 commission wasn’t going to be worth it. The Devil, appearing to be helpful, had once again screwed me.
I mentioned this customer in an earlier post on the habitual offenders, detailing the customers who became so prevalent in your life that it felt like you were in a relationship with them. A sick, twisted, stalk you till you die kind of relationship. This customer was working on becoming a slumlord and when I say he was a total pain in the ass, I am being generous. He was a vile and hot headed guy with an ego that was completely unjustified. To make matters worse, he suffered from delusions of grandeur about the real estate empire he was building in a sad little community that only had one thing going for it; it was thirty minutes from the ocean. His properties were targeted to low income people and he was awfully proud of all the Section 8 vouchers that would be paying for his bills.
That first loan for him was a nightmare and foreshadowed the torture I would endure during the next ten loans I did for him. Actually, it might have been more but I have probably blocked it out in an attempt to protect my sanity. Every one of his loans was either a no down payment or a very tiny down payment investment property loan, which are nightmares. He and I fought on a regular basis about the documentation he had to provide during the loan process. One time he told me he wasn’t going to give me something I needed and I said, “Fine, good luck finding enough money in your couch cushions to pay cash for the house.” He called back and apologized.
I was pregnant by the time I did his third loan and because I had a history of high risk pregnancy, I was sent to a specialist, a few hours away, for a series of tests and ultrasounds. I told the slumlord the day before that I would be unavailable and would be back in touch with him in 48 hours. During my ultrasound, my phone was vibrating so intently that my purse fell off the countertop. I left my doctor’s appointment and listened to 15 increasingly disturbing voicemails from Mr. Slumlord. I was pissed. I called him and told him again that I was taking a personal day and that if he called me and left me threatening messages one more time, I would never do a loan for him again. He hung up on me.
The Bank of Hell was so proud of its J.D. Power awards for customer service that every customer received a survey after their loan closed asking them to rate their experience. As luck should have it, Mr. Slumlord filled out his surveys for the previous loans I did for him in a fit of rage. He rated me horribly and wrote nasty comments about how I wouldn’t call him back. I shit you not, I talked to that guy nearly every single day of the week for one entire year.
I didn’t find out about the survey for months. You know how I found out about the survey, you guessed it, a phone call from the Mortgage Devil telling me that I was pulling down our branches ratings and I had some explaining to do. I was summoned to the main branch of the Mortgage Devil’s territory and read the riot act by the Enabler and the Devil himself. At some point, I interrupted them with a dismissive, “This is bullshit.” I explained that Mr. Slumlord was angry when I took a personal day and took it out on me by trashing me in the survey. I was also forced to point out that I currently had four loans in process for him. This is the remainder of that conversation:
Mortgage Devil: “He said in his survey that he would never come back to the Bank of Hell again so I think you better rethink your story.”
Turdy: “Here’s my pipeline report, he closes on Friday. I guess he came back because no one else wants to deal with him, I mean that is why you gave me his first loan right, you recognized what a pain in the ass he was.”
Mortgage Devil: “Well good, I guess this is resolved. Ask him not to fill out anymore surveys, ok?”
I left the meeting and called Mr. Slumlord and told him if he wanted his loans to close he had to promise to behave and not write anymore stupid stuff; he apologized. The next four surveys from him were glowing accounts of my talents as a loan officer and included flowery praise about the personal attention I gave his loans.
I still know Mr. Slumlord’s phone number having it burned into my frontal lobe by sheer repetition. I don’t know what happened to him or his properties. The properties could be in foreclosure or perhaps, he has been attacked by one of his poverty stricken tenants for leaving harassing messages, I cheer for the latter. I do know that not having to talk to him is one of the best parts of being out of the mortgage industry.
Note: I just remembered that the Mortgage Devil made me write a letter explaining my bad survey from Mr. Slumlord. This is what I remember:
To Whom it may Concern-
My customer, Mr. Slumlord, is crazy. He still calls me for loans constantly.
Best regards,
Turdy
After complaining profusely about the Devil stealing my loans to anyone who would listen but primarily to my operations manager, henceforth to be known as The Enabler, the Mortgage Devil called me to tell me he was giving me a loan. He was going on and on about how generous it was of him and how the agent on the deal was one of mine, so really it was only fair that I had the loan. It was a $70,000 loan meant as a peace offering to compensate me for the $500,000 in loans he had already taken from me.
What I think happened is that he stole the loan from me before I could talk to the customer. During the phone conversation with the Devil, I was perplexed as to why he didn’t just do the loan. Once I actually spoke to the customer it all became clear. This was not a gift, no, this was the Mortgage Devil pawning off a bat shit crazy customer on me because he figured that a $500 commission wasn’t going to be worth it. The Devil, appearing to be helpful, had once again screwed me.
I mentioned this customer in an earlier post on the habitual offenders, detailing the customers who became so prevalent in your life that it felt like you were in a relationship with them. A sick, twisted, stalk you till you die kind of relationship. This customer was working on becoming a slumlord and when I say he was a total pain in the ass, I am being generous. He was a vile and hot headed guy with an ego that was completely unjustified. To make matters worse, he suffered from delusions of grandeur about the real estate empire he was building in a sad little community that only had one thing going for it; it was thirty minutes from the ocean. His properties were targeted to low income people and he was awfully proud of all the Section 8 vouchers that would be paying for his bills.
That first loan for him was a nightmare and foreshadowed the torture I would endure during the next ten loans I did for him. Actually, it might have been more but I have probably blocked it out in an attempt to protect my sanity. Every one of his loans was either a no down payment or a very tiny down payment investment property loan, which are nightmares. He and I fought on a regular basis about the documentation he had to provide during the loan process. One time he told me he wasn’t going to give me something I needed and I said, “Fine, good luck finding enough money in your couch cushions to pay cash for the house.” He called back and apologized.
I was pregnant by the time I did his third loan and because I had a history of high risk pregnancy, I was sent to a specialist, a few hours away, for a series of tests and ultrasounds. I told the slumlord the day before that I would be unavailable and would be back in touch with him in 48 hours. During my ultrasound, my phone was vibrating so intently that my purse fell off the countertop. I left my doctor’s appointment and listened to 15 increasingly disturbing voicemails from Mr. Slumlord. I was pissed. I called him and told him again that I was taking a personal day and that if he called me and left me threatening messages one more time, I would never do a loan for him again. He hung up on me.
The Bank of Hell was so proud of its J.D. Power awards for customer service that every customer received a survey after their loan closed asking them to rate their experience. As luck should have it, Mr. Slumlord filled out his surveys for the previous loans I did for him in a fit of rage. He rated me horribly and wrote nasty comments about how I wouldn’t call him back. I shit you not, I talked to that guy nearly every single day of the week for one entire year.
I didn’t find out about the survey for months. You know how I found out about the survey, you guessed it, a phone call from the Mortgage Devil telling me that I was pulling down our branches ratings and I had some explaining to do. I was summoned to the main branch of the Mortgage Devil’s territory and read the riot act by the Enabler and the Devil himself. At some point, I interrupted them with a dismissive, “This is bullshit.” I explained that Mr. Slumlord was angry when I took a personal day and took it out on me by trashing me in the survey. I was also forced to point out that I currently had four loans in process for him. This is the remainder of that conversation:
Mortgage Devil: “He said in his survey that he would never come back to the Bank of Hell again so I think you better rethink your story.”
Turdy: “Here’s my pipeline report, he closes on Friday. I guess he came back because no one else wants to deal with him, I mean that is why you gave me his first loan right, you recognized what a pain in the ass he was.”
Mortgage Devil: “Well good, I guess this is resolved. Ask him not to fill out anymore surveys, ok?”
I left the meeting and called Mr. Slumlord and told him if he wanted his loans to close he had to promise to behave and not write anymore stupid stuff; he apologized. The next four surveys from him were glowing accounts of my talents as a loan officer and included flowery praise about the personal attention I gave his loans.
I still know Mr. Slumlord’s phone number having it burned into my frontal lobe by sheer repetition. I don’t know what happened to him or his properties. The properties could be in foreclosure or perhaps, he has been attacked by one of his poverty stricken tenants for leaving harassing messages, I cheer for the latter. I do know that not having to talk to him is one of the best parts of being out of the mortgage industry.
Note: I just remembered that the Mortgage Devil made me write a letter explaining my bad survey from Mr. Slumlord. This is what I remember:
To Whom it may Concern-
My customer, Mr. Slumlord, is crazy. He still calls me for loans constantly.
Best regards,
Turdy
Tuesday, May 18, 2010
It's the Banks, stupid!
I love underdog stories, particularly sports ones but really, any underdog tale will do. I was born with a soft spot for the underdog, the scapegoat, and the misrepresented. This tendency makes me feel bad for mortgage brokers and sub-prime loans because big banks, the Federal Reserve, and Fannie Mae have really let them get thrown under the proverbial bus.
When I left a brokerage to go to the Bank of Hell I had no idea how uneven the playing field was. In terms of checks and balances on loan fraud and quality, brokers were way ahead of the game. The wholesale system has one inherent check on fraud, the underwriting of a loan took place outside of the office where the loan was originated. This prevents a loan officer from having a personal relationship with their underwriter which goes along way in making sure loans are properly handled. At the Bank of Hell, The Mortgage Devil's mantra was that we should sell real estate agents on the fact that we had local underwriting because it implied we could get loans done more quickly and also, it made real estate agents feel good to know that if the loan had problems the loan officer could walk to the next office and shakedown the underwriter. The truth is that local underwriting creates the opportunity for fraud. Frankly, loan officers shouldn't be able to touch their loan files once they are done with the application, no good can come from it.
Obviously, there were shady brokerages and independent mortgage companies doing business during the peak and yes, a lot of these were sub-prime, but, there is a bigger story about the preferential treatment of banks over brokerages that isn't getting told.
The fundamental difference between mortgage operations was whether the company had a direct and contractual relationship with a bank or not. The firm I started with had correspondent and wholesale relationships with investors and banks. The firm was not owned by a bank nor directly affiliated with one but, because of our relationships I could sell the loan products of these other companies, including banks like Wells Fargo. In contrast, the Bank of Hell owned its mortgage division while companies like Countrywide, owned a small bank. There were tremendous advantages to having a direct relationship with a large bank and now I know that the major advantage of this was the bank's relationship with Fannie Mae and the Federal Reserve.
There are numerous examples of how these relationships allowed for more risky lending but I want to start with everyone's favorite loan, the Liar's Loan. When I worked as a broker, very few of our investors allowed stated income loans to close without something known as a 4506-T, a form that the borrower would sign allowing the company to pull copies of tax transcripts. The only investors we had that would allow stated income loans without this form were, shockingly, large banks. Why does this matter? Well, for starters a 4506-T pulled during the processing of a loan could confirm whether the borrower was lying about the income or whether they even had a job. Smart loan originators knew better than to grossly overstate income on a loan with a 4506-T because there was the fear of getting caught, not getting paid, and potentially getting fired. There were probably a number of loan originators who weren't aware of the potential for disaster but the majority that I knew, were very aware and this helped to reduce the risk inherent in a stated income loan. My first manager in the industry hated the notion of tax transcripts, as he would say, "If underwriters can see your tax return it isn't a stated income loan." That statement is what F. Ross Johnson referred to as a BGO or a blinding glimpse of the obvious.
So tax transcripts helped to reduce fraud by the loan officer but they served many functions. A tax transcript pulled after the loan closed, but before it was sold, could have identified whether the loan carried more or less risk than the investor would expect. Sometimes investors wouldn't buy loans after pulling tax transcripts leaving correspondent lenders stuck with a loan they thought they could sell.
Tax transcripts could have prevented a number of issues with loan quality. Imagine catching liars before the loan closes or before the loan was sold with an understated amount of risk. In terms of mathematical assessment of loan quality, a random sample of the tax transcripts might have provided a firm with information on the thresholds of risk; ie, what percentage of liar's loans overstated income by 5%, 10%, or 20%. This type of information could have been used to create thresholds for underwriters. I'm sure some companies did use this information to reduce risk but the most important players in the industry weren't doing this and that includes Fannie Mae and big banks.
At the Bank of Hell, we were able to do a number of Fannie Mae backed Liar's Loans. There seems to be a huge misconception that Fannie didn't do these loans but the truth is that only large banks and large mortgage companies like Countrywide were given the ability to do these loans by Fannie. I have heard a story that the Bank of Hell got access to these loans after pissing a bitch to Fannie Mae because Countrywide and Wells Fargo had them. Who knows what kind of sketchiness went on behind the scenes as banks lobbied Fannie for the right for more risky, but prime, Fannie Mae loans.
The beauty of a Fannie Mae stated income loan was that there was no 4506 required, meaning there was no way that anyone would know how extreme the risk was or how bad the lie was. Perhaps, that is how Fannie Mae wanted it.
At the Bank of Hell we had our own Fannie approved stated income/stated asset loan that A. Hole already blogged about. Let me be perfectly clear, many of these loans were way riskier than sub-prime loans. These loans were given to people with fair to excellent credit so while they didn't carry the credit risk, there was tremendous opportunity and incentive for loan officers to commit fraud with this program. As A.Hole explained, the Mortgage Devil encouraged us to lie about borrower's income to get them into this easy loan program because you could take a loan from application to settlement in seven days. If you have been reading this blog you aware that we were doing Fannie Mae loans at 65% debt to income ratios. This loan allowed loan officers to do loans with high debt to income ratios by falsely stating the customer's income so that it looked like it was 45% or less.
