Tuesday, July 15, 2008

Subprime Lending - What went wrong?

Interesting article on things that were going wrong during the Great Housing Bubble. In this CNN article titled Confessions of a subprime lender: 3 bad loans are profiled. The loans profiled are basically loans that the lender ended up being responsible for.

We have the supposed "villain" with a heart of gold turned hero - the subprime lender who got into the business to make money but also helped people along the way. But who noticed things were not working appropriately. By trying to help people, many people were worse off then before the loans. Read the article for the examples. Let's take a look at the author -

Richard Bitner opened his own mortgage shop in 2000, and had the good fortune to bail out of the business in 2005, before the housing crisis hit.

He saw the shoddy lending practices that got us into this crisis first hand, and has chronicled them in his book, "Confessions of a Subprime Lender." By the time he quit, said Bitner, "Lending practices had gone from borderline questionable to almost ludicrous."

He and his two partners ran Dallas-based Kellner Mortgage Investment, a small subprime lender that issued about $250 million in loans annually. The firm worked through independent mortgage brokers, and then sold the loans it closed to investors or to larger lenders, such as Countrywide Financial, which was recently bought by Bank of America (BAC, Fortune 500).

Bitner, like so many other subprime lenders, was drawn to the field by the fat profits it promised - these loans paid three to five times more than prime loans. But, says the 41 year-old married father of two, he also took pride in the idea that he was helping people with damaged credit become homeowners.

...
The lack of professionalism, the crazy loans, the finagle factor and the open fraud finally drove Bitner from the business. Although he escaped the worst of the mortgage meltdown, the company he founded did not; it folded in early 2007.

This is the first in the mortgage lender "tell-alls." There will be more to follow - maybe not books, but articles, television shows, and if we are really lucky a Lifetime movie. But the more documentation on what went wrong, the better.

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