Matt Taibbi of Rolling Stone magazine reveals smoking gun at Moody's and S&P -... "The Last Mystery of the Financial Crisis"

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Matt Taibbi was a guest on "All In with Chris Hayes" this evening. Matt talked about what he found when he examined documents and emails that were collected as a result of law suits against the nation's two top ratings companies, Moody's and S&P. The information revealed the ratings from the two firms were for sale, and were not merely the result of thorough evaluations.

from the Rolling Stone article:

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

"Lord help our fucking scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.

***

Matt Taibbi reveals financial crisis smoking gun

***

the Rolling Stone article by Matt Taibbi:

The Last Mystery of the Financial Crisis

miksilvr
Joined:
Jul. 7, 2011 12:13 pm

Comments

I wonder how long it will be until his 'car accident'.

douglaslee's picture
douglaslee
Joined:
Jul. 31, 2007 4:01 pm
Quote miksilvr:

"Lord help our fucking scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.

But, but, but, it was the greedy and ignorant home owners who were responsible for the financial meltdown...

norske's picture
norske
Joined:
Jul. 31, 2007 4:01 pm
Quote norske:
Quote miksilvr:

"Lord help our fucking scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.

But, but, but, it was the greedy and ignorant home owners who were responsible for the financial meltdown...

I really don't see how the deceptive practices of a ratings organization absolves the home owner who borrowed more than he/she could handle. Are you suggesting that the uninformed borrower, who couldn't understand the concept of an adjustable rate was somehow tricked by a rating company?

I'm not saying the borrower is fully or even primarily to blame for the meltdown, but they were partially responsible. Without them, the toxic loans don't exist. They are the basis for the entire scam. Joe in Alabama borrows $300,000 knowing he's never been able to afford $500 a month in rent, but the mortgage broker says it's fine. The banks bundle this garbage and the ratings company gives it 4 stars. They are all responsible.

It's amazing to me how quickly you and others on this board are prepared to give the borrower a pass. It's always the evil corporations and never personal responsibility. If that were true, where are the prosecutions? Where has this adminstration been? The only major changes I've seen are directed at the borrower. They have dumbed down the closing process to the point that a 5 year old could understand what they have to pay. Why do this if the borrowers weren't part of the problem?

Conservative_Th...
Joined:
Jun. 15, 2012 12:01 pm

Have you ever wondered why it took $16 trillion to bail banking and finance when only $80 bilion in mortgages had a problem?

http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-...

The United States of Scams is merely doing what it's been doing for years. At least the Mafia were honest about its loans. Maybe we should bring it back and shut down banking.

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 4:01 pm

Bubble market mania. Read up on it.

When one person buys more than they can afford and gets burned everyone rightly can blame Joe in Alabama. When Joe buys more than he can afford at $250k and 6 months later sells for $450k, then everyone says Joe is a genius. Then they all go out and do the same thing. Until they run out of suckers, or one bank says "no more money." Then everyone is left unable to make payments in that same neighborhood, because they each owe $550k on the first mortgage, and another $175 on 2nd and 3rds.

The problem was the changes in regulations in 2000 -2002 that opened up the subprime lending market to securitize B and C loans. That the market took until 2007 to collapse was the miracle.

Phaedrus76's picture
Phaedrus76
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Sep. 14, 2010 8:21 pm
Quote Conservative_Thom_Fan:I really don't see how the deceptive practices of a ratings organization absolves the home owner who borrowed more than he/she could handle. Are you suggesting that the uninformed borrower, who couldn't understand the concept of an adjustable rate was somehow tricked by a rating company?

Isn't it the bank's responsibility to insure they don't loan to someone who's risky? After all, it's the BANK'S money! Oh, that's right... many of these lenders weren't real bankers. They were paid commissions for loans made... and then they were quickly sold off.

