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- Political Discussion / Debate
-- America's Debt = "We're Screwed!"
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| Originally posted by Fir3start3r Wow. That may not sound like a lot but thats $3000-$6000 on a $300,000 home... yea, I can do math sometimes too...  |
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| Originally posted by Shakka the homeowner would rather simply hand the bank the keys and leave. . |
Kaboom!
*bump*
Can you say implosion? Equity holders will be left with jack shit. Any takers for who's next to go?
Thanks for your money, suckaz!
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| New Century, Biggest Subprime Casualty, Goes Bankrupt By Bradley Keoun and Steven Church April 2 (Bloomberg) -- New Century Financial Corp., overwhelmed by rising defaults from borrowers with poor credit records, became the largest subprime mortgage lender ever to fail as it filed for bankruptcy today. New Century plans to sell most of its assets within 45 days, said the Chapter 11 filing in federal court in Wilmington, Delaware. About 3,200 people, more than half the workforce at the Irvine, California-based company, will be fired. New Century said it already agreed to sell its mortgage billing and collections unit to Carrington Capital Management LLC for $139 million. The company rode the U.S. housing boom to become the largest independent mortgage lender to subprime borrowers, only to collapse as interest rates rose and home prices fell. New Century's market value soared to more than $3.5 billion in December 2004, and last year it made about $60 billion in loans. Like rival firms, the company lowered its lending standards to keep business flowing after demand slumped. ``They're clearly going to be the poster child for bad practices in the mortgage industry,'' said Matthew Howlett, an analyst at Fox-Pitt Kelton in New York. ``When all is said and done, the management team will be to blame.'' The court filing protects the company's assets from creditors. They include many of the Wall Street firms that financed its mortgage loans, such as Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group. Shares Fall The company's shares fell 14.5 cents, or 14 percent, to 91.5 cents at 3:59 p.m. New York time in over-the-counter trading. They've fallen 97 percent this year. Late payments on U.S. subprime mortgages reached a four-year high in last year's final quarter, the Mortgage Bankers Association reported. At least 30 home lenders halted operations or sought buyers in the past 12 months, including four that went bankrupt since last November, according to Bloomberg data. New Century ranked second only to London-based HSBC Holdings Plc last year in total U.S. subprime mortgages granted. HSBC said last week it's planning to slash subprime lending operations. The California company said in a statement it obtained $150 million in financing from CIT Group Inc. and Royal Bank of Scotland Group Plc's Greenwich Capital unit. Lazard Ltd., New Century's investment banker, has been shopping the remaining businesses to potential buyers. The loan agreement requires the bankruptcy court to approve procedures for selling New Century's assets by April 10. New Century also agreed to sell Greenwich a portfolio of loans and interests in mortgage-backed securities for $50 million. Quick Sales Quick asset sales may be the only means of ``maximizing returns for stakeholders,'' Holly Etlin, a managing director from AlixPartners LLP, New Century's financial adviser, said in an affidavit filed with the bankruptcy court. In addition to the billing and collections unit, New Century's largest assets include its lending platform. That business consists of a network of 57,000 independent mortgage brokers who locate borrowers and the employee loan officers who handle applications and approvals. The platform also includes computer software and equipment used to analyze applications, as well as 262 retail branches and 34 regional operations centers in 20 states. ``They have an enormous platform, so it wouldn't be a surprise me to see someone come in and take this over,'' Fox-Pitt Kelton's Howlett said. ``You could realize value down the road when market conditions improve.'' Help Wanted The job cuts aim to ``better align the company's cost structure with the current operating environment and to properly size these businesses in preparation for possible sale,'' New Century said in the statement. The company employed about 7,200 people at the end of 2005. For the lending platform to attract an offer, New Century will need to keep as many of the loan officers as possible, said Ron Greenspan, a financial adviser to the creditors of three other subprime mortgage lenders that filed for Chapter 11. ``The value is absolutely contingent on them being able to maintain the key employees,'' said Greenspan, senior managing director in FTI Consulting's Los Angeles office. New Century said in court papers it created a bonus plan that may pay 1,300 employees in the lending unit $7.34 million