Is This Woman The Smoking Gun Of The Mortgage Meltdown?

Meet Tracy Warren. NPR says she’s not surprised by the mortgage meltdown because she was supposed to be in charge of preventing it. Tracy worked for a quality control contractor that reviewed subprime loans for investment banks before they were sold on Wall Street, and her company’s biggest client was none other than Bear Stearns. Tracy says she found plenty of loans to reject. The trouble is, according to Tracy, after she rejected them… her bosses unrejected them.

From NPR:

“I’d see people who were hotel workers saying that they made, in California, making $15,000 a month so that they could qualify for a $500,000 home,” Warren says. “If a hotel worker is making $15,000 a month changing sheets at the Days Inn, everybody would want to do it. It just really made no sense.”

Warren has worked in the mortgage business for 25 years, the past five in quality control. Most recently, she was a contract worker for a company called Watterson-Prime, which did loan audits for investment banks. She says their biggest client was Bear Stearns, which recently all but collapsed because of its exposure to bad loans.

Putting Bad Apples Back in the Barrel

Warren thinks her supervisors didn’t want her to do her job. She says that when she would reject, or kick out, a loan, they usually would overrule her and approve it.

“The QC reviewer who reviewed our kicks would say, ‘Well, I thought it had merit.’ And it was like ‘What?’ Their credit score was below 580. And if it was an income verification, a lot of times they weren’t making the income. And it was like, ‘What kind of merit could you have determined?’ And they were like, ‘Oh, it’s fine. Don’t worry about it.’ “

After a while, Warren says, her supervisors stopped telling her when she had been overruled. She figured it out by going back later and pulling the loans up on her computer.

“I would look every couple of days, and just see, if it was a loan that I thought was a bad loan, I’d go back and see if it was pulled.”

About 75 percent of the time, loans that should have been rejected were still put into the pool and sold, she says.

NPR says Tracy’s story isn’t the only evidence emerging that points to Wall Street. According to one report, some investment banks agreed to reject only a certain percentage of loans — regardless of how many were actually bad.

Loan Auditor: Supervisors Covered Up Bad Loans [NPR]
(Photo: Getty)

Comments

Edit Your Comment

  1. mwwilk says:

    Ms. Warren should write a book. I’m sure there would be a lot of legal hurdles to deal with in terms of naming names, etc, but my lord what a bestseller that would be.

  2. I would love to see her do a very public media tour and write a book.

  3. fluiddruid says:

    Ha. I had a similar problem working at a huge corporation – I would give job interviews and decline applicants, but I’d be overruled by my boss. Then, I’d be called to task for hiring unqualified people.

  4. cotr says:

    makes me want to shower for just financing my car with Chase.

    sweet deal though.

  5. pinkbunnyslippers says:

    @mwwilk: agreed! It’d read like the Ken Starr report!

  6. lightaugust says:

    Yeah, yeah, yeah. Everyone’s a whistleblower after the damage is done. It’s nice that she thought it was wrong while it was happening, but come on…

    It’s like Iraq. Everyone was always against the idea, but somehow it happened anyway. Funny. I’m sure three years from now, some oil executive with a conscience will surely come out and say how wrong the price gouging in the late 00s was.

  7. csdiego says:

    @lightaugust: Yeah, yeah, she could have blown the whistleblow earlier, like thousands of other people in the mortgage industry. At least she was trying to do the right thing at the time by rejecting the crappy loans.

    For the record, I always was against the Iraq invasion, and so were a lot of people.

  8. Sounds like every bank where there’s a “Credit vs. Officer” conundrum. Usually the volume group wins, since the people that are compensated based on volume push a lot harder than those who earn flat salaries based on objectivity.

  9. kidgenius says:

    @lightaugust:

    I agree, but also in hindsight, would it have made much difference? If someone came out and tried to blow the whistle when times were good, everyone would just say “No, it’s fine, these people deserve a home. Besides, the market is only going up and they’ll always be able to make their payments.”

  10. lincolnparadox says:

    Technically, I don’t think anything criminal has occurred. Granted, screwing up the US/Global economy to make a few million could easily be described as “treason.”

    Personally, I hope these supervisors are audited every year for the rest of their lives.

  11. Serpephone says:

    Very, very shameful. :-(

  12. B says:

    @lincolnparadox: If the companies knowingly misrepresented the quality of the loan bundles, that’s fraud, and a criminal act. It’d be tough to prove though.

  13. buckfutt says:

    Uh, ‘scuse me, but the borrowers were also committing fraud by overstating their incomes. That doesn’t excuse the lenders from doing proper due diligence, but it took two to tango here, and “Wall Street” isn’t solely at fault. The people who knowingly lied about their finances to get loans sure as hell don’t deserve to get off the hook because they aren’t easily classifiable as “eeevil” corporations.