Surely you remember the insanity of the day. Radio was filled with ads for these risky loans... even interest only loans... where buyers were told they should borrow not for what they needed but what they could afford. These loan companies had all the incentives to convince buyers to take big risks redefined as sure bets... that home values would keep going up... or even to approve loans to those they KNEW could never meet the payments. Sure... buyers should have been more careful... and no doubt most would have been if the system itself had not been corrupted... and they were not sold a bill of goods.

Pierpont's picture
Pierpont
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Feb. 29, 2012 2:19 pm

Banks are corrupt and will screw you at every opportunity. Credit unions are not banks.

douglaslee's picture
douglaslee
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Jul. 31, 2007 4:01 pm

The bank's responsibility is to their shareholders. So if they can sell a bad loan to Wall Street and get it off their books-good for the shareholders. Bad for the entity who is the last one stuck with the bad loan.

People-there were several factors involved in the crash-it wasn't one boogeyman. The one common thread was greed. The mortgage broker who makes fees and commissions. The Wall Streeter who sold notes backed by bad loans to get a commission. The homebuyer who took out an exotic loan they didn't understand just thinking about the profit they would make on selling the home in a booming market. Or just saw the low monthly payment on an interest only loan. I think it was in Freakonomics where someone said that Wall Street was greedy, but it was those involved in Real Estate that were real pigs. How big was that bailout again?

DynoDon
Joined:
Jun. 29, 2012 10:24 am

DAMN !

Another person who failed to read or understand the many articles written about the mortgage crisis that stated homeowners who were QUALIFIED for prime mortgages were duped into taking various forms of variable rate or balloon mortgages and other less-than-prime mortgages for the sole reason the broker and firm made more money selling that TRASH !

Many of these homeowners were then unable to afford the higher payments after the initial rate period ended and the higher adjustable rate kicked in. If they had bought the prime rate mortgage they originally sought, they likely would still be in their homes, instead of on the street with a credit record resembling swiss cheese.

Many of the homeowners who did not lose their homes are living in a situation where the mortgage is underwater. Programs that were setup to help the homeowners, including a portion of TARP, have gone unused because the banksters do not want to have to mark-to-market the value of the mortgages.

THEY CAN'T HANDLE THE TRUTH !!!

The damned bankers and brokers and derivatives pushers are both the culprits behind and beneficiaries of this whole mess!

I'm SICK of this blame the victims B.S. !! WTF ??!!

DAMN !

miksilvr
Joined:
Jul. 7, 2011 12:13 pm

Well, the U.S. pushes for investment opportunities. Just as the common wisdom is to be in the stock market when prices are going up up, up, ditto housing when prices are going up, up, up.

Leverage (borrowing) for full participation is how we do things.

Participating in Ponzi schemes is the American way. First one in benefits. Last one out when they collapse.....tsk tsk.

If you're a bankster/financier and the last one out....you get bailed. The rest are on their own.

Has no one you ever wondered why it took $16 trillion to bail banking and finance when only $80 billion in mortgages had a problem?

http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-...

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 4:01 pm

Only in the financialist world of 'fiduciary responsibility' would we believe that a bank was responsible only to their shareholders and be allowed morally to pursue any scam on the public that would increase shareholder value. This begs the question of 'market theology' about competition and consumer choice, because it presumes that bad public behavior will be punished.

Greed institutionalized and protected by the power of its "too big to jail" is hardly something one should dismiss while pinning the blame on those who take loans offered by conmen. C'mon cons, show me some integrity.

drc2
Joined:
Apr. 26, 2012 12:15 pm
Quote miksilvr:

DAMN !

Another person who failed to read or understand the many articles written about the mortgage crisis that stated homeowners who were QUALIFIED for prime mortgages were duped into taking various forms of variable rate or balloon mortgages and other less-than-prime mortgages for the sole reason the broker and firm made more money selling that TRASH !

You are right. All businesses should be forced to sell their products at the lowest prices possible.