When these loans were bundled into pools they looked like low risk loans, they were Fannie Mae prime backed loans and had the implied backing of the United States government. Fannie Mae pimped these pigs in dresses.
The scam gets worse when you add the folks on Wall Street to the mix. When loans were bundled into securities for trade, these prime loans were mixed with sub-prime loans to reduce the risk. You offer a lower rate of return on the non-risky piece (the Fannie Mae piece) and a high rate of return on the sub-prime piece which frankly, everyone knew had a very high probability of default.
In my opinion, Fannie Mae fucked it up for everyone. There so called "prime" loans were riskier than a lot of sub-prime loans. Perhaps the borrowers weren't credit risks, but they were overextending themselves with the help of Fannie Mae and the biggest players in the mortgage industry. This means that virtually every loan pool sold understated risk substantially and investors who thought that Fannie Mae was synonymous with low risk, eventually found out that Fannie Mae was a giant phony.
We have all bought things based on the implied quality of a brand name only to find out that we bought a name and nothing else. This in a nutshell is one of the major reasons we are in this mess. Most of our financial innovation and trading during the housing boom was based on Fannie Mae's name and the implied quality of the loans. There were a lot of lemons in that pool and as I said before, Fannie Mae is a bitch.
For those of you that have seen the movie Tommy Boy, Chris Farley provides the perfect metaphor for what happened to our economy. Fannie Mae was selling boxes of crap with a stamp that said "Guaranteed" and now we know what the guarantee was: our money and future economic prosperity.
When I left a brokerage to go to the Bank of Hell I had no idea how uneven the playing field was. In terms of checks and balances on loan fraud and quality, brokers were way ahead of the game. The wholesale system has one inherent check on fraud, the underwriting of a loan took place outside of the office where the loan was originated. This prevents a loan officer from having a personal relationship with their underwriter which goes along way in making sure loans are properly handled. At the Bank of Hell, The Mortgage Devil's mantra was that we should sell real estate agents on the fact that we had local underwriting because it implied we could get loans done more quickly and also, it made real estate agents feel good to know that if the loan had problems the loan officer could walk to the next office and shakedown the underwriter. The truth is that local underwriting creates the opportunity for fraud. Frankly, loan officers shouldn't be able to touch their loan files once they are done with the application, no good can come from it.
Obviously, there were shady brokerages and independent mortgage companies doing business during the peak and yes, a lot of these were sub-prime, but, there is a bigger story about the preferential treatment of banks over brokerages that isn't getting told.
The fundamental difference between mortgage operations was whether the company had a direct and contractual relationship with a bank or not. The firm I started with had correspondent and wholesale relationships with investors and banks. The firm was not owned by a bank nor directly affiliated with one but, because of our relationships I could sell the loan products of these other companies, including banks like Wells Fargo. In contrast, the Bank of Hell owned its mortgage division while companies like Countrywide, owned a small bank. There were tremendous advantages to having a direct relationship with a large bank and now I know that the major advantage of this was the bank's relationship with Fannie Mae and the Federal Reserve.
There are numerous examples of how these relationships allowed for more risky lending but I want to start with everyone's favorite loan, the Liar's Loan. When I worked as a broker, very few of our investors allowed stated income loans to close without something known as a 4506-T, a form that the borrower would sign allowing the company to pull copies of tax transcripts. The only investors we had that would allow stated income loans without this form were, shockingly, large banks. Why does this matter? Well, for starters a 4506-T pulled during the processing of a loan could confirm whether the borrower was lying about the income or whether they even had a job. Smart loan originators knew better than to grossly overstate income on a loan with a 4506-T because there was the fear of getting caught, not getting paid, and potentially getting fired. There were probably a number of loan originators who weren't aware of the potential for disaster but the majority that I knew, were very aware and this helped to reduce the risk inherent in a stated income loan. My first manager in the industry hated the notion of tax transcripts, as he would say, "If underwriters can see your tax return it isn't a stated income loan." That statement is what F. Ross Johnson referred to as a BGO or a blinding glimpse of the obvious.
So tax transcripts helped to reduce fraud by the loan officer but they served many functions. A tax transcript pulled after the loan closed, but before it was sold, could have identified whether the loan carried more or less risk than the investor would expect. Sometimes investors wouldn't buy loans after pulling tax transcripts leaving correspondent lenders stuck with a loan they thought they could sell.
Tax transcripts could have prevented a number of issues with loan quality. Imagine catching liars before the loan closes or before the loan was sold with an understated amount of risk. In terms of mathematical assessment of loan quality, a random sample of the tax transcripts might have provided a firm with information on the thresholds of risk; ie, what percentage of liar's loans overstated income by 5%, 10%, or 20%. This type of information could have been used to create thresholds for underwriters. I'm sure some companies did use this information to reduce risk but the most important players in the industry weren't doing this and that includes Fannie Mae and big banks.
At the Bank of Hell, we were able to do a number of Fannie Mae backed Liar's Loans. There seems to be a huge misconception that Fannie didn't do these loans but the truth is that only large banks and large mortgage companies like Countrywide were given the ability to do these loans by Fannie. I have heard a story that the Bank of Hell got access to these loans after pissing a bitch to Fannie Mae because Countrywide and Wells Fargo had them. Who knows what kind of sketchiness went on behind the scenes as banks lobbied Fannie for the right for more risky, but prime, Fannie Mae loans.
The beauty of a Fannie Mae stated income loan was that there was no 4506 required, meaning there was no way that anyone would know how extreme the risk was or how bad the lie was. Perhaps, that is how Fannie Mae wanted it.
At the Bank of Hell we had our own Fannie approved stated income/stated asset loan that A. Hole already blogged about. Let me be perfectly clear, many of these loans were way riskier than sub-prime loans. These loans were given to people with fair to excellent credit so while they didn't carry the credit risk, there was tremendous opportunity and incentive for loan officers to commit fraud with this program. As A.Hole explained, the Mortgage Devil encouraged us to lie about borrower's income to get them into this easy loan program because you could take a loan from application to settlement in seven days. If you have been reading this blog you aware that we were doing Fannie Mae loans at 65% debt to income ratios. This loan allowed loan officers to do loans with high debt to income ratios by falsely stating the customer's income so that it looked like it was 45% or less.
When these loans were bundled into pools they looked like low risk loans, they were Fannie Mae prime backed loans and had the implied backing of the United States government. Fannie Mae pimped these pigs in dresses.
The scam gets worse when you add the folks on Wall Street to the mix. When loans were bundled into securities for trade, these prime loans were mixed with sub-prime loans to reduce the risk. You offer a lower rate of return on the non-risky piece (the Fannie Mae piece) and a high rate of return on the sub-prime piece which frankly, everyone knew had a very high probability of default.
In my opinion, Fannie Mae fucked it up for everyone. There so called "prime" loans were riskier than a lot of sub-prime loans. Perhaps the borrowers weren't credit risks, but they were overextending themselves with the help of Fannie Mae and the biggest players in the mortgage industry. This means that virtually every loan pool sold understated risk substantially and investors who thought that Fannie Mae was synonymous with low risk, eventually found out that Fannie Mae was a giant phony.
We have all bought things based on the implied quality of a brand name only to find out that we bought a name and nothing else. This in a nutshell is one of the major reasons we are in this mess. Most of our financial innovation and trading during the housing boom was based on Fannie Mae's name and the implied quality of the loans. There were a lot of lemons in that pool and as I said before, Fannie Mae is a bitch.
For those of you that have seen the movie Tommy Boy, Chris Farley provides the perfect metaphor for what happened to our economy. Fannie Mae was selling boxes of crap with a stamp that said "Guaranteed" and now we know what the guarantee was: our money and future economic prosperity.
Friday, May 14, 2010
Abolish The Fed, But Keep the Money
I have met some very interesting people through Facebook and email since starting this blog. Apparently, I have also triggered the fascination of a guy obsessed with whores who may be taking our name a little bit too literally. If you are that guy, let me reiterate: WE DO NOT HAVE SEX FOR MONEY. As I told you, we have networked with people we can't stand for money and we accepted money for our tiny role in the destruction of the economy, but neither one of us wants to sleep with you for any amount of money.
I received an email from someone who appreciates my hatred of the Federal Reserve and felt that our shared desire to see the Fed shutdown inferred that I also shared their hatred for money and wanted that abolished too. Umm, no I don't. While I appreciate your desire to make the world a better place and I completely understand your righteous indignation with the banking system, I have to completely disagree with the notion of getting rid of money. Please hear me out....
Our currency has no intrinsic value, it is just paper and crappy metals. BUT, it reduces transaction costs and facilitates exchange, which is pretty damned important. Money has allowed commerce to grow and has made people better off by allowing them to exchange with different people relatively painlessly, in turn, allowing people to have necessities as well as luxuries that they otherwise wouldn't have access to.
Imagine if there was no money and we traded in commodities. We would be forced to specialize in our own "currency", perhaps I would raise goats and chickens to trade for other goods I might need. In terms of portability, goats and chickens would make lousy currency and would require a much bigger purse than I care to tote around. Secondly, they stink. I highly doubt people would enjoy sitting by me at Wrigley Field if I had to bring goats and chickens to buy beer, not to mention, people at Wrigley hate goats. Just sayin.
In the spirit of beer I offer my third and most important defense of money. Imagine my community has a few bars and I want to go get a beer. I load up a few goats and chickens in my horse pulled cart and head off to the bar. Upon entry, the bartender looks at me and tells me he can't serve me. I argue that I'm completely sober and he replies, "No, its not that. Another goat farmer was just here and I finally had to cut him off because I don't need anymore goats." I might offer my chickens only to find he is stocked up on those to. He might tell me what he really needs is some wool. Now I have to go off in search of a sheep herder who needs chickens and goats in the hopes we can trade so I can go back to the bar with wool. I have the added worry that in the time it takes me to track down someone to trade with, another thirsty bastard will show up to the bar with wool, drink my beer and max out the bartenders demand for wool. Complicated? To borrow a line from Mrs. Palin, you betcha. Even worse, I might not ever get that beer.
Money isn't what is wrong with the world. I'm sure that is hard for some people to swallow in the economic disaster we find ourselves in. You can be angry at fraud and corruption but you can't blame money for it. You might argue that it is the love of money that creates fraud and corruption but I don't buy that either. Money doesn't make people behave like assholes...people choose to behave like assholes. Get a bunch of assholes together and you can form a government or a corporation and really do some damage.
I like money and I like beer, and frankly, making change with goats seems awfully messy.
I received an email from someone who appreciates my hatred of the Federal Reserve and felt that our shared desire to see the Fed shutdown inferred that I also shared their hatred for money and wanted that abolished too. Umm, no I don't. While I appreciate your desire to make the world a better place and I completely understand your righteous indignation with the banking system, I have to completely disagree with the notion of getting rid of money. Please hear me out....
Our currency has no intrinsic value, it is just paper and crappy metals. BUT, it reduces transaction costs and facilitates exchange, which is pretty damned important. Money has allowed commerce to grow and has made people better off by allowing them to exchange with different people relatively painlessly, in turn, allowing people to have necessities as well as luxuries that they otherwise wouldn't have access to.
Imagine if there was no money and we traded in commodities. We would be forced to specialize in our own "currency", perhaps I would raise goats and chickens to trade for other goods I might need. In terms of portability, goats and chickens would make lousy currency and would require a much bigger purse than I care to tote around. Secondly, they stink. I highly doubt people would enjoy sitting by me at Wrigley Field if I had to bring goats and chickens to buy beer, not to mention, people at Wrigley hate goats. Just sayin.
In the spirit of beer I offer my third and most important defense of money. Imagine my community has a few bars and I want to go get a beer. I load up a few goats and chickens in my horse pulled cart and head off to the bar. Upon entry, the bartender looks at me and tells me he can't serve me. I argue that I'm completely sober and he replies, "No, its not that. Another goat farmer was just here and I finally had to cut him off because I don't need anymore goats." I might offer my chickens only to find he is stocked up on those to. He might tell me what he really needs is some wool. Now I have to go off in search of a sheep herder who needs chickens and goats in the hopes we can trade so I can go back to the bar with wool. I have the added worry that in the time it takes me to track down someone to trade with, another thirsty bastard will show up to the bar with wool, drink my beer and max out the bartenders demand for wool. Complicated? To borrow a line from Mrs. Palin, you betcha. Even worse, I might not ever get that beer.
Money isn't what is wrong with the world. I'm sure that is hard for some people to swallow in the economic disaster we find ourselves in. You can be angry at fraud and corruption but you can't blame money for it. You might argue that it is the love of money that creates fraud and corruption but I don't buy that either. Money doesn't make people behave like assholes...people choose to behave like assholes. Get a bunch of assholes together and you can form a government or a corporation and really do some damage.
I like money and I like beer, and frankly, making change with goats seems awfully messy.