  14. bjarmson says:

    So much of high finance and big business is just a semi-legal con game (the oil companies have been in collusion since the 30s when actual market competition almost drove them bankrupt). Until upper level management types and CEOs start doing some serious time for this kind of shit, nothing will change. Upper management types realize the edge of illegality they slide along, but they protect each other because they know if this money-funneling system (into their pockets) collapses, they’ll either be in jail or forced to find menial work.

  15. Red_Eye says:

    What you mean to tell me that the uber rich are corrupt and greedy and will stop at nothing to get more wealth? Say it aint so Santa!…. Santa…? Santa..?!?!?!?!

  16. SamTheGeek says:

    @B: In the NPR show (I was home sick today, and heard the story) they talk about how Wall Street would be liable for massive wire fraud, and that the DOJ is currently opening an investigation into their actions. It would be one of the biggest criminal cases in history, because not only would the companies be liable, but individual workers as well. There’d be thousands of defendants. Unfortunately, many of them will go unpunished, although enough of them have already lost their jobs and defaulted on THEIR mortgages, which is sufficient punishment.

  17. Red_Eye says:

    @lightaugust: “It’s like Iraq. Everyone was always against the idea, but somehow it happened anyway.”

    Thats what happens when the people don’t rise up and confront their petty dictators. You decide which country I mean.

  18. B says:

    @buckfutt: Except, of course, nobody’s letting them off the hook. Also, the borrowers wouldn’t have been able to lie about their income if Wall Street hadn’t changed the rules. Not to mention there is a lot of evidence of mortgage brokers either encouraging the borrowers to lie about income or falsifying records without the borrowers’ knowledge

  19. @Red_Eye: I see what you did there.

  20. Hambriq says:

    @lightaugust: I agree with your post wholeheartedly. This news would have done us some good two years ago. But right now it just seems to me like someone wants to ease their conscience a little bit for standing by while things like this went on.

    Kudos for the Iraq metaphor, too.

  21. Hambriq says:

    @Hambriq: Did I really just call that a metaphor? Whoops.

  22. cubejockey says:

    Why does “Wall Street” (rich white people) think everyone below them is a thief when they were the one’s who “threw the bad apples back in the basket” for that bonus back in the nineties?

    Shaddup you got yours.

  23. The blame doesn’t fall just to one party. Isn’t a loan app a legal document? If borrowers were lying about their income, aren’t they breaking a law? And isn’t it the lenders job to verify incomes? The list of questions goes on and on.

    The more I learn about this fiasco, the more it sounds like everyone’s eyes were bigger then their stomachs.

  24. The 60 Minutes episode this past Sunday had a piece about the mortgage crisis. It was originally aired in January, but updated this month. I didn’t see the original in January, but it was very interesting. Here’s the print counterpart.

  25. MsClear says:

    Lemme guess. The little guy will take the fall and the blame? The rich and powerful will get their asses covered, as the taxpayer’s expense?

    I’m psychic I tells ya, psychic.

    FTR, I think housing prices need to fall to realistic levels that match up with average incomes. In general, I’m opposed to bailouts for the big or small.

  26. @camelontherun: When I made the last payment on my Chase card and let my wife put it in the shredder, I felt as if I had just taken a hot shower.

  27. @MsClear: In order for that to happen, builders need to start building more realistic-sized houses again. I’d say somewhere in the 1200-1800 SF range.

  28. Me - now with more humidity says:

    They won’t go after individual buyers — too much work for too little payoff. They might lean on a few to establish a pattern so they can bust a bigger broker, then lean on them to bust lenders, then the packagers, etc. But the real PR payoff is in busting the big fish.

  29. @MsClear: I’m with you, overall.

    I remember my in-laws recently talking about their first home…it cost “more than they earned in a year, put together” (and that was a huge commitment). These days, 3-5x annual income is not unusual, because that’s all that’s out there, even in middle-class areas.

    I’d absolutely be a fan of “less house, more yard”. With boomers driving the market and land becoming more expensive, the trend is the opposite.

  30. Hambriq says:

    @Steaming Pile:

    An 1600 SF house in the neighborhood next to mine runs you about $450k. It doesn’t really seem like the only problem is the size of houses. Granted, I don’t live in a high-expansion area like California, but even still, the problem doesn’t seem like it’s with house size, it seems like it’s with over-valuation.

  31. khiltd says:

    And it was like 75% of the people who shouldn’t have been allowed to graduate from high school were like given diplomas and like put in charge of like money.

  32. MsClear says:

    @ Steaming Pile

    We’re hoping to buy something in the 1000 sq/ft range, or even a bit less. But I agree with you about builders. Mega houses have to go. And they will, what with the cost of energy.

  33. Wormfather says:

    This is a good time to state that my fiancee might leave me because her credit score is 785 and mine is 650ish. Honestly, I dont blame her, we’re looking at home loans at the moment and I’m going to cost us $60,000+ over the course of the loan.