Dr. Econ's picture
Dr. Econ
Joined:
Jul. 31, 2007 4:01 pm

Only in the financialist world of 'fiduciary responsibility' would we believe that a bank was responsible only to their shareholders and be allowed morally to pursue any scam on the public that would increase shareholder value. This begs the question of 'market theology' about competition and consumer choice, because it presumes that bad public behavior will be punished.

Greed institutionalized and protected by the power of its "too big to jail" is hardly something one should dismiss while pinning the blame on those who take loans offered by conmen. C'mon cons, show me some integrity.

drc2
Joined:
Apr. 26, 2012 12:15 pm
Quote Dr. Econ:
Quote miksilvr:

DAMN !

Another person who failed to read or understand the many articles written about the mortgage crisis that stated homeowners who were QUALIFIED for prime mortgages were duped into taking various forms of variable rate or balloon mortgages and other less-than-prime mortgages for the sole reason the broker and firm made more money selling that TRASH !

You are right. All businesses should be forced to sell their products at the lowest prices possible.

Your comment doesn't make sense. The issue raised here is one of scamming consumers to needlessly pay more... perhaps $50-100k more in interest over the life of a mortgage. Unless you're saying business should be free to do anything to maximize profits. If so why stop here... let's get rid of pollution and worker safety laws... then chip away at benefits etc.

Pierpont's picture
Pierpont
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Feb. 29, 2012 2:19 pm
Quote polycarp2:Has no one you ever wondered why it took $16 trillion to bail banking and finance when only $80 billion in mortgages had a problem?

http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-...

Where does that 80 billion number come from? It's not mentioned in the article and I can't find it in the report http://www.sanders.senate.gov/imo/media/doc/GAO%20Fed%20Investigation.pdf

.

Pierpont's picture
Pierpont
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Feb. 29, 2012 2:19 pm

The meltdown was from derivative bets on bundled sub-prime mortgages. 359,000 mortgages bundled into a few pieces of financial paper. Taking a median price range of $200,000 per mortgage, it's less than $80 billion.

http://www.occ.treas.gov/publications/publications-by-type/other-publica...

Multiple derivative bets on the bundled mortgages were in the trillions. . A derivative bet takes two players. One side bet they'd be sound and retain their value. The other side bet they wouldn't.

The losing banksters couldn't pay the winning banksters. They became insolvlent. The derivatives (counted as a bank asset) became worthless. The winning banksters became insolvent. Globally, trillions in insolvency.

Probably if trillions in fire insurance policies were bought on your house, and it burned down, your ins. co. would be in deep doo doo. If the ins. co. couldn't pay, the policies would become worthless.

Same sort of thing.

"Basically, derivatives are financial contracts with values that are derived from the behavior of something else – interest rates, stock indexes, mortgages, commodities, or even the weather. Just as homebuyers make only a down payment when they buy a house with a mortgage, derivatives traders put down only a small amount of cash. Moreover, one derivative can be used to offset or serve as collateral for another. The result is that a massive edifice of derivatives can be supported by a relatively small amount of real money."

"While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP."

Read more: http://business.time.com/2013/03/27/why-derivatives-may-be-the-biggest-risk-for-the-global-economy/#ixzz2X9EBdHdB

Probably allowing banksters to gamble on that scale is rather stupid. A quadtrillion dollars is a lot of money. The Fed will have a wee bit of difficulty with the next bailout.

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 4:01 pm

Banks are, and were in the 2006 era, required by law and as a part of their role as a fiduciary agent to make the best loan available to the client. If Mr. Jones qualified for a conforming loan at 6%, and the subprime loan was at 8%, the bank's responsibility was to put him in the 6% loan. Now, if choosing between different products, a 30yr fixed, a 3 yr arm, and a pay option arm, then the buyer had options, but he was still to be given the best deal in each catagory for which he qualified.