Wednesday, May 12, 2010
When Bat Shit Crazy Became The New Black
In the fall of 2005, I came to realize that bat shit crazy was pervasive. Not just in my industry, or my office, but basically throughout my entire world. It didn't take me long to realize that the Mortgage Devil had every personality disorder ever named and probably a few unique to him that he should have proprietary rights to naming. The Bank of Hell was a nightmare and the Mortgage Devil laughed with delight.
I was hanging out in my own branch alone and minding my own business when A. Hole strolls in one day and sits down in the office next to me and starts unpacking shit like he is planning on staying. He starts eating fried chicken and checking the Washington Redskins message board. I can see the fucker because our two offices had some kind of weird sliding glass window between them, which might of come in handy except we have nothing to pass each other but dirty looks. I am pissed. My sanctuary away from the craziness of the other branch has been invaded by another loan officer who is eating my least favorite food and is by the way, not even a fan of my favorite football team. Boo. The phone rings and he actually answers it, "Bank of Hell Mortgage, A.Hole speaking." Now I'm really mad because I have been alone in this branch for months and that is my phone and if there is a loan waiting on the other end well, it is mine and all mine.
Why did I hate A. Hole so much in the beginning? The answer is because of the Mortgage Devil and the ultra competitive and paranoia rich environment he created. The Mortgage Devil was a Top 20 producer in the entire nation that year which is a huge deal in an industry with a plethora of assholes originating loans. I don't want to give the impression that I think all loan officers are assholes, there really are a lot of decent people in the industry, I just didn't get to meet too many of them. This is akin to hearing how beautiful New Jersey is but then you spend your whole time on the turnpike and wonder if there are secret places that non residents are not allowed to see.
When I was hired I was promised my own office and branch and basically no competition. Then one day, I get called to the main branch of the Bank of Hell and there sits Curly Sue, A.Hole, and this third loan officer that I call the Quaker. I really don't know what religion the Quaker was even though A.Hole has told me like twenty times, I just know that he didn't really swear or drink and even though he was some strict puritan he ogled all the Mortgage Devil's assistants like he was trying to figure out where to stick his dollar bills. I hated them all at first sight.
Really, it was bad enough to have to compete with the Mortgage Devil in our market. Then throw in his old partner, a Top 100 national producer, who had jumped ship and I was basically trying to break a cartel. Now I have to compete with three more loan officers in my own company against my own boss? I saw recently that there was an article about the Mortgage Devil from back in the day that was praising his aggressiveness and determination and the quote was, "You would not want to have him in your territory!". No shit, I don't even want him on my planet.
So my anger about the new loan officers was because I knew something that they didn't. In my naivety I had assumed that feudalism died in the middle ages when in fact, it was alive at the Bank of Hell and the Mortgage Devil was the Lord. Apparently the fact that the Mortgage Devil made money on every loan the loan officers did underneath him was not enough for him, nor were the accolades and awards, nor the $125,000 monthly income. It seems that the Mortgage Devil's narcissism also made him think that every loan one of his loan officers did really should have been his. He would take our commission statements and go down them line by line to see what loan(s) he could take from us and put in his name. It was like a tax on us poor serfs for the privilege of working for the worst boss ever.
The first time this happened to me I am sitting in my sanctuary by the sea when the phone rings and the Mortgage Devil is on the other end. It was a little like this:
Turdy: "Bank of Hell Mortgage, This is Turdy."
Mortgage Devil: "Turdy, I have been going over your commission statement and we need to talk."
Turdy: "I thought I had a good month considering I have only been here for a few months."
Mortgage Devil: "I think you had too good of a month, there are some loans on here that I'm wondering how you stole from me."
Turdy: "Stole from you? I'm sorry, I have no idea what you are talking about."
Mortgage Devil: "Well lets start with this loan for Mr. Smith. I talked to a Mr. Smith last month about doing a loan for him and then I see you close a loan for someone with the last name Smith. What am I supposed to think?"
Turdy: "Perhaps, that Smith is a very common name."
Mortgage Devil: "Hmm, well tell me how you got that loan and this other one for the real estate agent, whats her name, Judy."
Turdy: "Well the Smith loan was a referral from a loan officer I used to work with that couldn't get the loan done at her company, the guy used to work with her husband. The Judy loan I got because she is one of my best friends and we play golf together, in fact we are meeting for happy hour and appetizers later."
Mortgage Devil: "Well I had a deal with Judy last year, why wouldn't she ask me to do her loan?"
Turdy: "Probably because she is one of my best friends??"
Mortgage Devil: "You should know I keep an eye out for this stuff. I guess you can keep the Judy loan commission but I'm going to have to take the Smith loan because I can't have stuff like this going on in my branches. How am I supposed to trust you?"
Turdy: "You can't take that loan, you never even talked to the guy. He is a friend of a friend. I was counting on that commission to pay bills and buy Christmas presents."
Well he took that loan and many more from me during my stay in the feudal system of Hell. Here is a man making 1.5 million a year who is stealing $2,000 commissions from his loan officers to boost his numbers so he can get more awards and inflate his ego some more. After I left the Bank of Hell I calculated that he had taken more than $25,000 in commission away from me in one year, on loans that were legitimately mine. You couldn't complain about it to anyone because all the Senior Veeps loved their Top Producer and the Mortgage Devil could do no wrong.
This is why I hated all the other loan officers, including A. Hole. I knew that it was going to be even harder to make money if we were all competing for the Mortgage Devil's sloppy seconds. It took time for me to not feel resentful of the competition from A. Hole in part because the Mortgage Devil wanted it that way and also, the Redskins thing was kind of hard for a fanatical Bears fan. If A. Hole had been a Packers fan or a Vikings fan, I can promise you that this blog wouldn't exist.
I have to close with a note on the Quaker. Even though I couldn't stand him when we worked together, I have developed a respect for him now that is pretty special. When the Quaker left the Bank of Hell he pulled the ultimate coup on the Mortgage Devil. He bought the domain name of the real name of the Mortgage Devil. If you type in www.insertrealnamehere.com you are transported to the Quaker's website with a huge picture of the Quaker and testimonials to his greatness as a mortgage ho. Priceless move, out deviling the devil. You are alright, Quaker, you are alright.
I was hanging out in my own branch alone and minding my own business when A. Hole strolls in one day and sits down in the office next to me and starts unpacking shit like he is planning on staying. He starts eating fried chicken and checking the Washington Redskins message board. I can see the fucker because our two offices had some kind of weird sliding glass window between them, which might of come in handy except we have nothing to pass each other but dirty looks. I am pissed. My sanctuary away from the craziness of the other branch has been invaded by another loan officer who is eating my least favorite food and is by the way, not even a fan of my favorite football team. Boo. The phone rings and he actually answers it, "Bank of Hell Mortgage, A.Hole speaking." Now I'm really mad because I have been alone in this branch for months and that is my phone and if there is a loan waiting on the other end well, it is mine and all mine.
Why did I hate A. Hole so much in the beginning? The answer is because of the Mortgage Devil and the ultra competitive and paranoia rich environment he created. The Mortgage Devil was a Top 20 producer in the entire nation that year which is a huge deal in an industry with a plethora of assholes originating loans. I don't want to give the impression that I think all loan officers are assholes, there really are a lot of decent people in the industry, I just didn't get to meet too many of them. This is akin to hearing how beautiful New Jersey is but then you spend your whole time on the turnpike and wonder if there are secret places that non residents are not allowed to see.
When I was hired I was promised my own office and branch and basically no competition. Then one day, I get called to the main branch of the Bank of Hell and there sits Curly Sue, A.Hole, and this third loan officer that I call the Quaker. I really don't know what religion the Quaker was even though A.Hole has told me like twenty times, I just know that he didn't really swear or drink and even though he was some strict puritan he ogled all the Mortgage Devil's assistants like he was trying to figure out where to stick his dollar bills. I hated them all at first sight.
Really, it was bad enough to have to compete with the Mortgage Devil in our market. Then throw in his old partner, a Top 100 national producer, who had jumped ship and I was basically trying to break a cartel. Now I have to compete with three more loan officers in my own company against my own boss? I saw recently that there was an article about the Mortgage Devil from back in the day that was praising his aggressiveness and determination and the quote was, "You would not want to have him in your territory!". No shit, I don't even want him on my planet.
So my anger about the new loan officers was because I knew something that they didn't. In my naivety I had assumed that feudalism died in the middle ages when in fact, it was alive at the Bank of Hell and the Mortgage Devil was the Lord. Apparently the fact that the Mortgage Devil made money on every loan the loan officers did underneath him was not enough for him, nor were the accolades and awards, nor the $125,000 monthly income. It seems that the Mortgage Devil's narcissism also made him think that every loan one of his loan officers did really should have been his. He would take our commission statements and go down them line by line to see what loan(s) he could take from us and put in his name. It was like a tax on us poor serfs for the privilege of working for the worst boss ever.
The first time this happened to me I am sitting in my sanctuary by the sea when the phone rings and the Mortgage Devil is on the other end. It was a little like this:
Turdy: "Bank of Hell Mortgage, This is Turdy."
Mortgage Devil: "Turdy, I have been going over your commission statement and we need to talk."
Turdy: "I thought I had a good month considering I have only been here for a few months."
Mortgage Devil: "I think you had too good of a month, there are some loans on here that I'm wondering how you stole from me."
Turdy: "Stole from you? I'm sorry, I have no idea what you are talking about."
Mortgage Devil: "Well lets start with this loan for Mr. Smith. I talked to a Mr. Smith last month about doing a loan for him and then I see you close a loan for someone with the last name Smith. What am I supposed to think?"
Turdy: "Perhaps, that Smith is a very common name."
Mortgage Devil: "Hmm, well tell me how you got that loan and this other one for the real estate agent, whats her name, Judy."
Turdy: "Well the Smith loan was a referral from a loan officer I used to work with that couldn't get the loan done at her company, the guy used to work with her husband. The Judy loan I got because she is one of my best friends and we play golf together, in fact we are meeting for happy hour and appetizers later."
Mortgage Devil: "Well I had a deal with Judy last year, why wouldn't she ask me to do her loan?"
Turdy: "Probably because she is one of my best friends??"
Mortgage Devil: "You should know I keep an eye out for this stuff. I guess you can keep the Judy loan commission but I'm going to have to take the Smith loan because I can't have stuff like this going on in my branches. How am I supposed to trust you?"
Turdy: "You can't take that loan, you never even talked to the guy. He is a friend of a friend. I was counting on that commission to pay bills and buy Christmas presents."
Well he took that loan and many more from me during my stay in the feudal system of Hell. Here is a man making 1.5 million a year who is stealing $2,000 commissions from his loan officers to boost his numbers so he can get more awards and inflate his ego some more. After I left the Bank of Hell I calculated that he had taken more than $25,000 in commission away from me in one year, on loans that were legitimately mine. You couldn't complain about it to anyone because all the Senior Veeps loved their Top Producer and the Mortgage Devil could do no wrong.
This is why I hated all the other loan officers, including A. Hole. I knew that it was going to be even harder to make money if we were all competing for the Mortgage Devil's sloppy seconds. It took time for me to not feel resentful of the competition from A. Hole in part because the Mortgage Devil wanted it that way and also, the Redskins thing was kind of hard for a fanatical Bears fan. If A. Hole had been a Packers fan or a Vikings fan, I can promise you that this blog wouldn't exist.
I have to close with a note on the Quaker. Even though I couldn't stand him when we worked together, I have developed a respect for him now that is pretty special. When the Quaker left the Bank of Hell he pulled the ultimate coup on the Mortgage Devil. He bought the domain name of the real name of the Mortgage Devil. If you type in www.insertrealnamehere.com you are transported to the Quaker's website with a huge picture of the Quaker and testimonials to his greatness as a mortgage ho. Priceless move, out deviling the devil. You are alright, Quaker, you are alright.
Tuesday, May 11, 2010
Bad Santa...
For today’s entry I wanted to keep it light and a little humorous. For some reason I was thinking about the first Christmas I spent with the Bank of Hell. When I first joined the Bank of Hell, I remember sitting in the lunchroom and someone was bragging about the great Christmas party the Bank of Hell had last year. It was held at the Hyatt….the rooms were paid for, dinner paid for, open bar, massages (insert happy ending joke here), gifts were waiting in their rooms, they paid for your spouse to attend, blah, blah, blah.
I was getting ready to make a smart-ass remark that I would pay to keep my spouse at home…but I was abruptly “shushed” because the commercials were over and “The Young and the Restless” was back on. A rule that I quickly learned at the Bank of Hell was that between 1:00 p.m. and 2:00 p.m. everyday the office shut down as far as processing and closing loans. All of the Minions gathered around a crappy 13” TV in the break room with “rabbit ears” for reception to watch that shitty Soap Opera. If you happened to take lunch at that time you could NOT speak during the show…only during the commercials.