    /j/k, she loves me and my score should be climbing soon, they gave me a card at 18, I never thought that that could be a bad thing, eeesh. In fact how do you give an 18 year old $25K in credit, that just doesnt even make sense. Oh, because they knew I’d eventually pay it pluss $8K. Anyway, I digress, yeah, the home loan industry has come down a bit off of it’s coke snorting Ex popping days of the early 00s.

  34. Wormfather says:

    @Steaming Pile: “Realistic sized houses” Wow, that’s awfully socialist of you. Ya know, to decide whats realistic for other people.

  35. chewiemeat says:

    I love stories like this. I love to see people losing their homes, when they can’t afford them.

    I know it sounds mean, but it isn’t. If you bought into a huge home that you couldn’t afford, you were also driving up the prices for the rest of us. Now that reality is crashing down on all of you who needed 6,000 foot homes with eight bathrooms on your $2,000/mo income, it’s going to slowly become more affordable for the rest of us who didn’t want to go into absurd debt beyond what we could rationally afford (presuming we aren’t forced to bail your stupid asses out).

    As for scores and fiances. Problem solved. Don’t get married. Duh. I wouldn’t marry someone – – much less someone with bad credit and poor financial habits just like I wouldn’t form an incorporation between my business and a failing business with no business plan, incoming and a massive amount of debt.

  36. jscott73 says:

    What am I supposed to say to myself in my head when I read “00s”, as in “say how wrong the price gouging in the late 00s ” or “coke snorting Ex popping days of the early 00s”. The “naughts” or what? Just curious.

  37. antisane says:

    It’s a terrible thing… for everyone else :P

    Thanks to the mortgage/housing crash I can now look at houses that were way out of my price range just 5 years ago :)

  38. B says:

    @jscott73: the aughts. Then you can feel all British.

  39. choinski says:

    @chewiemeat: @chewiemeat: I have to agree with you. This whole mess is the inevitable correction for an America that feels entitled to wasteful overconsumption, and a corporate economy willing to enable it.

  40. jscott73 says:

    @chewiemeat: Agreed, I actually wish more people were losing their houses at a faster rate, that way my wife and I would be able to afford a house sooner rather then later. I know there are a lot of other issues involved with this kind of stuff but the prices we are looking at are still unbelievable, it needs to be like 15-20% lower before the prices even start to make sense.

  41. shockwaver says:

    Bailouts piss me off.. because all it’s doing is slapping the people in the face that realized that they can’t afford a 1.5 million dollar house making minimum wage at McDonalds. People that worked hard, and took out a mortgage they could afford on a home that was small. Are they going to get anything? Not a chance.

  42. trk182 says:

    @cubejockey: Why does “Wall Street” (rich white people) think everyone below them is a thief when they were the one’s who “threw the bad apples back in the basket” for that bonus back in the nineties?

    Shaddup you got yours

    Wow so all poor people are black in your world too? That has to be one of the most racist statements I’ve ever seen posted here.

  43. CumaeanSibyl says:

    @kidgenius: Yes, exactly. If her bosses were rejecting her decisions, could she have found someone else to listen to her?

  44. trk182 says:

    @khiltd: And it was like 75% of the people who shouldn’t have been allowed to graduate from high school were like given diplomas and like put in charge of like money

    Are you from the valley? Fursure dude totally.

  45. BigElectricCat says:

    @buckfutt: “Uh, ‘scuse me, but the borrowers were also committing fraud by overstating their incomes. The people who knowingly lied about their finances to get loans sure as hell don’t deserve to get off the hook because they aren’t easily classifiable as “eeevil” corporations.”

    And they won’t. They’ll likely go into foreclosure (losing their houses and taking a significant hit to their credit rating), or else have to short-sell (losing their houses but preserving their CRs), or possibly having to go through Deed-In-Lieu process (as short-selling above).

    They lose their homes in any event, and will quite possibly take a significant hit to their CRs. That’s hardly ‘off the hook.’

  46. MCShortbus says:

    I love the fact that these companies have become so compartmentalized that one hand (the compliance department) rarely has a clue what the other hand is doing. I find this whole thing morbidly fascinating because the failures originated in a significantly less regulated financial sector (mortgages) and through various shady methods they offloaded the risk. Instead of entirely offloading it, they outsourced it to the good ol’ US Taxpayers who have no choice but to pick up the tab.

  47. Me - now with more humidity says:

    jscott73: Don’t get too happy about huge price drops. When prices drop, so do property taxes, and services have to be cut dramatically. Schools start to suck. Crime goes up because police departments have had to cut back. In addition, more owners walk away from their underwater mortgages, so you have more empty homes and more vandalism and ghettoization.

    I used to have this discussion with people in CA who were dreaming of 50-60 percent drops. There are two sides to every price decline. You want gentle — to give everything else time to adjust — not precipitous.

  48. BigElectricCat says:

    @Me: Absolutely right. In locales where the most precipitous real-estate price drops have taken place, watch for property tax rates and assessments to shoot through the roof. Watch CA and FL in about six months, when towns start to figure out what happened to their property tax rolls. Tax rates will surge, assuming towns/counties don’t start jacking up assessed values.