Phaedrus76's picture
Phaedrus76
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Sep. 14, 2010 8:21 pm

Banks are no different than car dealers. One customer comes in after studying Kelly Blue Book and determining what a good price for a particular vehicle is. The dealer doesn't make him an offer he likes so he walks away and goes to another dealer. Or he negotiates the deal he wants. The next customer comes in looking at the same vehicle. he has done no research. He takes the deal offered and spends $1K more on the same vehicle. Now you are going to blame the car dealer for making more profit on the uninformed buyer. Sorry, you are a fool if you don't shop around for the biggest loan of your life. You people act like salesmen just appeared on the planet last year. Common sense dictates that you be careful about anyone selling you a product they make a commission on. Buyers always have the option of saying NO. Again, it was greed on everyone's part including buyers.

http://realtytimes.com/rtpages/20071226_mortmelt.htm

DynoDon
Joined:
Jun. 29, 2012 10:24 am
Quote polycarp2:

The meltdown was from derivative bets on bundled sub-prime mortgages. 359,000 mortgages bundled into a few pieces of financial paper. Taking a median price range of $200,000 per mortgage, it's less than $80 billion.

http://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics-q2-2008/mortgages-delinquent-2008-2-quarter.html

Multiple derivative bets on the bundled mortgages were in the trillions. . A derivative bet takes two players. One side bet they'd be sound and retain their value. The other side bet they wouldn't.

I have no problem with the derivative side of what you're saying. The system is insane. I just wonder about the mortgage side. When some sub-prime mortgages were defaulting, I don't believe they were just confined to a few securities. My understanding is that the sub-primes were bundled to be sold off, but the actual securities also contained other groupings of mortgages. So once the sub-prime element began to fail, it cast doubt into the value of all the bundles that contained these sub-primes which is what then spiraled of control. Someone insures their bet, it fails, they get paid... but if the insurer can't pay, they then are also considered a risk and then have to pay a higher amount... soon everything is a risk... and no one can pay.

So given the complexity of these securities it's a question whether those subprime mortgages in default could be identified in time to prop up a system that was already unraveling.

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Pierpont
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Feb. 29, 2012 2:19 pm

Well, the problem was that someone bought a house with a subprime loan (negam) for $400k. The next guy bought the house next door with a conventional 30 year fixed for $400k. The third guy couldn't get a subprime loan after the credit freeze, and the bank would only lend $350k. Now both the first and second guy walk away from their underwater homes.

The subprime loans infected the prime loans.

chilidog
Joined:
Jul. 31, 2007 4:01 pm

Damn it Dyno, you just cannot let go of the idea that every 'consumer' has to become an expert in fraud in order to engage in the ordinary business of a civilian. Your example of the car business is instructive. Trying to figure out which deal is actually a better deal requires more than a basic ability to count. The finance business was what the auto companies were in, not "selling cars" per se. They could hide the actual costs in the financing and make people think they were paying less. That and the practice of the sales lot where all sorts of hooey goes on.

Bankers had an image of much higher integrity than a used car salesman as well. They were supposedly experts in finance and money, so when they swore on their mother's grave that this was a great opportunity to be in on a very secure investment, people believed them. They should be able to believe them. That they cannot is hardly going to be solved by having every purchaser of a loan become an expert on loans. That is like asking every voter to know about American foreign policy and social economics. Or, to understand computer and internet technology and public policy beyond the surface.

drc2
Joined:
Apr. 26, 2012 12:15 pm
Quote DynoDon:

Banks are no different than car dealers. One customer comes in after studying Kelly Blue Book and determining what a good price for a particular vehicle is. The dealer doesn't make him an offer he likes so he walks away and goes to another dealer. Or he negotiates the deal he wants. The next customer comes in looking at the same vehicle. he has done no research. He takes the deal offered and spends $1K more on the same vehicle. Now you are going to blame the car dealer for making more profit on the uninformed buyer. Sorry, you are a fool if you don't shop around for the biggest loan of your life. You people act like salesmen just appeared on the planet last year. Common sense dictates that you be careful about anyone selling you a product they make a commission on. Buyers always have the option of saying NO. Again, it was greed on everyone's part including buyers.

http://realtytimes.com/rtpages/20071226_mortmelt.htm

Sorry, I worked at a large mortgage lender that rhymed with Dountry Dide Home Loans. That bank, and every other bank I brokered loans through afterwards, had a policy that in qualifying the borrower you had to find them the best available rate. If a borrower qualified for a conforming (or prime) loan at 6%, and the subprime was 8% the bank was required to put them in the 6% loan.