So, times passed and the Minions awaited their invitations to this Christmas Party. As Thanksgiving rolled around they waited and waited. Nothing. Most of them have worked for the Mortgage Devil for years and know he does everything at the last minute despite his Magic Whiteboard that never misses a closing date (sarcasm inserted for effect). I am thinking…he forgot to organize the thing. But he has an Assistant that takes care of things like that for him…with a bit of eye-rolling…when he asks her to handle events. I am thinking he forgot about Christmas for he is the Mortgage Devil and Christmas is celebrating his arch-enemy Jesus’ birth… so it is low on his priority list. During this time, the Mortgage Devil is focused on how many loans he can cram down the Minions throats before the end of the year because he has a competitor nipping at his heels for the Top Producer Award. Nothing devastates the Mortgage Devil more in life than losing that award.
But I digress…finally a week before Christmas and the Bitchy Receptionist sends a mass email to the office that went something like this:
The Mortgage Devil is taking us to watch a depressing movie followed by dinner at a half-assed Steak House. Be there or feel the wrath.
Obviously, I took a little liberty with the email but it is basically the “Cliff Notes” version of what had been planned for the evening. We are told to be at the Theater at 4:00 p.m. to watch the movie “The Family Stone”. It is a fine movie…but here is what happened. I am sitting near the Mortgage Devil who is constantly checking voice mail during the movie which is obviously annoying and distracting. I don’t want to spoil the movie for anyone who hasn’t seen it, but honestly it was released almost 5 years ago, and if you haven’t watched it yet….you probably won’t ever see it. The mom in the movie dies of breast cancer…yeah, a real “pick me up” during the holidays. To make matters worse the Minion two seats down from me is sobbing and balling her eyes out. After we leave the movie, I learn from another Minion that she just lost her sister a couple of months ago to breast cancer….wow! That sucks. To be fair, the Mortgage Devil had no idea about this turn in the movie when it was picked (and I doubt he even picked the movie)... But…sheesh…that sure put a damper on the evening. Then we were on our way to the half-assed Steak House.
I am the only one that has ordered a cocktail at this dinner. Great…I am drinking alone…which made me feel a little awkward. So, I go around the room mentally and to try to figure why each person isn’t drinking. The first Minion just really isn’t a drinker. She is a hard worker but not a real exciting person outside the office. The next one used to be a drinker (I hear) but supposedly left her husband because he drank too much. But the truth was her ex-husband always drank too much and she was just bored with him and wanted to hook up with a Pastor instead (yes, all of this is true). Sitting next to her…hmmm…I know she has a wild side and to borrow a line from “The Family Stone” will “fly her freak flag” on occasion so what was up? I ask her quietly. She doesn’t feel comfortable drinking in front of the Mortgage Devil. I get it…sorta’. I have zero respect for him at this point nor do I care what he thinks of me…so…fuck it, I am drinking on his dime.
After the food and ice-teas are consumed, it is Christmas present time. So, what does the Mortgage Devil get for his staff for Christmas? He does earn between $1 and $2 million a year at this point. Well…crappy DVD’s from the bin at the Dollar Tree. No, I am not shitting you. I got a “Laurel and Hardy” DVD from him. What…the…fuck? I am not 75 years old. Seriously….Dollar Store DVD’s.
Merry Fucking Christmas!
I was getting ready to make a smart-ass remark that I would pay to keep my spouse at home…but I was abruptly “shushed” because the commercials were over and “The Young and the Restless” was back on. A rule that I quickly learned at the Bank of Hell was that between 1:00 p.m. and 2:00 p.m. everyday the office shut down as far as processing and closing loans. All of the Minions gathered around a crappy 13” TV in the break room with “rabbit ears” for reception to watch that shitty Soap Opera. If you happened to take lunch at that time you could NOT speak during the show…only during the commercials.
So, times passed and the Minions awaited their invitations to this Christmas Party. As Thanksgiving rolled around they waited and waited. Nothing. Most of them have worked for the Mortgage Devil for years and know he does everything at the last minute despite his Magic Whiteboard that never misses a closing date (sarcasm inserted for effect). I am thinking…he forgot to organize the thing. But he has an Assistant that takes care of things like that for him…with a bit of eye-rolling…when he asks her to handle events. I am thinking he forgot about Christmas for he is the Mortgage Devil and Christmas is celebrating his arch-enemy Jesus’ birth… so it is low on his priority list. During this time, the Mortgage Devil is focused on how many loans he can cram down the Minions throats before the end of the year because he has a competitor nipping at his heels for the Top Producer Award. Nothing devastates the Mortgage Devil more in life than losing that award.
But I digress…finally a week before Christmas and the Bitchy Receptionist sends a mass email to the office that went something like this:
The Mortgage Devil is taking us to watch a depressing movie followed by dinner at a half-assed Steak House. Be there or feel the wrath.
Obviously, I took a little liberty with the email but it is basically the “Cliff Notes” version of what had been planned for the evening. We are told to be at the Theater at 4:00 p.m. to watch the movie “The Family Stone”. It is a fine movie…but here is what happened. I am sitting near the Mortgage Devil who is constantly checking voice mail during the movie which is obviously annoying and distracting. I don’t want to spoil the movie for anyone who hasn’t seen it, but honestly it was released almost 5 years ago, and if you haven’t watched it yet….you probably won’t ever see it. The mom in the movie dies of breast cancer…yeah, a real “pick me up” during the holidays. To make matters worse the Minion two seats down from me is sobbing and balling her eyes out. After we leave the movie, I learn from another Minion that she just lost her sister a couple of months ago to breast cancer….wow! That sucks. To be fair, the Mortgage Devil had no idea about this turn in the movie when it was picked (and I doubt he even picked the movie)... But…sheesh…that sure put a damper on the evening. Then we were on our way to the half-assed Steak House.
I am the only one that has ordered a cocktail at this dinner. Great…I am drinking alone…which made me feel a little awkward. So, I go around the room mentally and to try to figure why each person isn’t drinking. The first Minion just really isn’t a drinker. She is a hard worker but not a real exciting person outside the office. The next one used to be a drinker (I hear) but supposedly left her husband because he drank too much. But the truth was her ex-husband always drank too much and she was just bored with him and wanted to hook up with a Pastor instead (yes, all of this is true). Sitting next to her…hmmm…I know she has a wild side and to borrow a line from “The Family Stone” will “fly her freak flag” on occasion so what was up? I ask her quietly. She doesn’t feel comfortable drinking in front of the Mortgage Devil. I get it…sorta’. I have zero respect for him at this point nor do I care what he thinks of me…so…fuck it, I am drinking on his dime.
After the food and ice-teas are consumed, it is Christmas present time. So, what does the Mortgage Devil get for his staff for Christmas? He does earn between $1 and $2 million a year at this point. Well…crappy DVD’s from the bin at the Dollar Tree. No, I am not shitting you. I got a “Laurel and Hardy” DVD from him. What…the…fuck? I am not 75 years old. Seriously….Dollar Store DVD’s.
Merry Fucking Christmas!
Ben Bernanke Can Suck It
I think this blog has an identity crisis. Some days there are humorous and silly stories, other days we give inside descriptions of the lending industry, and then there is today. Today's post is triggered by my absolute abhorrence of the Federal Reserve, Alan Greenspan, and Alan Greenspan's mini-me: Ben Bernanke.
Now that you know I am completely biased about the Fed you might wonder what egregious event triggered a rant that includes telling Bernanke to suck it. Was it proof that the Fed was a fundamental partner in the destruction of our economy? Nope. Was it the reviving of swap lines with foreign banks to deal with the crisis in Greece? Not that either. The truth is, I am incited by a seemingly innocuous commencement speech delivered by Bernanke at the University of South Carolina and its coverage here.
Bernanke delivered the message to young college graduates that money can detract from happiness and that they should not take high paying jobs just for the money. Instead, they should seek the path of happiness because pursuing money may result in a decline in the thrill over time. WHAT A BASTARD.
Here is my translation of Bernanke's speech after being run through my bullshit detector and my disingenuousness spotter thingy.
The ass kissing coverage in The Atlantic about this speech made me angry and ill at all the same time; an impact that was reminiscent of doing shots of whiskey in college, not pretty.
As economists, we do talk about utility maximization and yes we accept that this isn't solely tied to money. But, we also recognize the one clever thing Bernanke didn't discuss and the Atlantic writer failed to mention that is sort of important; we maximize our utility subject to CONSTRAINTS!!! Holy crap, that is Econ 101. We maximize our utility relative to constraints, kind of important ones, like budgets.
It is not that I think money buys happiness nor do I discount the importance of happiness; that isn't what makes me angry about the speech. For me, hearing an economist talk about happiness in this manner would be like going to a Grateful Dead concert and getting a lecture on responsible drug usage from Jerry Garcia. I'm just not buying it. Also Ben, you are the Chairman of the Federal Reserve, a tiny little organization that earned record profits in 2009 by dealing in money, as jobs for those happiness seeking graduates were vanishing.
I don't want economists preaching to me about how to be happy, particularly not the one that sucks a little joy from my life every day because of his job and policies. I want psychologists, Oprah Winfrey, and chripy little self-help gurus teaching people about happiness.
I want economists, and particularly Ben Bernanke, to solve problems and raise people's standard of living. I want to figure out how to help developing nations, create wealth, and promote economic security. I don't want one of the unhappiest looking middle aged white men I have ever seen teaching me that the secret of life is happiness. Myself, my friends, and the students at South Carolina already understand that. Even my dog gets it.
Why don't you tell us something we don't know. Here's a suggestion: Tell us if we should be scared that you claimed there was no crisis coming but now you are claiming you know what to do to get us out of it. Then tell us when we are going to recover, I promise that would go along way in maximizing utility.
***********If you are interested, I have opined in print about my fears concerning the Fed, if you care for some snark with your knowledge you can find a reprint of one here.
Now that you know I am completely biased about the Fed you might wonder what egregious event triggered a rant that includes telling Bernanke to suck it. Was it proof that the Fed was a fundamental partner in the destruction of our economy? Nope. Was it the reviving of swap lines with foreign banks to deal with the crisis in Greece? Not that either. The truth is, I am incited by a seemingly innocuous commencement speech delivered by Bernanke at the University of South Carolina and its coverage here.
Bernanke delivered the message to young college graduates that money can detract from happiness and that they should not take high paying jobs just for the money. Instead, they should seek the path of happiness because pursuing money may result in a decline in the thrill over time. WHAT A BASTARD.
Here is my translation of Bernanke's speech after being run through my bullshit detector and my disingenuousness spotter thingy.
Congratulations to you young and important minds on your graduation. I bet you would like to go out and get a high paying job in order to rationalize all the money you and your family spent on higher education. Yeah, well me and my friends sort of helped to make sure there are none of those jobs available. We really weren't trying to screw you exactly, we were just trying to help our friends in the banking industry.
Really I am not solely responsible for your lack of opportunity. You can also thank my predecessor, Federal Reserve Idol, Alan Greenspan. You can also thank the entire federal government, some friends of mine on Wall Street, and some really distorted application of economic logic by a bunch of people who should have known better.
I sense that you might be feeling sad about your futures so let me talk to you about something we all agree on: happiness. Happiness is good and really, it is more important than a job or whether you can afford to pay your student loans. So instead of being sad that you can't get a job what I really want you to do is think about what makes you happy. If its smoking a bong in your parent's basement for hours on end while drinking out of their liquor cabinet and playing your X-Box, then do it. Tell your parents that Ben Bernanke said you have permission to maximize your utility, happiness is important.
(Cut to Bernanke singing "If your happy and you know it...clap your hands)
The ass kissing coverage in The Atlantic about this speech made me angry and ill at all the same time; an impact that was reminiscent of doing shots of whiskey in college, not pretty.
As economists, we do talk about utility maximization and yes we accept that this isn't solely tied to money. But, we also recognize the one clever thing Bernanke didn't discuss and the Atlantic writer failed to mention that is sort of important; we maximize our utility subject to CONSTRAINTS!!! Holy crap, that is Econ 101. We maximize our utility relative to constraints, kind of important ones, like budgets.
It is not that I think money buys happiness nor do I discount the importance of happiness; that isn't what makes me angry about the speech. For me, hearing an economist talk about happiness in this manner would be like going to a Grateful Dead concert and getting a lecture on responsible drug usage from Jerry Garcia. I'm just not buying it. Also Ben, you are the Chairman of the Federal Reserve, a tiny little organization that earned record profits in 2009 by dealing in money, as jobs for those happiness seeking graduates were vanishing.
I don't want economists preaching to me about how to be happy, particularly not the one that sucks a little joy from my life every day because of his job and policies. I want psychologists, Oprah Winfrey, and chripy little self-help gurus teaching people about happiness.
I want economists, and particularly Ben Bernanke, to solve problems and raise people's standard of living. I want to figure out how to help developing nations, create wealth, and promote economic security. I don't want one of the unhappiest looking middle aged white men I have ever seen teaching me that the secret of life is happiness. Myself, my friends, and the students at South Carolina already understand that. Even my dog gets it.
Why don't you tell us something we don't know. Here's a suggestion: Tell us if we should be scared that you claimed there was no crisis coming but now you are claiming you know what to do to get us out of it. Then tell us when we are going to recover, I promise that would go along way in maximizing utility.
***********If you are interested, I have opined in print about my fears concerning the Fed, if you care for some snark with your knowledge you can find a reprint of one here.