to stick with the company, and asked permission to pay $15 million owed to workers for regular wages by April 6. ``It is essential that the human beings who are maintaining these businesses for sale have the resources to keep them operating,'' the company said in court papers. Liquidation Harvey Miller, a partner at the Weil, Gotshal & Manges law firm in New York, said New Century likely will be liquidated. ``Finance companies just do not do well in Chapter 11,'' he said, adding that at New Century, ``there isn't much to reorganize around.'' Ownit Mortgage Solutions Inc. of Agoura Hills, California; Mortgage Lenders Network USA Inc. of Middletown, Connecticut; ResMae Mortgage Corp. of Brea, California; and People's Choice Financial Corp. of Irvine are among rival companies that filed for bankruptcy. The Wall Street firms that backed New Century probably will have limited losses, Miller said, because their loans were secured by the company's loans and other assets. ``The major institutional holders have said they're over- collateralized,'' he said. Stockholders and junior creditors may be wiped out, he said. Criminal Probe U.S. prosecutors opened a criminal probe of accounting errors and trading in securities at New Century, the company said March 2 in a filing with the U.S. Securities and Exchange Commission. Since then, more than a dozen states have told the company to halt operations, citing complaints from borrowers that their loans weren't being funded. Subprime mortgages are made to people with blemished credit records or heavy debts. The loans typically charge 2 to 3 percentage points more than those to people with less-risky credit profiles, and often carry adjustable interest rates that can cause payments to jump in later years. Securities firms and banks financed New Century and other mortgage lenders to create a steady flow of mortgages they could package into bonds. With delinquent home loans rising nationwide, those firms have cut back credit to mortgage lenders. The Wall Street firms that provided about $17.4 billion in credit lines to New Century after March 2 demanded that the company post $150 million in cash as additional collateral. The company had to halt new loans after it failed to make the payment and couldn't persuade the Wall Street firms to keep the credit lines open. A Survivor New Century was founded in 1995 by a trio of former managers at Option One Mortgage -- now a unit of H&R Block Inc. -- including current Chief Executive Officer Brad Morrice. In the late 1990s the company survived an industry shakeout that led to the bankruptcies of bigger rivals including United Cos. Since then its growth had surpassed that of all other subprime underwriters. In the past two years, New Century underwrote about $120 billion of loans, or more than half the total since its inception. Subprime loans accounted for 86 percent of all New Century loans last year, the company said in today's court filings. Morrice, 50, praised the subprime mortgage industry in New Century's statement today and said he was proud of the company's legacy. Since inception, employees have made about 1.4 million loans totaling more than $225 billion, the statement said. ``These loans have helped millions of Americans, many who might not otherwise have been able to access credit or to realize the benefits of home ownership,'' Morrice said in the statement. Lower Standards New Century may have compounded its losses by lowering underwriting standards to keep business flowing in 2005 and 2006 as interest rates rose and home sales slumped. ``As a management team, they were just probably a little too focused on pleasing the market with growth, introducing more and more new products and hiring more people when in reality they should have been tightening,'' Howlett said. ``They were trying to correct themselves toward the end,'' he said, ``but it was just too late.'' The case is New Century TRS Holdings Inc., 07-10416, U.S. Bankruptcy Court, Wilmington, Delaware. |
Re: Kaboom!
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| Originally posted by Shakka *bump* Can you say implosion? Equity holders will be left with jack shit. Any takers for who's next to go? Thanks for your money, suckaz! |
Re: Kaboom!
| quote: |
| Originally posted by Shakka *bump* Can you say implosion? Equity holders will be left with jack shit. Any takers for who's next to go? Thanks for your money, suckaz! |
***MOVIE RELEASE***
I'm not sure if you are going to get this new independent flick in Canada, titled: In Debt We Trust.
...a indie flick about American spending habits and the big financial problems on the horizon.
I must check this out!
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| Originally posted by zookeeper ***MOVIE RELEASE*** I'm not sure if you are going to get this new independent flick in Canada, titled: In Debt We Trust. ...a indie flick about American spending habits and the big financial problems on the horizon. I must check this out! |
I haven't seen the trailer, just heard about the film, not sure exactly what it's all about.