Now, shopping between different loans (30yr fixed, 3 yr arm, pay option arm, 10 yr balloon, etc) then you still had to offer the best deal in each catagory, and of course buyers should shop between banks who each have their own pricing.

But this does not absolve the Wells Fargos, and CountryWides of the egregious fraud and slamming minority borrowers into subprime loans when they qualified for better ones. Just to maximize fees. Or the process of using deception and BS, and bait and switch tactics that was commonplace before the Dodd Frank reforms.

Telling a buyer one rate and fee, 6% and $10,000 , and showing up at the signing table with a 6.5% and $20k deal, and telling them, pay or lose your deposit money was pretty standard practice. Using addendums that changed the terms of the loan, and burying it under 90 pages of documents was pretty standard practice. People who thought they had a 30 yr fixed discovered they in fact had a pay option deal. Whoops.

Phaedrus76's picture
Phaedrus76
Joined:
Sep. 14, 2010 8:21 pm

WTF, you're agreeing with Conservative Thom Fan in blaming minorities and single moms for the housing melt down?

I know you were an insider and have anecdotes, and hard statistics are difficult to find.

It seems to me that this claim that "borrowers who could have qualified for conventional loans were 'duped' into subprime products" is based soley on their credit scores. Which doesn't tell the whole story.

http://online.wsj.com/article/SB119662974358911035.html

"But it turns out that plenty of people with seemingly good credit are also caught in the subprime trap.

One key factor in determining what kind of loan a borrower gets is his credit score. Credit scores can run from 300 to 850, and many involved in the business view a credit score of 620 as a historic rough dividing line between borrowers who are unlikely to qualify for a conventional, or prime loan, and those who may be able to. Above that score, borrowers may qualify for a conventional loan if other considerations are in their favor. Above 720, most borrowers would expect to usually qualify for conventional loans, unless they are seeking to spend more than they can afford, or don't want to have to document their income or assets -- or are steered to a subprime product.

But rising home prices, and the growth of an industry of lenders specializing in subprime loans, led to an increase in all kinds of reasons for borrowers with good credit scores to sign up for subprime loans."

chilidog
Joined:
Jul. 31, 2007 4:01 pm
Quote drc2:Damn it Dyno, you just cannot let go of the idea that every 'consumer' has to become an expert in fraud in order to engage in the ordinary business of a civilian.
I can buy into this idea... and I was going to respond to Thom Fan who made a similar point. In the ideal world it makes sense to tie consequences to behaviors and choices. In risk there is dignity.

But the idea that we can all be experts on every sort of corporate assault to manipulate or defraud is not realistic. They have the resources to be the experts. Citizens would spend half their lives having to research everything to protect ourselves... which is not to say they should not research their choices. But we need strong consumer protection laws to hamstring business's abiility to manipulate and con us.

Pierpont's picture
Pierpont
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Feb. 29, 2012 2:19 pm
Quote Phaedrus76:

Sorry, I worked at a large mortgage lender that rhymed with Dountry Dide Home Loans. That bank, and every other bank I brokered loans through afterwards, had a policy that in qualifying the borrower you had to find them the best available rate. If a borrower qualified for a conforming (or prime) loan at 6%, and the subprime was 8% the bank was required to put them in the 6% loan.

Now, shopping between different loans (30yr fixed, 3 yr arm, pay option arm, 10 yr balloon, etc) then you still had to offer the best deal in each catagory, and of course buyers should shop between banks who each have their own pricing.