Monday, May 10, 2010
The Cluster F of SubPrime
For those of you who might think me hypocritical for my condemnation of the contributors to the housing crisis, boo. I was a loan officer but I certainly didn't create the policies, debt instruments, or institutions that blew up the world. I was under direct orders to produce more loans and play stupid at corporate meetings where we were meant to stare in awe at Senior Vice Presidents of Liquid Lunches and Nonsense.
At a corporate meeting one time I had the distinct pleasure (where is my sarcasm font?) of meeting some loan officers from Baltimore that I referred to as Dumb and Dumber. Turns out that they were doing almost half the volume I was but making three times more than me in commission. This really troubled me, not because I felt like I was doing something wrong, but because it seemed as though something must be rotten in Baltimore, hon.
After a few cocktails, they explained that they put all their customers in sub-prime loans because the commissions were so much higher. This was shocking to me because I never really found the sub-prime loans necessary, nor desirable to do. They were a complete pain in the ass and required me to subject myself to my least favorite part of the business which was dealing with more colleagues (assholes) than necessary.
The other reason I avoided sub-prime loans was that typically I could get a marginal borrower into a better loan, whether it was an FHA, alt-A, or sometimes even a prime loan and that meant better terms and rates for my customer.
I did two sub-prime loans that I remember, one for a guy who slipped out of FHA eligibility because he lied to me about his child support obligation and one for a Veteran. I did not feel bad for putting the lying guy in a sub-prime loan. When I explained to him that not disclosing his child support had made him look eligible for the loan but when I received his paystub, his ratios were too high to qualify, his response was, "Fuck it, I'll quit paying the bitch.". Welcome to a 9% interest rate on a 2/28 ARM asshole. I will gladly take my commission and maybe even send some of it to your ex.
Mr. Veteran had a certificate of eligibility but did not meet the VA underwriting guidelines because he had a foreclosure that was too recent for the program, if memory serves, it had been less than two years. Here is the worst part. When he was out of the country, in military service, his wife had an affair and decided not to pay their mortgage anymore. She ran off with another guy and let the home go into default. He returned home from the sandbox to a sheriff's sale notice and divorce papers. I hated that this guy had to go sub-prime, I truly thought it was a total travesty by our government that this man couldn't get a good loan. I took a huge loss on his loan, meaning I priced the loan so that I was making less than the required amount by my company, giving my customer a better rate and me a tiny little commission. I felt like it was the least I could do for someone who got screwed by their wife and the government in rapid succession.
The overlooked thing about sub-prime loans is that the interest rates really were not that high when you consider the inherent risk of the loans. To put it in perspective, interest rates on sub-prime loans made to crappy borrowers were lower than those rates in the late seventies and early eighties that great borrowers paid. Sub-prime borrowers even had the option of getting into a 30 year fixed loan, not all of them were the two or three year adjustable rate types. The reason most sub-prime borrowers did not get into 30 year fixed loans at eight or nine percent is that there was every incentive for the loan officer to put them in the shorter term adjustables.
If you worked for a broker, you were paid in yield spread premium, and most often the investors would limit yield spread on the fixed rate loans meaning lower commissions for the originator. The invisible hand of profit would guide loan officers into selling the crappy terms to their customers and not even mentioning that they had a fixed rate option, just to earn the minimum rate of return. Much like Fannie Mae, investors knew that many loan officers are just truly sleazy sales people and they provided originators with incentive to put customers into loans that were not ideal. Most account executives on the wholesale end and your sub-prime specialists on the retail end, would tell you the only way to make the money you were due was to put the customer into the 2/28 ARM. The sales pitch for this was, "It is the best way for you to make money because in 18 months you will get to refinance them again!". An obvious problem with this logic is that in 18 months most of these borrowers were more likely to qualify for food stamps than a new mortgage.
I hear stories now of more loan officers like Dumb and Dumber who put good borrowers into bad loans to make more money. I have also heard about loan officers who targeted single females and minorities and put them into sub-prime loans. I don't think this was as prevalent as people perceive. I think it was largely a problem in Metro areas where there was tremendous fraud going on from the appraiser, realtor, and loan officer. Not that it is o.k., it just wasn't that common.
What I think is scarier than sub-prime loans is the number of sub-prime borrowers that were given prime loans. This is a huge reason for the crisis we are in. It is one thing to trade risky loans that people are aware are risky, even if they are rated decently. It is entirely different for Fannie Mae to endorse loans as low risk that really stink like sub-prime loans. As they say here in the heartland, you can put a pig in a dress but it is still a pig. Fannie Mae spent a lot of time pimping pigs in dresses.
At a corporate meeting one time I had the distinct pleasure (where is my sarcasm font?) of meeting some loan officers from Baltimore that I referred to as Dumb and Dumber. Turns out that they were doing almost half the volume I was but making three times more than me in commission. This really troubled me, not because I felt like I was doing something wrong, but because it seemed as though something must be rotten in Baltimore, hon.
After a few cocktails, they explained that they put all their customers in sub-prime loans because the commissions were so much higher. This was shocking to me because I never really found the sub-prime loans necessary, nor desirable to do. They were a complete pain in the ass and required me to subject myself to my least favorite part of the business which was dealing with more colleagues (assholes) than necessary.
The other reason I avoided sub-prime loans was that typically I could get a marginal borrower into a better loan, whether it was an FHA, alt-A, or sometimes even a prime loan and that meant better terms and rates for my customer.
I did two sub-prime loans that I remember, one for a guy who slipped out of FHA eligibility because he lied to me about his child support obligation and one for a Veteran. I did not feel bad for putting the lying guy in a sub-prime loan. When I explained to him that not disclosing his child support had made him look eligible for the loan but when I received his paystub, his ratios were too high to qualify, his response was, "Fuck it, I'll quit paying the bitch.". Welcome to a 9% interest rate on a 2/28 ARM asshole. I will gladly take my commission and maybe even send some of it to your ex.
Mr. Veteran had a certificate of eligibility but did not meet the VA underwriting guidelines because he had a foreclosure that was too recent for the program, if memory serves, it had been less than two years. Here is the worst part. When he was out of the country, in military service, his wife had an affair and decided not to pay their mortgage anymore. She ran off with another guy and let the home go into default. He returned home from the sandbox to a sheriff's sale notice and divorce papers. I hated that this guy had to go sub-prime, I truly thought it was a total travesty by our government that this man couldn't get a good loan. I took a huge loss on his loan, meaning I priced the loan so that I was making less than the required amount by my company, giving my customer a better rate and me a tiny little commission. I felt like it was the least I could do for someone who got screwed by their wife and the government in rapid succession.
The overlooked thing about sub-prime loans is that the interest rates really were not that high when you consider the inherent risk of the loans. To put it in perspective, interest rates on sub-prime loans made to crappy borrowers were lower than those rates in the late seventies and early eighties that great borrowers paid. Sub-prime borrowers even had the option of getting into a 30 year fixed loan, not all of them were the two or three year adjustable rate types. The reason most sub-prime borrowers did not get into 30 year fixed loans at eight or nine percent is that there was every incentive for the loan officer to put them in the shorter term adjustables.
If you worked for a broker, you were paid in yield spread premium, and most often the investors would limit yield spread on the fixed rate loans meaning lower commissions for the originator. The invisible hand of profit would guide loan officers into selling the crappy terms to their customers and not even mentioning that they had a fixed rate option, just to earn the minimum rate of return. Much like Fannie Mae, investors knew that many loan officers are just truly sleazy sales people and they provided originators with incentive to put customers into loans that were not ideal. Most account executives on the wholesale end and your sub-prime specialists on the retail end, would tell you the only way to make the money you were due was to put the customer into the 2/28 ARM. The sales pitch for this was, "It is the best way for you to make money because in 18 months you will get to refinance them again!". An obvious problem with this logic is that in 18 months most of these borrowers were more likely to qualify for food stamps than a new mortgage.
I hear stories now of more loan officers like Dumb and Dumber who put good borrowers into bad loans to make more money. I have also heard about loan officers who targeted single females and minorities and put them into sub-prime loans. I don't think this was as prevalent as people perceive. I think it was largely a problem in Metro areas where there was tremendous fraud going on from the appraiser, realtor, and loan officer. Not that it is o.k., it just wasn't that common.
What I think is scarier than sub-prime loans is the number of sub-prime borrowers that were given prime loans. This is a huge reason for the crisis we are in. It is one thing to trade risky loans that people are aware are risky, even if they are rated decently. It is entirely different for Fannie Mae to endorse loans as low risk that really stink like sub-prime loans. As they say here in the heartland, you can put a pig in a dress but it is still a pig. Fannie Mae spent a lot of time pimping pigs in dresses.
Sunday, May 9, 2010
This one time...at Loan Officer Academy...
Ok, this isn't going to be an "American Pie...One time at Band Camp" story where a flute is inserted into some orifice....but who knows.... it could have been because I am not exactly sure what Curly Sue was doing with that Loan Officer from Florida. Now that I have your attention....I previously wrote about the overall experience of “Experienced Loan Officer Academy”. But, I wanted to save a chapter for what I actually learned in training.
Apparently, The Bank of Hell had unleashed a loan product they were very proud of and encouraged us to use whenever possible….and if you followed the steps I was taught, you could almost use it all of the time. More on that a little later.
The new “Super” loan product they taught was a Fannie Mae Stated Income/Stated Asset loan. Why is this so special? Let me explain. The acronym loans that Turdy wrote about previously carried a higher interest rate due to the inherent perceived risk of those products (i.e. NINA, NINANE). Fannie Mae backed loans had the lowest interest rate of all the loan products because they were supposed to be A+ “prime” loans. They carried the lowest risk and therefore had the lowest rate. But this whole system got bastardized by the Bank of Hell. But to be fair, it was with Fannie Mae’s blessing…and no, I am not trying to incite Barney Frank.
How did this work? Well, I was taught in training that if I had a client with a credit score of 680 (decent score) or higher on a purchase or 720 (good) or higher on a cash out refinance transaction it could be eligible for the “Super” loan. If you met these score requirements you didn’t have to verify the borrower’s income with pesky paystubs or W-2’s and you didn’t have to verify that the money they told you about for their down payment and closing costs actually existed….and the “beauty” of this was the rate and terms on the loan were the same as someone who fully documented their loan. Brilliant!! But wait ...there is more…if the value you have listed for the property they were purchasing or refinancing was acceptable to the automated underwriting program….you didn’t have to get an appraisal. You could get use an automated value from the “internets”!! Ok, so no income verified, no assets/down payment verified, and no physical appraisal needed to be completed…..and still the interest rate was no worse than the suckers that fully documented their loan with their “primo” credit.
Of course the Mortgage Devil used the powers of the “Super” loan for evil and not good. He took advantage of his self-employed borrowers by having them convinced he could do a stated income/stated asset loan for them a 1/2 % below the competition because he was “such a good guy”. But what he actually did was inflate the rate of the “Super” loan to make a bunch of overage (extra commission). For example…during the time period in question…a traditional stated income/stated asset loan would have a rate of 8.00% for a 30 year fixed while a Fannie Mae’s A+ loans had a rate of 6.00%. So, the Mortgage Devil would have his client call some mortgage broker who didn’t have the "Super" loan and get quoted 8.00%. He would then sell them a loan at 7.50%....he was a hero!! Wait, what is that you say? I thought the “super” loan was the same rate as Fannie Mae’s A+ rate? Well, you are correct. The Mortgage Devil would take that extra 1.50% as overage and make a ton of money of that one loan. As, I was told by my Munchkin Trainer this loan was supposed to give us a competitive advantage against the competition so we could close loans quicker and hassle our borrower’s less. But the Mortgage Devil found a sleazy way to take advantage of the system so that he could pay for all of his second homes.
When I returned from training to the Bank of Hell...I got the "real" training on how to use/manipulate/bastardize this "Super" loan. What was discovered by the Mortgage Devil or one his Minions is the exact sequence you had to follow to limit the paperwork and manipulate Fannie’s system. Here is the step by step way I was taught and why it needed to be done that way:
1) take loan application over the phone and enter into computer.
2) pull credit...if the score meets the requirement move to step 3.
3) go ahead and get an automated value for the property and enter it into the computer
3) make sure you have stated enough income to keep the debt ratio under 45%.
4) send the loan through Fannie Mae's underwriting system to get "Super" loan approval without having to verify the income, assets, and no physical appraisal..Brilliant!
Because if you just put a value based upon what the Borrower thinks their property is worth and you send it through Fannie Mae's automated underwriting it may get approved with that value. You excitedly call your customer and say..."Congratulations, you are already approved. Since your credit is so great...we don't need any documentation or even an appraisal". But what happens when the automated value is different than what the customer thinks the property is worth? If you enter the automated value and Fannie's automated underwriting doesn't like it...then it would red flag the whole loan for excessive value or cut your value where you may have a loan to value problem. No one wants red flag's on their loans or value issues. If you pull the automated value first as suggested in step 3 above, you can see if their is a potential problem ahead of time. Good deal, right? Actually, the system was set up for check and balances against over-inflated appraisals or potential for values exceeding loan amounts. By reversing the steps you circumvent that process. Brilliant!!..hmmm?