If you see it please give me a review
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| Originally posted by Fir3start3r but lets not forget that people have the freedom to take control of their own finances and most choose not to. |
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| Originally posted by Shakka Here's a link to Bill Gross' most recent investment outlook piece if anyone is curious. It's quite sobering. |
**physically sick now**
what i dont' understand is the ethics that these banks have...i mean they will give people teaser loans to trick them into getting a big loan and then they will make people pay back all the money in interst payments they did not pay when they were on the teaser rate for the first two years....
on top of that....we like to give out huge loans to the subprime market....people with not so perfect credit shouldn't be given money just like that.....not to mention with high rates of 10%+....
and what about these reverse amortization loans....gee....the things we do to con people and make money....
oh and let us also not forget that banks sell these mortgages as securities in the secondary market so now people are investing in the subprime market...thus banks can invest into more people with poor credit and make money off being an intermediary...
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| Originally posted by spdandpwr what i dont' understand is the ethics that these banks have...i mean they will give people teaser loans to trick them into getting a big loan and then they will make people pay back all the money in interst payments they did not pay when they were on the teaser rate for the first two years.... on top of that....we like to give out huge loans to the subprime market....people with not so perfect credit shouldn't be given money just like that.....not to mention with high rates of 10%+.... and what about these reverse amortization loans....gee....the things we do to con people and make money.... oh and let us also not forget that banks sell these mortgages as securities in the secondary market so now people are investing in the subprime market...thus banks can invest into more people with poor credit and make money off being an intermediary... |
I have 10 homes, within 3 miles, that have been up for sale for at LEAST six monthes or more. One of them was a defaulted loan and the bank doesn't care how much it gets for it, because they've already made their money on it.
700 homes are being constructed within 8 miles of my house, I'm not sure what the impact will be on my home value, but I have been re-assessed every year and I think my home is very overvalued. I hope I don't suddenly fall on hard times and have to sell
I think what really gets people on top of the subprime and ARM crap is forgetting about taxes and such. My in-laws decided they absolutely must have a house despite the fact they had poor credit due to some really stupid decisions. They did a miracle deal that was just amazing and got into a house they never dreamed they could build. Couple months later property taxes are reassessed and suddenly that dream home was costing a lot more than they had budgeted for and they thought they were going to have to sell. What would you know but about 10 other houses in the general area had For Sale signs in the yard within the next week.
Long story short, my sister-in-law finally got her act together and they have now refinanced with a more realistic deal, used some fiscal sense and righted themselves. The builder(CP Morgan) is now ending most if not all of their operations in Indiana because of just how bad everything has turned out here because of people like my in-laws. I think Indiana is still the top state for foreclosures. It doesn't help any that we have some of the worst laws concerning this stuff and companies were setting up shop just to take advantage of people.
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| Originally posted by WM2 Couple months later property taxes are reassessed and suddenly that dream home was costing a lot more than they had budgeted for and they thought they were going to have to sell. What would you know but about 10 other houses in the general area had For Sale signs in the yard within the next week. |
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Gotta love the aftermath. And the people who continue to say that this is just a tiny problem that they can simply sweep under the rug. New lending standards are set to kick in this June--things should start to get interesting. Sorry for the length (and the formatting), but it reads fairly quickly.