I don't understand how someone who qualfiies for a conforming loan at 6% only qualifies for a subprime loan at 8%, unless 8% is the adjusted rate after the initial lower rate period.

How does the bank determine the "best available rate" among apples and oranges? There is a conventional 30 year at 6%, a conventional 15 year at 4%, and a negam 30 year that starts at 3% for 2 years and then adjusts to a 28 year fully amortizing loan (with an increased balance) at an adjustable rate starting at 8%.

chilidog
Joined:
Jul. 31, 2007 4:01 pm
Quote Phaedrus76:

But this does not absolve the Wells Fargos, and CountryWides of the egregious fraud and slamming minority borrowers into subprime loans when they qualified for better ones.

Maybe I'm being too harsh. When "minorities" are referred to in this context, Afican-Americans, Hispanics, and Native Americans immediately come to mind.

I suppose a minority is anyone who isn't Caucasian, and as such Chinese, Indians, Arabs, Koreans, Vietnamese, Filipinos, Persians, and Armenians qualify as "minorities" and are big participants in the real estate markets in Southern California and Las Vegas and I'm guessing Arizona and the San Francisco Bay as well. I can't speak for California's Central Valley.

chilidog
Joined:
Jul. 31, 2007 4:01 pm

When you are taking out a $400K loan-you'd better be an expert.

Bankers-Image? Didn't the Catholic Church have a good image too? Since the 80's bankers no longer followed the 3-6-3 rule of banking that made it stable and trustworthy. Pay 3% on deposits, loan at 6% for profit and hit the golf course at 3 PM.

DynoDon
Joined:
Jun. 29, 2012 10:24 am

My point as always been-the more at risk, the more due diligence. You don't have to become an expert on whether eggs are priced 20 cents too high. You don't have to become an expert on an extra $3 charge on your cell phone bill. But with hundred's of thousand of dollars at stake-become at least educated.

Since it has become clear in the past several years that the banks aren't consumer friendly-is it acceptable any longer not to trust banks and shop around? With what's happened in the past 5 years-is there any excuse for home loan shoppers not to do due diligence? Are we at the fool me twice stage?

DynoDon
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Jun. 29, 2012 10:24 am

BTW-join a credit union.

DynoDon
Joined:
Jun. 29, 2012 10:24 am
Quote DynoDon:

With what's happened in the past 5 years-is there any excuse for home loan shoppers not to do due diligence? Are we at the fool me twice stage?

Yes and yes.

Moral. Hazard.

chilidog
Joined:
Jul. 31, 2007 4:01 pm
Quote DynoDon: When you are taking out a $400K loan-you'd better be an expert.
How can one disagree? My comments contained two points... one the general point that given the demands of life, there's just no way the ordinary person can keep up with all the research and efforts that are designed to manipulate us. The second point is when it came to mortgages traditionally the two parties could check each other. If a bank thought the applicant was a risk at a given loan amount, they could say no. So what happens in that system if risky loans are not just approved but promoted?

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Pierpont
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Feb. 29, 2012 2:19 pm

"The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness." John Keneth Gailbraith

Pretty much covers every topic about wealth and power on this site...

norske's picture
norske
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Jul. 31, 2007 4:01 pm

OK, at banks, not brokers, the rate the loan officer offers to the client is based on their credit score, equity/ down payment, and income/ ability to repay. The computer spits out the loans the borrower qualifies for and the rate for each loan.

The interest rate, and commission paid to the loan officer, varies on the type of loan made to the buyer. Joe comes in, good credit(780) 20% down and good income, and could get loans of a 30 yr fixed at X%, a 5yr ARM at (X-2)%, or the bank could "slam" him in to a subprime loan at (X+2)% or higher. See the different loan programs have different rates, and varying commissions for the loan officer. Where alot of the worst case shenanigans occured was where the incentives were to make subprime loans to any borrowers, and the commissions were many times higher for the subprime loan, the double or more higher. The worst example was Wells Fargo, they had some regional manager around Maryland and Virginia, and essentially ran the business to overcharge and cheat African American borrowers out of lots of money, like 3% higher rates, and fees as high as was legally allowed. Wells Fargo realized their problem, and they got out of the subprime market before the collapse, but since their practices had been so bad so early, and centered near the political center of the nation, they got slapped down hard at the start of the recession by the Feds.