    Either that, or they’ll stop picking up the garbage and answering the 911 line when it rings.

  49. Mjolnir427 says:

    @khiltd: I don’t think it’s a cause, but it’s definitely a symptom.

  50. jscott73 says:

    @Me: Agreed, which is why I said I know there’s a lot more to it then that, I would like to see it drop fast only to be able to buy a home faster but I know better then that, slower is better. As with the last couple housing bubbles they were symetic about their peak, that is 3 years up 3 years down. This last one was about 5 years up, 2000-2005, so five years down, 2005-2010. I said this early last year, seems to be on track for now.

  51. pastabatman says:

    OK, so are we done with bare teeth capitalism without regulation? If not when?

    Can somebody anywhere show me an example of when the free market forces have EVER worked. Ever!?

    And I’m not talking about the free market of ipods, dell computers and livingroom furniture. I’m talking about the heavy duty real serious stuff. not ‘luxury’ items. that’s not a fair example.

    As far as I know – which may very well be not that much – i have never seen market forces actually work. it ALWAYS ends the same way. “Somebody” takes it ALL. they take everything that’s not bolted down.

    I’m not talking about communism here, I’m talking about regulation that prevents monolithic entities from pulling the rug out from under everyone else on the planet time and time again.

    But I’m serious. When has market forces worked? aka Laissez-faire.

  52. cef21 says:

    @BigElectricCat: When you should be going to jail on felony fraud, losing the home you never really should have been in to begin with and a hit to your credit rating is getting off easy.

  53. Xay says:

    @BigElectricCat: FL has already opted for the latter by passing one set of property tax cuts, amending the constitution via referendum for a second set and adding another constitutional amendment via referendum to the ballot this fall.

  54. cef21 says:

    @pastabatman: Are you kidding?

    Economist Joseph Schumpeter in 1942: “Electric lighting is no great boon to anyone who has money enough to buy a sufficient number of candles and to pay servants to attend them.

    “It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to a rich man.

    “Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.”

    (from cafehayek.com)

  55. pastabatman says:

    @cef21:

    Oh, I’m not. Are you? SHOW me when it worked. When?

    It brought silk stockings to the working class? that’s all you got?

    How about electricity for the lighting. That’s an excellent one. Free market Electricity. Enron. Genius. they took it all and then some.

    It works amazingly well for boots and pants because these are things based on simple supply demand rational actor stuff. Either you buy it or not. Either you get cheap ones or expensive ones.

    Motorcars? Regulated. Why? because if we didn’t you would be driving around on a 2×4 with rusty nails if it were cheaper for the maker.

  56. csdiego says:

    @jscott73: I’m a fan of “the double-oh’s”, myself.

    But so far what I’m hearing most is the boring “two-thousands”.

  57. bjarmson says:

    It’s informative about the whole free market/enterprise system, promoted by corporate and political shills as if it’s some sort of natural law and ultimate good, that when mega-corps are threatened with the results of not being able to “compete in the market,” they expect government bailouts, tax-breaks, etc, etc. The US system has long been shifting towards corporate socialism and individual free enterprise.

    Lobbyists constantly push for lower corporate taxes (already at all time lows), government exemptions from regulations, and all sorts of other rights for corporations. The oil companies make record profits year after year, yet still get all manner of tax breaks and other government gifts. We’re playing with two different sets of rules, one for corporations, one for individuals and small businesses. Until corporations have to play by the same rules as us “little people,” nothing will ever change.

  58. csdiego says:

    @buckfutt: The borrowers didn’t always initiate the lying about their incomes; often the income info on applications was doctored by the lenders. And yeah, sometimes people signed off on statements that weren’t true, either knowingly or else just because they were dumb enough to trust someone else. But they can’t take all the blame.

  59. snowmentality says:

    @Wormfather: That stupid freecreditreport commercial is spreading misinformation. Your credit score won’t affect your girlfriend’s. Your credit reports and scores remain entirely separate after marriage. The only way info will be shared is on joint accounts. If you want to buy a house together, you might get hit (as you say) — but there are things you can do. If she can qualify to buy the house with her income alone, she should buy it in her name (you can be put on the title later).

    Your finances do not automatically merge, contrary to popular belief. You are jointly responsible for debts you run up during marriage, but not for debts you had before marriage.

    In fact, she may be able to help you build your credit back up, by co-signing on a credit card for you. Her good credit will help secure your card (and get you a lower interest rate than you could get alone), and you can build your credit back up by using and paying it off every month.

  60. joellevand says:

    @Wormfather: I know how that goes with the (in my case, husband) with the good credit score and me being dead weight.

    All in all, though, while Wall Street sucks and is very, very much at fault, you have to wonder at what point does the idea of entering into an agreement for more money than you’ll make in five or ten years pre-tax and an agreement in which the terms will change further input from you (re: ARMs) sounds like a good idea. For that matter, when does a loan of any form where you start off only paying the interest with nothing toward the principal sound like a good idea? When does lying about your income sound like a good idea?