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| Subprime Fiasco Exposes Manipulation by Mortgage Brokerages 2007-05-30 00:01 (New York) By Seth Lubove and Daniel Taub May 30 (Bloomberg) -- Taher Afghani was working for discount retailer Target Corp. near San Francisco when friends told him about the riches to be made in California's Mortgage Alley. It was 2004, and the U.S. real estate market was on fire. Down in Southern California, a hub for lenders specializing in loans to people with weak, or subprime, credit, Afghani's pals were making a fortune pushing risky mortgages on homebuyers. After tagging along with a buddy on a company trip to Los Cabos, Mexico, Afghani quit Target, headed south and began hustling loans at Costa Mesa-based Secured Funding Corp. ``I had never seen so much money thrown around in one weekend,'' Afghani, 27, says of the Cabo getaway. ``It was crazy. All these kids, literally 18 to 26, were loaded -- the best clothes, the cars, the girls, everything.'' Soon Afghani, who'd made $58,000 a year managing a Target distribution center, was pulling down $120,000. Mortgage salesmen like Afghani, many of them based in Orange County, near Los Angeles, lie at the heart of the once-profitable partnership between subprime lenders and Wall Street investment banks that's now unraveling into billions of dollars in losses. After years of easy profits, a chain reaction of delinquency, default and foreclosure has ripped through the subprime mortgage industry, which originated $722 billion of loans last year. Since the beginning of 2006, more than 50 U.S. mortgage companies have put themselves up for sale, closed or declared bankruptcy, according to data compiled by Bloomberg. California Connection Lenders such as Irvine, California-based New Century Financial Corp.; Orange, California-based ACC Capital Holdings Inc.; GMAC LLC's Residential Capital home lending unit; and General Electric Co.'s WMC Mortgage Corp. division have slashed more than 5,000 jobs. On May 22, Santa Monica-based Fremont General Corp., whose loans helped trigger the subprime crisis, agreed to sell its commercial real- estate unit for $1.9 billion. The upheaval in Orange County, home of Disneyland and birthplace of Richard Nixon, has sent shockwaves throughout the financial world. Brokers are merely the first link in a chain stretching from mortgage companies, which originate loans; to wholesale lenders, which bundle them together; to Wall Street banks, which package the bundles into securities; and finally to commercial banks, hedge funds and pension funds, which buy these investments. Subprime Sinkhole The pain has only just begun. As home prices sink and mortgage defaults climb, bond investors who financed the U.S. housing boom stand to lose as much as $75 billion on securities backed by subprime mortgages, according to Newport Beach, California-based Pacific Investment Management Co. Companies from Detroit-based General Motors Corp. to Zurich-based UBS AG have fallen into the subprime sinkhole. At GM, profit plunged 90 percent during the first three months of 2007 because of mortgage losses at its 49 percent-owned GMAC finance company. Swiss banking giant UBS said in May that it would shut its Dillon Read Capital Management arm after the hedge fund manager lost 150 million Swiss francs ($123 million) in the first quarter, partly on subprime investments. Subprime originations fell 10.3 percent to $722 billion in 2006 from a record $805 billion in 2005, according to JPMorgan Chase & Co. Credit Suisse predicts a 40-60 percent slide this year. The party is over in Orange County. These days, Secured Funding's once-buzzing office building in Costa Mesa, near John Wayne Airport, is gutted. Cutting Back The imprint of ``Secured Funding'' is all that remains of the corporate logo that once graced the outside of the two-story building. Above it is a ``For Lease'' sign advertising the 82,333- square-foot (7,649-square-meter) building. ``They cut way back,'' a construction worker says, shrugging. What little remains of Secured Funding is now housed in a building across the near-empty parking lot, where a receptionist tells a caller: ``Our wholesale division is closed. We're no longer doing business with brokers.'' The subprime industry -- and investors' losses -- would never have gotten so big were it not for a small army of independent mortgage brokers and hustling salesmen like Afghani, who was fired in October. Afghani and other subprime veterans say their job was to reel in borrowers, period. Never mind whether customers needed loans or could manage payments. Making the Pitch Afghani says sales pitches typically focused on what a borrower could do with all of that money rather than on fees buried in paperwork or annual interest rates as high as 10.5 percent at the time, at least 2 percentage points more than the rates that banks charge people with good credit. ``Even with explanations, most borrowers didn't really understand what types of loans they were getting,'' says Maureen McCormack, another former Secured Funding employee. ``They just cared about the monthly payment.'' The sales job was made easier with exotic mortgages such as so- called no-doc loans, which enable borrowers to get loans without having to supply evidence of income or savings, and option ARMs, adjustable-rate mortgages that let people pick how big a payment they will make from month to month. The loans offer upfront teaser rates at the cost of tacking the deferred payments onto the balance of the loan. ``Heavy sales pressure has been part of the most-egregious lenders for a while,'' says Kurt Eggert, a professor at Chapman University School of Law in Orange, California, who has studied the role of aggressive sales tactics in subprime lending and sued lenders