Why do you have to keep the debt ratio under 45%...well, because if it was higher it wasn't eligible for a "Super" loan. I know your next question will be..."well what if the income they told you that they made causes the debt ratio to exceed 45%?"....my answer comes from the Mortgage Devil...in his words...you "just bump up the income to make sure it is under 45%". Duh!! It's so simple...and so fraudulent at the same time. He honestly didn't see where this was a problem. You "just bump up the income!"....that was his war-cry that day. Ok....so, we learned today how to turn a Fannie Mae loan into a Liar's Loan....and still charge a higher interest rate to gain more commission...got it!!
Apparently, The Bank of Hell had unleashed a loan product they were very proud of and encouraged us to use whenever possible….and if you followed the steps I was taught, you could almost use it all of the time. More on that a little later.
The new “Super” loan product they taught was a Fannie Mae Stated Income/Stated Asset loan. Why is this so special? Let me explain. The acronym loans that Turdy wrote about previously carried a higher interest rate due to the inherent perceived risk of those products (i.e. NINA, NINANE). Fannie Mae backed loans had the lowest interest rate of all the loan products because they were supposed to be A+ “prime” loans. They carried the lowest risk and therefore had the lowest rate. But this whole system got bastardized by the Bank of Hell. But to be fair, it was with Fannie Mae’s blessing…and no, I am not trying to incite Barney Frank.
How did this work? Well, I was taught in training that if I had a client with a credit score of 680 (decent score) or higher on a purchase or 720 (good) or higher on a cash out refinance transaction it could be eligible for the “Super” loan. If you met these score requirements you didn’t have to verify the borrower’s income with pesky paystubs or W-2’s and you didn’t have to verify that the money they told you about for their down payment and closing costs actually existed….and the “beauty” of this was the rate and terms on the loan were the same as someone who fully documented their loan. Brilliant!! But wait ...there is more…if the value you have listed for the property they were purchasing or refinancing was acceptable to the automated underwriting program….you didn’t have to get an appraisal. You could get use an automated value from the “internets”!! Ok, so no income verified, no assets/down payment verified, and no physical appraisal needed to be completed…..and still the interest rate was no worse than the suckers that fully documented their loan with their “primo” credit.
Of course the Mortgage Devil used the powers of the “Super” loan for evil and not good. He took advantage of his self-employed borrowers by having them convinced he could do a stated income/stated asset loan for them a 1/2 % below the competition because he was “such a good guy”. But what he actually did was inflate the rate of the “Super” loan to make a bunch of overage (extra commission). For example…during the time period in question…a traditional stated income/stated asset loan would have a rate of 8.00% for a 30 year fixed while a Fannie Mae’s A+ loans had a rate of 6.00%. So, the Mortgage Devil would have his client call some mortgage broker who didn’t have the "Super" loan and get quoted 8.00%. He would then sell them a loan at 7.50%....he was a hero!! Wait, what is that you say? I thought the “super” loan was the same rate as Fannie Mae’s A+ rate? Well, you are correct. The Mortgage Devil would take that extra 1.50% as overage and make a ton of money of that one loan. As, I was told by my Munchkin Trainer this loan was supposed to give us a competitive advantage against the competition so we could close loans quicker and hassle our borrower’s less. But the Mortgage Devil found a sleazy way to take advantage of the system so that he could pay for all of his second homes.
When I returned from training to the Bank of Hell...I got the "real" training on how to use/manipulate/bastardize this "Super" loan. What was discovered by the Mortgage Devil or one his Minions is the exact sequence you had to follow to limit the paperwork and manipulate Fannie’s system. Here is the step by step way I was taught and why it needed to be done that way:
1) take loan application over the phone and enter into computer.
2) pull credit...if the score meets the requirement move to step 3.
3) go ahead and get an automated value for the property and enter it into the computer
3) make sure you have stated enough income to keep the debt ratio under 45%.
4) send the loan through Fannie Mae's underwriting system to get "Super" loan approval without having to verify the income, assets, and no physical appraisal..Brilliant!
Because if you just put a value based upon what the Borrower thinks their property is worth and you send it through Fannie Mae's automated underwriting it may get approved with that value. You excitedly call your customer and say..."Congratulations, you are already approved. Since your credit is so great...we don't need any documentation or even an appraisal". But what happens when the automated value is different than what the customer thinks the property is worth? If you enter the automated value and Fannie's automated underwriting doesn't like it...then it would red flag the whole loan for excessive value or cut your value where you may have a loan to value problem. No one wants red flag's on their loans or value issues. If you pull the automated value first as suggested in step 3 above, you can see if their is a potential problem ahead of time. Good deal, right? Actually, the system was set up for check and balances against over-inflated appraisals or potential for values exceeding loan amounts. By reversing the steps you circumvent that process. Brilliant!!..hmmm?
Why do you have to keep the debt ratio under 45%...well, because if it was higher it wasn't eligible for a "Super" loan. I know your next question will be..."well what if the income they told you that they made causes the debt ratio to exceed 45%?"....my answer comes from the Mortgage Devil...in his words...you "just bump up the income to make sure it is under 45%". Duh!! It's so simple...and so fraudulent at the same time. He honestly didn't see where this was a problem. You "just bump up the income!"....that was his war-cry that day. Ok....so, we learned today how to turn a Fannie Mae loan into a Liar's Loan....and still charge a higher interest rate to gain more commission...got it!!
Friday, May 7, 2010
Good Luck With That....
I'm interrupting this regularly scheduled blog to insert some rant and commentary about attempts to regulate and reform the mortgage industry. I intended to blog today about the crazy loans we did but the universe has been speaking to me again and it is telling me that people still don't get it.
I work at an institution of higher learning funded by public dollars, well, at least we used to be. We probably are financed by junk bonds and mortgage backed securities these days due to the budget crisis of the state, which ironically, my former industry contributed to. I only mention this because yesterday I received an email celebrating that our business college is changing its MBA program to focus on "sustainable business practices and corporate social responsibility". This change is described as a necessary response to corporate corruption and lack of responsibility in recent years in the U.S. economy. As part of this transformation there will be a new focus on ethics in business. I have the same reaction to this that I would if you told me that you are going to take over the world today. My response, "Yeah, well good luck with that.".
Now I know that the fact that I take issue with this will make some of you react like I just announced that I like to kick puppies. It is not that I am against ethics and responsibility, I certainly don't picket businesses with signs that read, "Fuck Ethics" or "Be The Biggest Asshole You Can Be". What I have a problem with is the idea that adding courses on ethics will result in a more "socially responsible" corporate climate. It won't. It is a very well crafted public relations move by business colleges and corporations to claim they want MBA's with a social conscience, but in practice, it is not going to eliminate or reduce unethical behavior.
First, you can't truly teach ethics just like you can't teach dignity, entrepreneurship, humor, or intelligence. You can give people tools to enhance some of these innate skills but you can't teach them. Another part of the individual's personality that can't be taught is whether they are risk preferring or risk averse. If someone is highly risk averse and has an inherent system of ethics that dictates that lying and cheating are bad, they will behave ethically because they will self police and fear the repercussions for unethical behavior. Someone with flexible morality and a less rigid ethical system may not self police their behavior, particularly if they are risk preferring. In this instance, the fear of getting punished through legal channels or getting fired will not be enough incentive to keep them from behaving in an "unethical" manner.
What compounds this problem is that there will always be an incentive for people to behave unethically and in a risky fashion as long as there are gains to be realized for engaging in this behavior. Look at the jockey Calvin Borel who just won the Kentucky Derby. He was willing to take the risky path of riding the rail in an attempt to gain a competitive advantage over the field. This isn't unethical but it is risky. He succeeded in winning the race not just because he is an incredible jockey with a fast horse, but because he was willing to do what his competitors wouldn't. He was willing to risk disaster for the gains to be realized if the risk paid off.
If you are willing to do what your competitors aren't there will probably be gains to be realized by doing so. In my time in the mortgage industry nobody embodied this ability to gain at the margin like the Mortgage Devil. He revolutionized our market and created a virtual monopoly. He did this by doing what the rest of us weren't willing to do. These activities included answering customer's phone calls 24 hours a day, never taking a vacation, drinking grass water to avoid having to eat food and take a break, and volumes of unethical and fraudulent behavior. What did he get in return for this behavior? Yearly earnings between one and two million dollars and for many years there was no credible threat of punishment for this behavior.
A. Hole and I used to talk about his flexible morality. We never understood how he could get on his high horse and crucify someone for committing fraud while he was doing the same thing. Ironically, he had an MBA and took business ethics courses. They didn't work as intended. The bottom line is that there was no policing of loan officer's behavior so there was no incentive for him to behave in an ethical manner. Teaching MBA's ethical responsibility won't achieve more corporate social responsibility. The only way to encourage ethical behavior is to reward that behavior and punish those who behave unethically. Currently, those institutions are not in place in most industries, but particularly in the mortgage industry.
During the peak of the housing boom the entire mortgage industry operated under the 80/20 rule. Automated underwriting was touted as working for 80% of loans and the industry seemed to accept that if 80% of loan officers were behaving than it would more than make up for the 20% committing fraud. Turns out, the 80/20 rule doesn't always hold or perhaps, it should have been called the 20/80 rule.
This leads me to my next problem with the new regulations of the mortgage industry, the new Nationwide Mortgage Licensing System. For now, it requires mortgage originators not working for an FDIC insured financial institution to become licensed through their state. It requires that mortgage originators subject to background checks, credit reports, continuing education and a series of questions that are meant to kick out applicants who have previously been caught in fraudulent behavior.
Again, this sounds sensible. But, for now mortgage bankers only have to register with the service they don't have to be licensed, oh and there is the small problem that APPARENTLY LOAN OFFICERS CAN FRAUD THE SYSTEM AND GET LICENSED. This is more crap to make you feel like you are being protected by the government with regulations that ARE NOT BEING ENFORCED!!! A regulation that is not enforced is about as useful as a Snuggie.
You should be pissed that these regulations meant to protect you from the deviants is easily circumvented. You should be outraged that the government is passing regulations meant to help consumers even though they know they aren't going to be enforced and don't even begin to address the real problems. It's all show and no dough.
I know a loan officer who has foreclosures and judgments on their credit report, was asked to resign from another company for fraud or what they describe as a "grey area", and is involved in a lawsuit that relates to a complicated fraud scheme that included a phony loan application and the forging of a signature on settlement papers. There is not a single element of the licensing requirements that this loan officer doesn't violate and they were awarded a license last week. While were at it, why don't we bring back those guys from Enron and give them licenses too.
Regulation without credible punishments, monitoring, or enforcement mechanisms will never work. In fact, I think the more asinine regulations we pass the more fraud we create. It provides an incentive to do what your competitors won't....which is exactly what we are trying to prevent.
Regulating the mortgage industry...hmmm. Good luck with that.
I work at an institution of higher learning funded by public dollars, well, at least we used to be. We probably are financed by junk bonds and mortgage backed securities these days due to the budget crisis of the state, which ironically, my former industry contributed to. I only mention this because yesterday I received an email celebrating that our business college is changing its MBA program to focus on "sustainable business practices and corporate social responsibility". This change is described as a necessary response to corporate corruption and lack of responsibility in recent years in the U.S. economy. As part of this transformation there will be a new focus on ethics in business. I have the same reaction to this that I would if you told me that you are going to take over the world today. My response, "Yeah, well good luck with that.".
Now I know that the fact that I take issue with this will make some of you react like I just announced that I like to kick puppies. It is not that I am against ethics and responsibility, I certainly don't picket businesses with signs that read, "Fuck Ethics" or "Be The Biggest Asshole You Can Be". What I have a problem with is the idea that adding courses on ethics will result in a more "socially responsible" corporate climate. It won't. It is a very well crafted public relations move by business colleges and corporations to claim they want MBA's with a social conscience, but in practice, it is not going to eliminate or reduce unethical behavior.
First, you can't truly teach ethics just like you can't teach dignity, entrepreneurship, humor, or intelligence. You can give people tools to enhance some of these innate skills but you can't teach them. Another part of the individual's personality that can't be taught is whether they are risk preferring or risk averse. If someone is highly risk averse and has an inherent system of ethics that dictates that lying and cheating are bad, they will behave ethically because they will self police and fear the repercussions for unethical behavior. Someone with flexible morality and a less rigid ethical system may not self police their behavior, particularly if they are risk preferring. In this instance, the fear of getting punished through legal channels or getting fired will not be enough incentive to keep them from behaving in an "unethical" manner.
What compounds this problem is that there will always be an incentive for people to behave unethically and in a risky fashion as long as there are gains to be realized for engaging in this behavior. Look at the jockey Calvin Borel who just won the Kentucky Derby. He was willing to take the risky path of riding the rail in an attempt to gain a competitive advantage over the field. This isn't unethical but it is risky. He succeeded in winning the race not just because he is an incredible jockey with a fast horse, but because he was willing to do what his competitors wouldn't. He was willing to risk disaster for the gains to be realized if the risk paid off.
If you are willing to do what your competitors aren't there will probably be gains to be realized by doing so. In my time in the mortgage industry nobody embodied this ability to gain at the margin like the Mortgage Devil. He revolutionized our market and created a virtual monopoly. He did this by doing what the rest of us weren't willing to do. These activities included answering customer's phone calls 24 hours a day, never taking a vacation, drinking grass water to avoid having to eat food and take a break, and volumes of unethical and fraudulent behavior. What did he get in return for this behavior? Yearly earnings between one and two million dollars and for many years there was no credible threat of punishment for this behavior.