    As I said at an interview to become a financial planner, they really should teach basic personal finance in schools so that people can take personal responsibility for their financial futures and make plans to put them on the road to fiscal solvency. The interviewer replied, “Yes, but then we’d all be out of a job,” and we laughed.

    I got a letter a few days later saying I’d failed my behavioral interview, for some reason. Hmmm.

  61. cef21 says:

    @pastabatman: Most car safety features started off as options. Electronic Stability Control is the latest thing — it started off in Mercedes, BMWs and Lexuses. But, now Ford and Toyota have announced that all their North American cars would be equipped with it by 2009. They’re not doing it because of a government mandate — they’re doing it because it will help them sell cars. The free market at work.

    I know a company that is developing artificial organs — it has already implanted a uterus in a mouse which has given birth, and functioning bladders in people. They’re working on a spleen. The founders profit motive means that now people who rupture their spleen will have a ready replacement, and fewer people will die.

    There are millions of examples of the free market making the lives of everyday people better, not just the rich.

  62. tcp100 says:

    Ok, see the problem here is things aren’t black and white.

    Even if a loan app was ‘doctored’, a hotel worker should realize “Hey, that’s a $500,000 house. I make $26,000 a year. That doesn’t sound right.”

    Sure, the loan officer is guilty of fraud – but the applicant is complicit in being financially irresponsible, and shouldn’t be bailed out.

    I’ve heard the argument before. “Well, if they wanted me to pay my bills, they shouldn’t have given me the account!”

    I’ve heard this with financially immature people talking about all sorts of things, from credit cards, to cell phones, to their gas bill.

    BOTH sides got caught up in the “Well, everbody’s doing it, so why shouldn’t we” thing. Word to the wise: that’s just musical chairs, and the music can stop at any moment. It’s still your problem if you end up in trouble.

    A good article for people who think the loan applicants were blameless..

    [articles.moneycentral.msn.com]

  63. Me - now with more humidity says:

    JScott73: Duly noted 8-)

    To those of you who think walking away is a moral crime, remember that the lender and borrower agreed to a contractual remedy if the borrower can’t make payments — the lender will take possession of the house in lieu of full payment of the mortgage. Period. And in California, that’s a non-recourse loan — the lender can’t go after the borrower for the difference. It’s a purely business decision on both sides.

  64. stanfrombrooklyn says:

    Seems to me here is the chain of guilt:

    1. Borrower lies about income in order to get a mortgage.
    2. Mortgage broker lies to borrower in order to sell them a high-fee high-commission mortgage. Mortgage broker doesn’t verify income either.
    3. The credit rating companies that are supposed to vet these mortgages do nothing but just push these mortgages through.
    4. Companies that issue these mortgages immediately package them and sell them as “good mortgages” to Wall Street banks
    5. Wall Street banks – knowing these mortgages are crap – slice and dice these things into fancy “financial vehicles” that nobody understands. They are sold as safe investments to peoples all over the world.
    6. Congress and/or the Fed ignore many early warning signs and do nothing to regulate the market because anything that smacks of regulation is viewed by the Bush Adminstration (and the Democratic Congress) as just one step shy of Communism.

    And now we sit here.

  65. cef21 says:

    @stanfrombrooklyn: I think you have a few facts wrong…

    #2: fees generally weren’t that high. Commissions were nice, but most of the money way made on volume.

    #3: This actually goes after #5 — the credit reporting agencies were supposed to rate the bonds after they were sliced-and-diced.

    #5: They are sold all over the world. BUT, they’re generally only sold to sophisticated investors like banks and brokerage houses, which have the opportunity to do due diligence on the deals (and, in many cases do), but buy them anyway. Most are not sold as completely safe investments — they have varying levels of risk, but everybody understates that risk.

    With regard to #6, Congress during the late ’90s actually made it worse by actively encouraging banks to make loans to unqualified borrowers, through things like the “Community Redevelopment Act” (basically, conditioning approval of bank mergers on the banks making loans to people in poor neighborhoods).

  66. Buran says:

    @Wormfather: Really? If something bigger is “realistic” (that’s what I read into this whole thread), then however did we survive when the average house was 800 square feet, as they are in my late-20s-era neighborhood? 1500-2500 square feet is perfectly reasonable for 2-3 people.

  67. Chaosium says:

    “Tracy worked for a quality control contractor that reviewed subprime loans for investment banks before they were sold on Wall Street, and her company’s biggest client was none other than Bear Stearns. Tracy says she found plenty of loans to reject. The trouble is, according to Tracy, after she rejected them… her bosses unrejected them.”

    This is why libertarian “certification agencies” will all fail.