Other lenders pushed the Pay Option loans like they were the greatest deal ever. I sat through sales seminars by World Savings, WaMu and some other reps, and they swore that the only loan any borrower should be offered was the Pay Option Arm.

Other reps pushed the notion that each loan made should be subprime, don't sell prime, subprime is quicker and streamlined processing.

Others were more honest and showed that the subprime loans had much higher commissions, and less competition.

On top of that, the refinance "script" used at American General, and subsequently stolen by the rest of the industry is designed to overcome sense, reason, and logic, and after 30 minutes any normal person is begging for a refinance.

Phaedrus76's picture
Phaedrus76
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Sep. 14, 2010 8:21 pm

trying to edit...

chilidog
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Jul. 31, 2007 4:01 pm
Quote Phaedrus76:

OK, at banks, not brokers, the rate the loan officer offers to the client is based on their credit score, equity/ down payment, and income/ ability to repay. The computer spits out the loans the borrower qualifies for and the rate for each loan.

The interest rate, and commission paid to the loan officer, varies on the type of loan made to the buyer. Joe comes in, good credit(780) 20% down and good income, and could get loans of a 30 yr fixed at X%, a 5yr ARM at (X-2)%, or the bank could "slam" him in to a subprime loan at (X+2)% or higher.

In your example, are you saying that the bank would offer to lend $400k at a 30 year fixed at 6%, and $400k subprime at 8% fully amortizing from day 1?

chilidog
Joined:
Jul. 31, 2007 4:01 pm

Here's the thing... practices such as this and the ones employed by Enron are not aberrations... they are the norm... Psychopathy unleashed, becoming normalized...

norske's picture
norske
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Jul. 31, 2007 4:01 pm

That concept is wrong on some many levels. To start everyone at the settlement table except the buyer and the seller had some sort of license and ethical code of conduct requirement. The attorney, the realtor and banker all had legal obligation to make sure that the people buying the home could afford it. But much like the relationship between brokers and rating agencies, the banker, realtor and attorney put their legal obligations aside.

But it’s more than that. The lending banks were supposed to protect the other homeowners in the community. Not to mention protect their own self interest by insuring their mortgagees could repay the loans.

There are many other scenarios your over simplification omits. As an example, most of the people in my neighborhood who went under got stuck paying too mortgages because Bernanke and Greenspan raised rates an unpresidented17 quarters in a row. Not only trapping people in two mortgages but forcing people into PMI and subprime loans.

My rate went from 5 to 7 5/8 while I was waiting for my home to built. I was able to sell my existing home before things really got bad, but not for what it was worth and we were already locked into the new one.

What everyone has seemed to miss about this story is what the federal reserve rate manipulation did to the housing market. Bernanke raised rates until the bubble burst and then sat on his hands while the whole thing melted down. The “mark to market” accounting rule changes just added to the fire sale. Not to mention the 2005 bankruptcy bill.

I am probably way over your head at this point. Sorry.

babbaramma's picture
babbaramma
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Apr. 6, 2010 6:21 pm

I forget what the number was, but about half the people who ended up in nonconforming loans, were qualified for conforming loans.

babbaramma's picture
babbaramma
Joined:
Apr. 6, 2010 6:21 pm

I think you have it correct. Lets not forget how the federal reserve created a panic by raising rates and then continued to do so until the whole thing collapsed. Seventeen quarters in a row.

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babbaramma
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Apr. 6, 2010 6:21 pm

Did Trump Commit Treason?

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