A. Hole and I used to talk about his flexible morality. We never understood how he could get on his high horse and crucify someone for committing fraud while he was doing the same thing. Ironically, he had an MBA and took business ethics courses. They didn't work as intended. The bottom line is that there was no policing of loan officer's behavior so there was no incentive for him to behave in an ethical manner. Teaching MBA's ethical responsibility won't achieve more corporate social responsibility. The only way to encourage ethical behavior is to reward that behavior and punish those who behave unethically. Currently, those institutions are not in place in most industries, but particularly in the mortgage industry.
During the peak of the housing boom the entire mortgage industry operated under the 80/20 rule. Automated underwriting was touted as working for 80% of loans and the industry seemed to accept that if 80% of loan officers were behaving than it would more than make up for the 20% committing fraud. Turns out, the 80/20 rule doesn't always hold or perhaps, it should have been called the 20/80 rule.
This leads me to my next problem with the new regulations of the mortgage industry, the new Nationwide Mortgage Licensing System. For now, it requires mortgage originators not working for an FDIC insured financial institution to become licensed through their state. It requires that mortgage originators subject to background checks, credit reports, continuing education and a series of questions that are meant to kick out applicants who have previously been caught in fraudulent behavior.
Again, this sounds sensible. But, for now mortgage bankers only have to register with the service they don't have to be licensed, oh and there is the small problem that APPARENTLY LOAN OFFICERS CAN FRAUD THE SYSTEM AND GET LICENSED. This is more crap to make you feel like you are being protected by the government with regulations that ARE NOT BEING ENFORCED!!! A regulation that is not enforced is about as useful as a Snuggie.
You should be pissed that these regulations meant to protect you from the deviants is easily circumvented. You should be outraged that the government is passing regulations meant to help consumers even though they know they aren't going to be enforced and don't even begin to address the real problems. It's all show and no dough.
I know a loan officer who has foreclosures and judgments on their credit report, was asked to resign from another company for fraud or what they describe as a "grey area", and is involved in a lawsuit that relates to a complicated fraud scheme that included a phony loan application and the forging of a signature on settlement papers. There is not a single element of the licensing requirements that this loan officer doesn't violate and they were awarded a license last week. While were at it, why don't we bring back those guys from Enron and give them licenses too.
Regulation without credible punishments, monitoring, or enforcement mechanisms will never work. In fact, I think the more asinine regulations we pass the more fraud we create. It provides an incentive to do what your competitors won't....which is exactly what we are trying to prevent.
Regulating the mortgage industry...hmmm. Good luck with that.
Wednesday, May 5, 2010
Fannie Mae is a Bitch
If you haven't heard of Fannie Mae or her crazy ass cousin, Freddie Mac, then I am assuming the aliens have just returned you to earth. Congratulations on your safe return from abduction.
Although Fannie Mae sounds like someone who could whip up some mean homemade potato salad and serve it to you in a kitschy Pyrex bowl, she really is a bitch. Her cousin, Freddie Mac, probably beats his wife. The whole family of Ginnie, Freddie and Fannie share more than just hillbilly names, they share government sponsorship. Here is an oxymoron for you: Fannie and Freddie were set up as private firms with government sponsorship. Now obviously they functioned with the private sector motive of profit (How's that working out for you?) but they also were intended to lube the capital markets to foster the public good of homeownership, particularly for the middle class. Unlike Fannie and Freddie, who operated with the inherent assumption that they were government backed although they were private, Ginnie Mae actually was government backed.
I'm not going to wax indignant here about the inanity of this but I must get on my soap box briefly to point out a few things that are not getting enough attention.
Fannie Mae and Freddie Mac had a monopoly over the secondary mortgage market. If you have ever had a mortgage the odds are Fannie or Freddie had something to do with it. For those of us on the front lines, the goal was to make every loan a prime loan which was a loan that Fannie or Freddie would approve. The reasons for this were numerous but fundamentally, loan officers want to earn commission. The more easy loans you can do, like those Fannie and Freddie approve, the more money you can make. The folks at Fannie and Freddie understood that and they gave loan officers the tools to be lazy while making tons of money.
Both Fannie and Freddie had proprietary automated underwriting systems, desktop underwriter(DU) and desktop originator(DO), that made being a loan officer less painful. Anywhere I went with a laptop and an internet connection, I could run a customer's loan application through these underwriting systems and receive a loan approval in five minutes. A. Hole and I have gotten loans approved at happy hour which is the ultimate in utility maximization. Making money while drinking with friends, brilliant.
The loan approval from Fannie or Freddie would list the conditions for final loan approval, including the types of documentation the customer would need to provide so that they could close on their mortgage. If a loan didn't receive approval through these systems it might qualify for a manual underwrite as an Alt-A (more on this later) or sub prime loan.
These automated underwriting systems were designed to approve loans based on the layers of risk. The layers of risk in the industry included debt to income ratios, appraised value, cash reserves and assets, employment stability, property type, and credit profile. All of this sounds sensible, right?
In practice, this automated underwriting system was inconsistent and sometimes left you scratching your head. My theory on this is that the underwriting system was tweaked on a regular basis as a method of controlling risk and liquidity. I don't know this for a fact, but it makes sense given the fact that you could run the same loan through the system a week apart and get two different results.
At the peak of the housing boom these automated underwriting systems were spitting out approvals the way the Duggar Family spits out kids. Nothing was finer than to be a loan officer with a whole stack of loan files with neat little Fannie Mae approvals in them. As I said before, sub-prime loans have really been thrown under the bus by Fannie and Freddie.
During this glorious peak I was getting prime loans approved on a regular basis through Fannie for customers with debt to income ratios of 65%. YES, I said 65%. The debt to income ratio was calculated by adding up the mortgage payment, debts listed on the credit report, taxes, and homeowners insurance as monthly expenses and comparing them to the customer's GROSS monthly income. Not only did we not include monthly expenses like utilities we calculated the ratios on pre-tax income. Wow.
When I returned to the lovely world of economics I finally grasped what this meant. For the average person, a 65% debt ratio to gross income would result in a monthly shortage. Fannie was basically approving loans with the implicit assumption that the borrower would have to deplete their savings for luxury items, like groceries and child care.
I am not an idiot but when I say I was in true believer mode when I was in the industry, I mean it. I really thought I was making people wealthier. Now I know that a great majority of these loans depleted wealth by giving somebody a declining asset (their home) and encouraging them to drain their 401-K and savings just to pay their bills. This tandem punch resulted in the largest ever decline in household wealth between 2007 and 2008.
Like I said, Fannie Mae is a bitch.
Although Fannie Mae sounds like someone who could whip up some mean homemade potato salad and serve it to you in a kitschy Pyrex bowl, she really is a bitch. Her cousin, Freddie Mac, probably beats his wife. The whole family of Ginnie, Freddie and Fannie share more than just hillbilly names, they share government sponsorship. Here is an oxymoron for you: Fannie and Freddie were set up as private firms with government sponsorship. Now obviously they functioned with the private sector motive of profit (How's that working out for you?) but they also were intended to lube the capital markets to foster the public good of homeownership, particularly for the middle class. Unlike Fannie and Freddie, who operated with the inherent assumption that they were government backed although they were private, Ginnie Mae actually was government backed.
I'm not going to wax indignant here about the inanity of this but I must get on my soap box briefly to point out a few things that are not getting enough attention.
- If the perception is that you are government backed then people will behave as though you are government backed. If I hand you $100 and send you into a casino with the instructions that you can keep all of your winnings and not be responsible for your losses, you will behave more recklessly than if you were responsible for paying me back if you lost. This in a nutshell is why Fannie and Freddie took on so much risk. Also, they were explicitly encouraged by the government to do so.
- I have a problem with the "homeownership is a public good" mentality. I had a problem with it before I got into the mortgage industry and now it really makes me seethe. Homeownership is not a fundamental human right. Oh and turns out, homeownership isn't proving to be that great for people.
- What we know now is that the perception of government backing=government backing. Go figure.
Fannie Mae and Freddie Mac had a monopoly over the secondary mortgage market. If you have ever had a mortgage the odds are Fannie or Freddie had something to do with it. For those of us on the front lines, the goal was to make every loan a prime loan which was a loan that Fannie or Freddie would approve. The reasons for this were numerous but fundamentally, loan officers want to earn commission. The more easy loans you can do, like those Fannie and Freddie approve, the more money you can make. The folks at Fannie and Freddie understood that and they gave loan officers the tools to be lazy while making tons of money.
Both Fannie and Freddie had proprietary automated underwriting systems, desktop underwriter(DU) and desktop originator(DO), that made being a loan officer less painful. Anywhere I went with a laptop and an internet connection, I could run a customer's loan application through these underwriting systems and receive a loan approval in five minutes. A. Hole and I have gotten loans approved at happy hour which is the ultimate in utility maximization. Making money while drinking with friends, brilliant.
The loan approval from Fannie or Freddie would list the conditions for final loan approval, including the types of documentation the customer would need to provide so that they could close on their mortgage. If a loan didn't receive approval through these systems it might qualify for a manual underwrite as an Alt-A (more on this later) or sub prime loan.
These automated underwriting systems were designed to approve loans based on the layers of risk. The layers of risk in the industry included debt to income ratios, appraised value, cash reserves and assets, employment stability, property type, and credit profile. All of this sounds sensible, right?
In practice, this automated underwriting system was inconsistent and sometimes left you scratching your head. My theory on this is that the underwriting system was tweaked on a regular basis as a method of controlling risk and liquidity. I don't know this for a fact, but it makes sense given the fact that you could run the same loan through the system a week apart and get two different results.
At the peak of the housing boom these automated underwriting systems were spitting out approvals the way the Duggar Family spits out kids. Nothing was finer than to be a loan officer with a whole stack of loan files with neat little Fannie Mae approvals in them. As I said before, sub-prime loans have really been thrown under the bus by Fannie and Freddie.
During this glorious peak I was getting prime loans approved on a regular basis through Fannie for customers with debt to income ratios of 65%. YES, I said 65%. The debt to income ratio was calculated by adding up the mortgage payment, debts listed on the credit report, taxes, and homeowners insurance as monthly expenses and comparing them to the customer's GROSS monthly income. Not only did we not include monthly expenses like utilities we calculated the ratios on pre-tax income. Wow.
When I returned to the lovely world of economics I finally grasped what this meant. For the average person, a 65% debt ratio to gross income would result in a monthly shortage. Fannie was basically approving loans with the implicit assumption that the borrower would have to deplete their savings for luxury items, like groceries and child care.
I am not an idiot but when I say I was in true believer mode when I was in the industry, I mean it. I really thought I was making people wealthier. Now I know that a great majority of these loans depleted wealth by giving somebody a declining asset (their home) and encouraging them to drain their 401-K and savings just to pay their bills. This tandem punch resulted in the largest ever decline in household wealth between 2007 and 2008.
Like I said, Fannie Mae is a bitch.
Monday, May 3, 2010
We Sell Money: Part II Liar's Loans, The Ninas
Even people living in a van down by the river have heard of Liar's Loans and some of these van dwellers may have actually gotten one at some point, hence their new digs. When I first encountered the media's reporting on sub-prime loans I observed that they really didn't get it and this trend continues with their coverage of Liar's Loans. I offer this post so that you might educate yourself as I shock and awe you with tales of giving Liars money.
These loans came in many forms and were known throughout the mortgage industry by acronyms. As with most things in the world, the longer the acronym the more fucked up the description behind it.
What the media refers to as liar's loans were mortgages made to people without verifying whether at least some of the information on their loan application was actually true. A typical loan application(1003) was four pages long and contained information as simple as name, property address, birth date, social security number, employer, income, assets, liabilities, other properties owned, address history and required the signature of the loan officer and the borrower. The reason the loan application is known as a 1003 in the industry is that it is actually Fannie Mae form number 1003.
Most people who have a mortgage loan probably provided myriad paperwork and documentation to get their money, but between 2003 and 2007, quite a few people were able to get money with a driver's license and credit score and nothing else.
The Liar's loan that sensible people will find most shocking is the No Income, No Asset, No Employment loan or what the industry referred to by the very descriptive acronym of NINANE. I used to sing song the acronym so that it came out like Nina Nee, which sounds like the name of someone who should be rocking out in Minneapolis with Prince rather than the name of a loan product so ridiculous that even a complete moron knows it doesn't make sense.
The Nina Nee loan didn't just stop at allowing you to not provide proof of your income, assets, and employment, no that just wasn't risky enough for Nina Nee. Nina Nee didn't even want you to write this on your loan application, it literally was a loan application that was more than fifty percent blank. If the loan could talk, then Nina Nee was saying, "I don't want to hear about your job and ability to repay this loan. I just want to know that you have a social security number and a credit score. Details, Schmetails." Imagine lending hundreds of thousands of dollars to someone with the implicit assumption that they had no money and no job.