  68. dakotad555 says:

    I used to be an Underwriter for a sub prime lender.(I quite before things went insane) and experiences like the one listed in this article were common place. All of the good (rational) UWs at my company made a stink about getting overruled on lending decisions, and having steaming piles of SH!T make it to closing. I personally had multiple loan decisions over ruled EACH WEEK. I would decline a loan for overstated income, for bad credit or what ever. Next thing you know, the Account Executive who had brought that loan in would take it to the Sales Manager, who would take it to an Operations Manager, and they would almost always approve the loan.

    It really didn’t matter how many instances of fraud or over stated income, or bad borrowers that you found, the loans would get approved. I complained, and even looked into contacting people outside of the company. I honestly with I had.

    Sales ran the place. What ever sales wanted, they got, at the expense of the investors, (who it looks like were just as stupid as my company) and ultimately the entire US economy. Sad. Really sad, and so avoidable.

    Instead, after making several complaints, including some in writing, and having all of them ignored, I decided to look for honest work.

    I’m now a Finance Manager for a not-for-profit. I go home and sleep well at night.

  69. quail says:

    @tcp100: I agree with you up to a point. The financially resposible person will figure out there’s no way they can afford 1/2 million dollar house with an average joe salary. But the industry is in the business to squeeze every scent out of you they can. During the market’s hay day who didn’t hear that you could buy a house you couldn’t afford and then sell it a few months later with a 10% or 20% profit. The industry sold the idea and the media too. No, I’m not laying the blame on anyone other than those who got mortgages they couldn’t afford and those morons who thought nina loans were smart; but the young and niave were easy targets.

    And I’m still scratching my head over banks and lenders who push that you should get a home equity line of credit. Unfortunately those peddlers are still prevalent.

    Where I’m pointing my jaundiced eye next is the commodities markets. These markets are insane. It’s like the money that ran away from dot coms and ran to real estate are now running to commodities. Prices are over inflated for flour and rice and the rest of it. Yes, there’s legitimate worry over shortages, but the suppliers and the end buyers are all looking at the cost in relation to historic activity and they’re shaking their heads. Seems that there’s a plethora of index funds buying up and inflating costs as a speculative gamble in the commodities sector. It has the ear marks of another subprime meltdown. Unfortunately it’s going to squeeze everyone in the meantime and wreck havoc.

  70. TheSpatulaOfLove says:

    The sad part is, I had to do one of these creative loans. My previous company made me transfer states, but did very little to help me with the move. I was stuck with a house in one state and had to get another house in the state I was moving to. (Why we didn’t rent during this time is a very long and painful story)

    So, I had to take an 80/20 loan. It’s not as bad as the ARMS, but I was forced to buy an over-inflated priced small home, way the hell out, and now after 2 years of occupancy, I’m now in the hole $55k based on ‘current market values’.

    Who’s left holding the bag? Guys like me. I pay my mortgage (grudgingly) on time, knowing full well that I’m just throwing money into a black hole. I can afford my mortgage without a major struggle, but I sure feel like it’s getting me nowhere.

    Now my family is rapidly expanding, and I would like to get a larger home closer to my new job. I’ve been told I can either short-sell and try to buy another house before it hits my credit, or I have to come up with at least 6% down plus the negative equity to get into a bigger home (yeah right). WTF am I supposed to do now?

    Sure, I could walk away and be another statistic, but then where will that leave me?

    I’m open to any suggestions. I looked at housing swap sites and I’ve even considered calling my mortgage company to ask about swapping for a foreclosure that I could fix up, provided it gave me the space requirements my family additions require. Sadly, I see no possible solutions and am stuck.

  71. Trai_Dep says:

    @pastabatman: Actually, commodity markets work well w/o regulation (except for anti-fraud or collusion, ‘natch). Open access, multitudes of buyers & sellers, transparency: it’s an economist’s dream.
    It is, quite literally, the only market where laissez-faire economic policies function. The problem, naturally, is that the unwashed masses see it work in one limited case then want to apply it to everything else.

  72. P_Smith says:

    @Buran: Really? If something bigger is “realistic” (that’s what I read into this whole thread), then however did we survive when the average house was 800 square feet, as they are in my late-20s-era neighborhood? 1500-2500 square feet is perfectly reasonable for 2-3 people.

    This begs the question of why the “market” isn’t creating homes of different sizes – 800-1000 sq. ft., 1000-1500, 1500-2000, etc. One size doesn’t fit all.

    Or more likely, the housing market is becoming like the “rent to own” scam industry, set up to fail so the renters (one can rarely call them buyers) are never able to keep up with the prices. Instead of renting at lower rates, people are encouraged to waste their money on “mortgages” that they will never have the ability to pay off. By having houses of only one size, home seekers have no choice.

    As much as I hate the lack of privacy my friends have/had, I think many Indian emigres have the right idea by putting an entire family under one roof. It’s much easier to save when everyone is sharing in the cost of one building, rather than people moving out when they’re 20.

  73. TechnoDestructo says:

    @Trai_Dep:

    THANK you…sometimes it seems like no one else GETS that…that “The Free Market” as they think of it is something that doesn’t work in most circumstances, and only barely exists.

