Greedy Mortgage Lenders Set To Get Golden Bailout?
Bank of America announced that it will buy Countrywide Financial, one of the mortgage institutions involved in the subprime debacle, thus increasing the power of this financial giant. Federal regulators should step in and stop this transaction.
According to the excellent article by Gretchen Morgenson at the New York Times, "...few companies benefited more from the mortgage mania than Countrywide, among the most aggressive home lenders in the nation. As such, the company is Exhibit A for the lax and, until recently, highly lucrative lending that has turned a once-hot business ice cold and has touched off a housing crisis of historic proportions.
“ 'In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,' said Ira Rheingold, executive director of the National Association of Consumer Advocates. 'And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.'
"But Countrywide documents show that it, too, was a lax lender. For example, it wasn’t until March 16 that Countrywide eliminated so-called piggyback loans from its product list, loans that permitted borrowers to buy a house without putting down any of their own money. And Countrywide waited until Feb. 23 to stop peddling another risky product, loans that were worth more than 95 percent of a home’s appraised value and required no documentation of a borrower’s income.
"The company’s incentive system also encouraged brokers and sales representatives to move borrowers into the subprime category, even if their financial position meant that they belonged higher up the loan spectrum. Brokers who peddled subprime loans received commissions of 0.50 percent of the loan’s value, versus 0.20 percent on loans one step up the quality ladder, known as Alternate-A, former brokers said.
"According to the former sales representative, Countrywide’s big subprime unit also avoided offering borrowers Federal Housing Administration loans, which are backed by the United States government and are less risky. But these loans, well suited to low-income or first-time home buyers, do not generate the high fees that Countrywide encouraged its sales force to pursue."
So, what happened to the founder of Countrywide, Angelo Mozilo, who fought regulatory lending laws and created a crisis for his company and borrowers with risky subprime loans?
Good old Angelo, "became one of corporate America's top-paid executives. Mozilo received about $387 million from pay and stock option gains from 2002 to 2006, U.S. regulatory filings show," from a Reuters article which continues,
"Mozilo could receive about $36 million following the Bank of America sale, according to regulatory filings and compensation experts interviewed by Reuters.
"Other estimates put the amount even higher, with the Los Angeles Times estimating his payout at more than $110 million, including health benefits for life for him and his wife, and "gross-up" payments to cover his taxes."
Avaricious lenders, like Countrywide, did the screwing. What happened to those who got screwed?
The city of Cleveland, reports the New York Times, is suing 21 subprime mortgage lenders including Angelo's company because, "Cleveland is suing 21 of the nation’s largest banks and financial institutions, accusing them of knowingly plunging the city into a financial crisis by flooding the local housing market with subprime mortgage loans to people who could never repay.
"The financial crisis has hit Cleveland especially hard, with more than 7,000 foreclosures in each of the last two years, Mr. Jackson said. Entire city blocks have been abandoned. The city’s budget has been strained by the effort to maintain thousands of boarded-up homes, and by the cost of responding to a rise in violent crime and arson.
"The drop in homeownership, and a steep decline in population — to 444,000 residents in 2007 from almost a million in 1950, according to census figures — has drained Cleveland’s budget. In December, Mr. Jackson announced that the city was unable to borrow money and would be forced to postpone or permanently shelve millions of dollars in public works projects."
New York State is now investigating whether Wall Street bands knowingly withheld subprime data about these complicated mortgage investments. From another Reuters article, "...state Attorney General Andrew Cuomo, was focusing on how banks bundled billions of dollars of exception loans and other subprime debt into complex mortgage investments."
This will be much, much worse than the Savings and Loan debacle and scandal under another Republican president, Ronald Reagan. (See one of my previous postings on this site: Archives, December, 2007, "Bushites Helped Create the Mortgage Crisis," 12/18/07)
Any federal government interventions should only be arranging jail time for the greedy mortgage lenders who created this crisis, not a bailout. No way, no how.
As Paul Krugman stated, "The point, however, is that doing nothing isn't the only alternative to letting the parties who got us into this mess off the hook. Say no to bailouts - but let's help borrowers work things out."
The mortgage crisis is another example of a disaster caused by rapacious lenders and Wall Street high flyers. These are some of Bush's top 2% of have's and have-more's who always make out like bandits because of traditional Republican disdain for regulatory law.
Who suffers and bears the brunt of the debacle? Regular working Americans. Economic inequality, you betcha! Enough is enough.