In defense of this loan, it did require a down payment or some equity in your home, so it wasn't risky to the degree of say, oh I don't know, lighting a match after dousing yourself in gasoline. I only did one Nina Nee during my time in the industry and it was for a gentleman who had a perfect credit score but thought it was a complete invasion of his privacy to ask for any of his personal information. He was one of my favorite customers ever, he actually owned a company and made a fortune. He just didn't trust banks, the government, postal workers, people who drove minivans, the color yellow...I guess pretty much everyone and everything. Oddly enough, he is one of the few customers that I am absolutely positive has still not defaulted on his loan, go figure.
The best I can figure is that the Nina Nee was invented for drug dealers or people in witness protection because they wouldn't qualify for Nina Nee's cousin, Nina. The Nina was a slightly less risky loan where you didn't have to tell us whether you had money or what you earned but we at least asked that you tell us where you worked. So if you were a drug dealer and you came to me for a loan, I couldn't get you a Nina unless I thought I could convince an underwriter that you were a self employed Pharmaceutical Sales Rep. The scary thing is that if a drug dealer did call me and ask for a loan and he could get an accountant to say he was self employed in pharmaceutical sales, I could have gotten him a Nina instead of the Nina Nee. For the record, I never did list a drug dealer as a pharmaceutical sales rep on a loan application, I'm just saying I could have.
Nina was a tool for people who couldn't state their income on the loan application, remember I didn't say verify, I only said state. As an example, if a convenience store worker needed to make $5000 a month to qualify for a loan he wouldn't be able to do a stated income loan because no underwriter would believe that the income made sense for the job title. Nina was so generous that if a convenience store cashier had great credit and wanted to refinance or purchase, the underwriter would simply call the company and verify that they had a job and not even calculate debt to income ratios to see if the loan made sense.
I did one Nina at the Bank of Hell that sticks out in my mind because it forced me to have a meeting with my Operations Manager and the Mortgage Devil at the same time in the tiny little closet she called an office. These occasions were so awful that I typically left the meeting and immediately went in search of alcohol. Fortunately, there was a lot of liquor hidden in the break room so sometimes you didn't have to go far.
I had some friends that were moving to Florida to be closer to aging parents and were selling a home in a overbuilt beach development. I submitted the loan to my bat shit crazy processor/underwriter who apparently complained to both my bosses about how she was going to have to package it up and send it to Dante's Inferno to be underwritten. Apparently she didn't feel that it was her job or that she had the time but really, she just didn't want anyone in corporate to be aware of her inherent laziness and corner cutting. Here is my best recollection of that meeting:
Operations Manager: "Why do you have to do these crazy loans that have to get sent to corporate to be underwritten? It is much more work for Bat Shit Crazy to get these files in order and ship them there than it is for normal loans we can underwrite here in the office."
Mortgage Devil: "And I don't understand why you are doing this loan as a NINA on a primary residence when you could just say it is a second home and do it as a stated income loan."
Turdy: "Well, I am submitting it as a primary residence Nina because they are actually going to live in the home, which makes it a primary residence. I can't do stated income because we have no idea how much money he will make in his contracting business in Florida because we don't have a two year history to support it. Oh and I guess, there is also the hurdle of having to explain why they are selling their primary residence here if they are really buying a second home?"
Mortgage Devil: "Duh. That is why we have the exception process through the bank, all you need to do is list it as a second home on the application and under the real estate owned section, just don't mention the house is pending sale. Then you can finance them at 100% in Florida so that they don't need the money they are getting from the sale of their house here to put down on their new home. Then it can be underwritten here and won't force us to have to deal with the underwriters in Dante's Inferno. Problem solved."
Turdy: "So let me see if I understand what you two are saying to me. You want me to lie about the purpose of the loan and the income of the borrower because it would be easier for me to do that than for Bat Shit Crazy to have to deal with Dante's Inferno and the extra work of sending a loan there?
Operations Manager: "I don't understand why you always have to be so difficult and seem to have such a hard time just doing things our way. Do what you want, Bat Shit Crazy will send it to Dante's Inferno just don't expect it to close anytime soon."
I'm not going to get into the exception process at the bank right now because if you are anything like me, you have a maximum amount of craziness and nonsense that you can tolerate in one sitting and I would like to keep you around as a reader. I will say this, though. The Mortgage Devil encouraging me to commit fraud and cut corners was a regular occurrence. This was a man who once did a stated income loan (not a Nina or a Nina Nee) for two retired borrowers on social security. WTF? Can you imagine a stated income loan where the maximum amount a person could possibly earn is a Google search away? Doesn't it make you wonder why an underwriter didn't stand up and say, "Seriously, Mortgage Devil. If you have to state income for someone on a fixed income, they probably shouldn't be buying the property." No underwriter said this because the Bank of Hell gave him an exception to do what is possibly, one of the most egregious liar's loans I have ever heard of.
The subtext of the conversation above is subtle so I must point out what I know now. The Mortgage Devil and his operations manager, as well as the local processing and underwriting staff, did not want loans going to corporate and for good reason. The more loans corporate saw, the more attention the branch would get at corporate, and the more likely they would be to start investigating the goings on. There will be much more on that in later posts...
I guess my problem with the media's coverage of Liar's loans is that it misleads the public by insinuating that anyone who got a loan without verifying some information on their loan application or any loan officer who submitted these loans committed fraud. This is not the case. In fact, the least fraudulent loan in the entire world is the Nina Nee. How in the hell can you commit fraud if you don't even ask any questions that the customer can lie about? That is not to say that fraud didn't go hand in hand with these loans to some degree but the level of fraud involved in these loans ranged from the egregious to what many in the industry liked to call the grey area.
I might have a few customers living in vans down by the river, it would not shock me. What might shock you is that the Ninas were not the riskiest loans we did at the Bank of Hell, some of the riskiest were Fannie Mae prime products and bank portfolio products. Stay tuned, we are getting ready to take our thumbs out of the dike that protects you from the St. Crazy River.
These loans came in many forms and were known throughout the mortgage industry by acronyms. As with most things in the world, the longer the acronym the more fucked up the description behind it.
What the media refers to as liar's loans were mortgages made to people without verifying whether at least some of the information on their loan application was actually true. A typical loan application(1003) was four pages long and contained information as simple as name, property address, birth date, social security number, employer, income, assets, liabilities, other properties owned, address history and required the signature of the loan officer and the borrower. The reason the loan application is known as a 1003 in the industry is that it is actually Fannie Mae form number 1003.
Most people who have a mortgage loan probably provided myriad paperwork and documentation to get their money, but between 2003 and 2007, quite a few people were able to get money with a driver's license and credit score and nothing else.
The Liar's loan that sensible people will find most shocking is the No Income, No Asset, No Employment loan or what the industry referred to by the very descriptive acronym of NINANE. I used to sing song the acronym so that it came out like Nina Nee, which sounds like the name of someone who should be rocking out in Minneapolis with Prince rather than the name of a loan product so ridiculous that even a complete moron knows it doesn't make sense.
The Nina Nee loan didn't just stop at allowing you to not provide proof of your income, assets, and employment, no that just wasn't risky enough for Nina Nee. Nina Nee didn't even want you to write this on your loan application, it literally was a loan application that was more than fifty percent blank. If the loan could talk, then Nina Nee was saying, "I don't want to hear about your job and ability to repay this loan. I just want to know that you have a social security number and a credit score. Details, Schmetails." Imagine lending hundreds of thousands of dollars to someone with the implicit assumption that they had no money and no job.
In defense of this loan, it did require a down payment or some equity in your home, so it wasn't risky to the degree of say, oh I don't know, lighting a match after dousing yourself in gasoline. I only did one Nina Nee during my time in the industry and it was for a gentleman who had a perfect credit score but thought it was a complete invasion of his privacy to ask for any of his personal information. He was one of my favorite customers ever, he actually owned a company and made a fortune. He just didn't trust banks, the government, postal workers, people who drove minivans, the color yellow...I guess pretty much everyone and everything. Oddly enough, he is one of the few customers that I am absolutely positive has still not defaulted on his loan, go figure.
The best I can figure is that the Nina Nee was invented for drug dealers or people in witness protection because they wouldn't qualify for Nina Nee's cousin, Nina. The Nina was a slightly less risky loan where you didn't have to tell us whether you had money or what you earned but we at least asked that you tell us where you worked. So if you were a drug dealer and you came to me for a loan, I couldn't get you a Nina unless I thought I could convince an underwriter that you were a self employed Pharmaceutical Sales Rep. The scary thing is that if a drug dealer did call me and ask for a loan and he could get an accountant to say he was self employed in pharmaceutical sales, I could have gotten him a Nina instead of the Nina Nee. For the record, I never did list a drug dealer as a pharmaceutical sales rep on a loan application, I'm just saying I could have.
Nina was a tool for people who couldn't state their income on the loan application, remember I didn't say verify, I only said state. As an example, if a convenience store worker needed to make $5000 a month to qualify for a loan he wouldn't be able to do a stated income loan because no underwriter would believe that the income made sense for the job title. Nina was so generous that if a convenience store cashier had great credit and wanted to refinance or purchase, the underwriter would simply call the company and verify that they had a job and not even calculate debt to income ratios to see if the loan made sense.
I did one Nina at the Bank of Hell that sticks out in my mind because it forced me to have a meeting with my Operations Manager and the Mortgage Devil at the same time in the tiny little closet she called an office. These occasions were so awful that I typically left the meeting and immediately went in search of alcohol. Fortunately, there was a lot of liquor hidden in the break room so sometimes you didn't have to go far.
I had some friends that were moving to Florida to be closer to aging parents and were selling a home in a overbuilt beach development. I submitted the loan to my bat shit crazy processor/underwriter who apparently complained to both my bosses about how she was going to have to package it up and send it to Dante's Inferno to be underwritten. Apparently she didn't feel that it was her job or that she had the time but really, she just didn't want anyone in corporate to be aware of her inherent laziness and corner cutting. Here is my best recollection of that meeting:
Operations Manager: "Why do you have to do these crazy loans that have to get sent to corporate to be underwritten? It is much more work for Bat Shit Crazy to get these files in order and ship them there than it is for normal loans we can underwrite here in the office."
Mortgage Devil: "And I don't understand why you are doing this loan as a NINA on a primary residence when you could just say it is a second home and do it as a stated income loan."
Turdy: "Well, I am submitting it as a primary residence Nina because they are actually going to live in the home, which makes it a primary residence. I can't do stated income because we have no idea how much money he will make in his contracting business in Florida because we don't have a two year history to support it. Oh and I guess, there is also the hurdle of having to explain why they are selling their primary residence here if they are really buying a second home?"
Mortgage Devil: "Duh. That is why we have the exception process through the bank, all you need to do is list it as a second home on the application and under the real estate owned section, just don't mention the house is pending sale. Then you can finance them at 100% in Florida so that they don't need the money they are getting from the sale of their house here to put down on their new home. Then it can be underwritten here and won't force us to have to deal with the underwriters in Dante's Inferno. Problem solved."
Turdy: "So let me see if I understand what you two are saying to me. You want me to lie about the purpose of the loan and the income of the borrower because it would be easier for me to do that than for Bat Shit Crazy to have to deal with Dante's Inferno and the extra work of sending a loan there?
Operations Manager: "I don't understand why you always have to be so difficult and seem to have such a hard time just doing things our way. Do what you want, Bat Shit Crazy will send it to Dante's Inferno just don't expect it to close anytime soon."
I'm not going to get into the exception process at the bank right now because if you are anything like me, you have a maximum amount of craziness and nonsense that you can tolerate in one sitting and I would like to keep you around as a reader. I will say this, though. The Mortgage Devil encouraging me to commit fraud and cut corners was a regular occurrence. This was a man who once did a stated income loan (not a Nina or a Nina Nee) for two retired borrowers on social security. WTF? Can you imagine a stated income loan where the maximum amount a person could possibly earn is a Google search away? Doesn't it make you wonder why an underwriter didn't stand up and say, "Seriously, Mortgage Devil. If you have to state income for someone on a fixed income, they probably shouldn't be buying the property." No underwriter said this because the Bank of Hell gave him an exception to do what is possibly, one of the most egregious liar's loans I have ever heard of.
The subtext of the conversation above is subtle so I must point out what I know now. The Mortgage Devil and his operations manager, as well as the local processing and underwriting staff, did not want loans going to corporate and for good reason. The more loans corporate saw, the more attention the branch would get at corporate, and the more likely they would be to start investigating the goings on. There will be much more on that in later posts...
I guess my problem with the media's coverage of Liar's loans is that it misleads the public by insinuating that anyone who got a loan without verifying some information on their loan application or any loan officer who submitted these loans committed fraud. This is not the case. In fact, the least fraudulent loan in the entire world is the Nina Nee. How in the hell can you commit fraud if you don't even ask any questions that the customer can lie about? That is not to say that fraud didn't go hand in hand with these loans to some degree but the level of fraud involved in these loans ranged from the egregious to what many in the industry liked to call the grey area.
I might have a few customers living in vans down by the river, it would not shock me. What might shock you is that the Ninas were not the riskiest loans we did at the Bank of Hell, some of the riskiest were Fannie Mae prime products and bank portfolio products. Stay tuned, we are getting ready to take our thumbs out of the dike that protects you from the St. Crazy River.
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