    @P_Smith:
    Better to sell 50 large houses at a higher margin than 100 houses at a lower one. Also, seems like hardly anyone is building their own homes or having them made to order anymore. (I mean hell, people were selling just ANYTHING, why bother waiting…just build it and they will come, right?)

    Sigh…at least in some neighborhoods where there are a lot of identical houses, as long as you don’t have homeowners’ associations homogenizing everything, things get individualized over time. There are a bunch of (old) houses on the same plan as my dad’s in his neighborhood, that look WAY different 25 years on.

    So maybe there’s some hope for Henderson, NV and the like. I mean, in the meantime, I can just see someone staggering into a house drunk and getting shot because they MEANT to go to their identical house two doors down.

    Fucking housing developers make my ass pucker.

  74. Buran says:

    @TechnoDestructo: Here, although we do have a couple of oversize houses that are larger than the surroundings, many of the homes here have been added on to or otherwise changed over the years instead of being knocked down. Mine is still its original size but the one next to it has been extended backward (so it looks the same from the street). A lot of them are remodeled on the inside; I want mine to be remodeled as well and I’m going to start thinking about that this year.

    I think a lot of people fall into the “bigger is better” trap. I love my small (comparatively) heating/cooling bills that come from living in a small house, however, and if I can reclaim some space by finishing the basement and/or changing some of the furnishings and maybe expanding the kitchen some, it’ll be even better. 600-800 square feet is fine for one person.

  75. Hambriq says:

    @pastabatman: You’d be hard pressed to find a purely free market economy that works because you’d be hard pressed to find a purely free market economy that even exists. This “bare teeth capitalism” you speak of is hardly unregulated.

    Whether or not pure capitalism works is something best left to the economic theorists, because pure capitalism (and pure anything, really) is pretty much solely relegated to the realm of theory. It barely exists in real life.

  76. garbagehead says:

    Sustainable housing! Maybe after the catastrophic depression this muck-up (along with the oil market fiasco) creates we can all crawl out of the ditch and live in proper houses.

    Who really needs a den? C’mon, get over yourself…

    If anyone wants to feel less depressed take a look at GOOD magazine’s article on the green housing dev ideas of the late R. Buckminster Fuller –> [www.goodmagazine.com]

  77. I blame CarrotTop and those damn over-inflated muscles.

  78. Amelie says:

    This American Life did a great show on 5/12 “The Great Pool of Money, which explains the whole thing: “Why did banks make half-million dollar loans to people without jobs or income? Why is everyone talking so much about the 1930s? It all comes back to one thing.”

    This woman does not need to write a book, because it’s not some big secret that she’s unearthed.

  79. battra92 says:

    At least the good news out of this are the people like me who work hard and save every penny (living at home unfortunately) can see the prices of houses and land drop down to a more realistic number and hopefully I will be able to buy one in a year or so.

    Granted, I’m one of those strange people who believes in having more than 20% to put down on the mortgage but whatever.

  80. Wormfather says:

    @Buran: Dude, relax. All I’m saying is that some of us have different needs. We live in a capital society where we can purchase the best we can afford (if we like), we’re not pigion holed into someone elses opinion of our need.

    My point: my fiancee and I are talking about children, she wants like 4, I want a dog (I know, talk about the negotions). Anyway it looks like we’re going to go with 2 kids and we already have a dog. Now we are going to want all of them to have they’re own room. That’s a three bedroom house right there. Then there’s the fact that she’s from the UK and we’d like to have a place for her sister, dad, etc to stay when they come over the pond. Four Bedroom house.

    We both like to cook and work better together cooking in a bigger kitchen. Oh and we also entertain a lot.

    We’re not doing all that with 1,000 feet, we can afford 1,800 so that’s what we’ll go with. Capitalisim FTW!

    In closing, I understand that a lot of people on this site equate being very frugal with being a good consumer, this statement isnt meant for all of those people, but it should be noted that it is acceptable for frugality to give way to practicality, so long as it does not get in the way of financial solovency. That’s just my 2 cents.

    And I’m sorry, but I’m not crammin

  81. Wormfather says:

    @Hambriq: But we know that socialism and capitalism doesnt work, that’s for damned sure.

  82. Wormfather says:

    @Buran: Disclaimer: I read your comments one more time and there is a chance that we aggree on semantics but not on principle.

  83. Wormfather says:

    @snowmentality: Oh that stuff I knew (I was an economics major). In fact I was explaining to her over the weekend that it may be more prudent for her to get to the loan and then add me to the title.

  84. johnva says:

    @bjarmson: “Corporate socialism and individual free enterprise” has a less awkward name: fascism.