According to the excellent article by Gretchen Morgenson at the New York Times, "...few companies benefited more from the mortgage mania than Countrywide, among the most aggressive home lenders in the nation. As such, the company is Exhibit A for the lax and, until recently, highly lucrative lending that has turned a once-hot business ice cold and has touched off a housing crisis of historic proportions.
“ 'In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,' said Ira Rheingold, executive director of the National Association of Consumer Advocates. 'And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.'
"But Countrywide documents show that it, too, was a lax lender. For example, it wasn’t until March 16 that Countrywide eliminated so-called piggyback loans from its product list, loans that permitted borrowers to buy a house without putting down any of their own money. And Countrywide waited until Feb. 23 to stop peddling another risky product, loans that were worth more than 95 percent of a home’s appraised value and required no documentation of a borrower’s income.
"The company’s incentive system also encouraged brokers and sales representatives to move borrowers into the subprime category, even if their financial position meant that they belonged higher up the loan spectrum. Brokers who peddled subprime loans received commissions of 0.50 percent of the loan’s value, versus 0.20 percent on loans one step up the quality ladder, known as Alternate-A, former brokers said.
"According to the former sales representative, Countrywide’s big subprime unit also avoided offering borrowers Federal Housing Administration loans, which are backed by the United States government and are less risky. But these loans, well suited to low-income or first-time home buyers, do not generate the high fees that Countrywide encouraged its sales force to pursue."
So, what happened to the founder of Countrywide, Angelo Mozilo, who fought regulatory lending laws and created a crisis for his company and borrowers with risky subprime loans?
Good old Angelo, "became one of corporate America's top-paid executives. Mozilo received about $387 million from pay and stock option gains from 2002 to 2006, U.S. regulatory filings show," from a Reuters article which continues,
"Mozilo could receive about $36 million following the Bank of America sale, according to regulatory filings and compensation experts interviewed by Reuters.
"Other estimates put the amount even higher, with the Los Angeles Times estimating his payout at more than $110 million, including health benefits for life for him and his wife, and "gross-up" payments to cover his taxes."
Avaricious lenders, like Countrywide, did the screwing. What happened to those who got screwed?
The city of Cleveland, reports the New York Times, is suing 21 subprime mortgage lenders including Angelo's company because, "Cleveland is suing 21 of the nation’s largest banks and financial institutions, accusing them of knowingly plunging the city into a financial crisis by flooding the local housing market with subprime mortgage loans to people who could never repay.
"The financial crisis has hit Cleveland especially hard, with more than 7,000 foreclosures in each of the last two years, Mr. Jackson said. Entire city blocks have been abandoned. The city’s budget has been strained by the effort to maintain thousands of boarded-up homes, and by the cost of responding to a rise in violent crime and arson.
"The drop in homeownership, and a steep decline in population — to 444,000 residents in 2007 from almost a million in 1950, according to census figures — has drained Cleveland’s budget. In December, Mr. Jackson announced that the city was unable to borrow money and would be forced to postpone or permanently shelve millions of dollars in public works projects."
New York State is now investigating whether Wall Street bands knowingly withheld subprime data about these complicated mortgage investments. From another Reuters article, "...state Attorney General Andrew Cuomo, was focusing on how banks bundled billions of dollars of exception loans and other subprime debt into complex mortgage investments."
This will be much, much worse than the Savings and Loan debacle and scandal under another Republican president, Ronald Reagan. (See one of my previous postings on this site: Archives, December, 2007, "Bushites Helped Create the Mortgage Crisis," 12/18/07)
Any federal government interventions should only be arranging jail time for the greedy mortgage lenders who created this crisis, not a bailout. No way, no how.
As Paul Krugman stated, "The point, however, is that doing nothing isn't the only alternative to letting the parties who got us into this mess off the hook. Say no to bailouts - but let's help borrowers work things out."
The mortgage crisis is another example of a disaster caused by rapacious lenders and Wall Street high flyers. These are some of Bush's top 2% of have's and have-more's who always make out like bandits because of traditional Republican disdain for regulatory law.
Who suffers and bears the brunt of the debacle? Regular working Americans. Economic inequality, you betcha! Enough is enough.
Posted by Kaz at 1/12/2008 4:24 PM 
Categories: Opinion, greed, Ethics, Economics, Economy, Housing Crisis
Categories: Opinion, greed, Ethics, Economics, Economy, Housing Crisis
Comments