  85. P_Smith says:

    @Wormfather: My point: my fiancee and I are talking about children, she wants like 4, I want a dog (I know, talk about the negotions). Anyway it looks like we’re going to go with 2 kids and we already have a dog. Now we are going to want all of them to have they’re own room. That’s a three bedroom house right there. Then there’s the fact that she’s from the UK and we’d like to have a place for her sister, dad, etc to stay when they come over the pond. Four Bedroom house.

    How often do the relatives come over? How long do they stay? Unless it’s more than once per year and for weeks at a time, you’re paying for a room you’re not using. In terms of cost effectiveness, three rooms may serve you better.

    Over the life of the mortgage and with the cost of the house, how much extra are you paying versus a three bedroom house? Then calculate how much it costs for a hotel room for the time of their visit. For example, if the difference in monthly payments is $200 and they stay for three weeks, at $100/night for a hotel it would actually cost less than the $2400 extra you’re paying for the mortgage.

    Unless they’re coming often and staying for significant lengths of time, you may be losing money. And asking them to stay in a hotel that you pay for isn’t exactly an insult. Even renting an apartment for a month could be cheaper. I do that on holidays, rent for a month but stay 2-3 weeks. It costs a hell of a lot less than hotels.

    Please remember this is a suggestion and a hypothetical situation, not an order. ^_^

  86. Wormfather says:

    @P_Smith: I presented the same theory to her but then after I regained conciousness, she reminded me that her sister comes twice a year, her dad is retiring and planning on comming over the states a lot more often, especially if we have kids. And then we have friends spotted over the US and typically they’ll stay with us when they’re in town. We do a lot of entertaining.

    I explained that they could always stay in a hotel, we’re not required to house our friends, once the swelling in my lip receided she reminded me that if I didnt like it we could always put moving to the UK back on the table and let me tell you, in the south of England the people are great, the scenery is untouchable but the food is just outright atrocious. Oh and you only get 4 channels on the TV, FOUR! I cant go from 600 to 4, that’s worth $5K to me right there.

  87. BigElectricCat says:

    @cef21: “When you should be going to jail on felony fraud, losing the home you never really should have been in to begin with and a hit to your credit rating is getting off easy.”

    Ridiculous. In the cases discussed at the start of this thread, there’s clearly enough malfeasance to go around on both sides. In fact, I’d wager that in many of these cases, the sales agents and mortgage firms acted in willing and knowing collusion with any ‘buyer fraud’ you might care to point out.

    It appears to me that you haven’t bothered to read much of this thread.

  88. johnva says:

    @BigElectricCat: Well, it’s still fraud for the applicant to inflate income, etc, even if the sales agents and such told them to do so. People should realize they can’t afford a $500,000 mortgage on $2,000/month. That being said, I don’t think it would be really practical or wise to go after homeowners with fraud charges. There is probably no way to prove that they did it willfully, especially with all the cases of mortgage brokers actually altering numbers on applications, etc.

  89. BigElectricCat says:

    @johnva: “Well, it’s still fraud for the applicant to inflate income, etc, even if the sales agents and such told them to do so.”

    It’d also be fraud if the sales agents and such *changed* the income figure on the application. Tales of that have been told here on Consumerist.

    I find it telling that you’re torqued at the homeowners, but not at anyone else.

    @johnva: “People should realize they can’t afford a $500,000 mortgage on $2,000/month.”

    Sales agents should realize that, too. Don’t you think?

    @johnva: “That being said, I don’t think it would be really practical or wise to go after homeowners with fraud charges. There is probably no way to prove that they did it willfully, especially with all the cases of mortgage brokers actually altering numbers on applications, etc.”

    Precisely my point. You certainly seem hot to go after homeowners, but not quite so assiduous when it comes to the sales agents and mortgage brokers themselves. That’s why I said there was blame enough to go around.

  90. bjarmson says:

    @johnva: I don’t think were quite at the fascist state yet, though the Bush regime has certainly done all it could to move us in that direction. If we were, we couldn’t post this kind of stuff publicly without being hauled off in the middle of the night to be disappeared or tossed into concentration camps/gulags. Nacht und Nebel (night and fog) has yet to become the standard way of dealing with malcontents (to the consternation of hard-core bushites).

  91. parrotuya says:

    Economic damage by these thieves costs the economy billions of dollars. An armed robbery of 7-11 only costs about $20-40 and the robber gets 15-20 years. I think these sub-prime criminals should be water-boarded!

  92. garbagehead says:

    It seems to me that the Mortgage Meltdown issue has it’s roots in the justice system and it’s inability to cope with collusion.
    Sure prosecuting some of the guilty parties (Banks applicants w/e) might teach some people a lesson, but it will not keep this sort of crime from happening again.
    We need to change the cause, not the effect.

  93. Zephyr7 says:

    It may have been a lot more effective if she’d blown the whistle while it was happening…

  94. FrankReality says:

    I know a fellow who worked in the business in more or less the same job and is writing a book. His blog is [captaincapitalism.blogspot.com]

  95. SinisterMatt says:

    @B:

    I like “aught.” I’ll have to start using it.

    Cheers!