on behalf of elderly borrowers caught up in home equity scams. Sold to Wall Street However brokers snared customers, lenders in California typically sold the loans to big banks or Wall Street firms. Under U.S. law, investors who buy mortgages or securities backed by them are typically not susceptible to lawsuits alleging fraud on the part of brokers. Such protection partly explains why the U.S. mortgage-backed- securities market has ballooned. The market more than tripled since 2000; $2.4 trillion of MBSs were issued last year, according to the Securities Industry and Financial Markets Association in New York. Last year was the first time more than half of the securities issued were backed by subprime and other nonconforming loans, according to the trade group. ``The market is driven by volume and passing along the risks associated with it,'' says Paul Leonard, director of the California office of the Center for Responsible Lending, a Durham, North Carolina- based consumer advocacy group. ``With the appetite of the secondary market, neither brokers nor originators had much accountability.'' Down the Chain Lenders push sales of subprime loans as far down the chain as possible to vast networks of brokers. While independent brokers account for about half of all mortgage originations, they handle as much as 70 percent of subprime originations, according to the Mortgage Bankers Association of America. Many of the biggest subprime casualties, including Fremont General; Kansas City, Missouri-based NovaStar Financial Inc.; and New Century Financial, would never have grown as fast as they did without their ability to outsource the bulk of their sales to outside brokers and salesmen. New Century, before tumbling into bankruptcy on April 2, used a network of 47,000 mortgage brokers and 222 branch offices to grow to $59.8 billion in annual loans last year from just $400 million in its first year, in 1996, according to company filings. Lawsuits Mount Fremont originated a peak of $36.2 billion in subprime loans in 2005, up from $3.3 billion in 2001, largely through ``independent loan brokers,'' according to company filings. The company ended its subprime business in March. Even before the bottom fell out of the subprime market, NovaStar and other lenders were defending themselves against lawsuits that accused the companies of using independent brokers and branch salesmen to exploit borrowers with high-cost loans. A lawsuit filed against NovaStar in federal court in Memphis, Tennessee, in April 2006, for example, centers on allegations that NovaStar used mortgage brokers to prey on minority borrowers, in this case a 61-year-old black woman who claims to have heard pitches for ``easy money'' on a local gospel radio station. Among other allegations, the plaintiff, Mae Jackson of Memphis, claims she was never informed about the terms of the loan, including the amount, the interest rate or the closing costs. In her complaint, she attacks NovaStar's practice of using mortgage brokers who employ ``deceptive high-pressure tactics to foist these unfair and discriminatory subprime loans onto unsuspecting minority borrowers.'' Blaming Brokers In court filings, NovaStar pins the blame on the mortgage broker, Memphis-based Worldwide Mortgage Corp., which filed for bankruptcy in April 2006. In a separate statement, NovaStar says that contrary to the plaintiff's portrayal of herself as naive, Jackson was a ``real estate investor who owned five properties at the same time.'' Neither she nor her attorneys have provided any evidence of discrimination, NovaStar says. Jackson couldn't be reached for comment. Like many subprime lenders, NovaStar spread its tentacles by tapping into a broad base of mortgage brokers and so-called net branches. A net branch enables an independent broker to set up shop under NovaStar's or some other company's banner with little upfront investment, much less a state license, and quickly begin brokering loans to kick upstream to the parent. NovaStar made great use of the technique: By the end of 2004, it had expanded its number of branches to 432 from four at the beginning of 2000. At their peak in 2003, NovaStar's branches brought in $1.2 billion of loans, a fifth of the total $6 billion in subprime loans originated by the company that year. `Competitive Advantage' ``The branches represent a competitive advantage for NovaStar as we seek greater market share,'' the company said in its 2003 annual report. Several lawsuits filed against NovaStar paint a more sinister picture. They claim the company played fast and loose with state licensing requirements in an effort to make results look better than they might have without the aid of the branch loan sales. ``NovaStar had woefully failed to comply with federal and state regulations as a result of defendants' efforts to expand the company's business at all costs,'' alleges one 94-page complaint filed in November 2004 in federal court in Kansas City and certified as a class action this past February. The firm is facing at least seven class actions, according to Bloomberg data. Among other allegations, the Kansas City lawsuit claims NovaStar fraudulently puffed up borrowers' assets to qualify customers for loans. One unnamed former employee, identified as a ``loan officer'' who worked in California from 2002 to '03, told plaintiffs' lawyers that employees would apply an ``X-Acto knife and some tape'' to borrowers' W-2 forms and paychecks to qualify them for loans. `Inflammatory Allegations' The same employee said that on other occasions, the company would temporarily deposit $5,000 in the bank account of a potential borrower to inflate his or her assets. NovaStar would either take the money back or increase the loan fees, according to the lawsuit filed by co-counsel Milberg Weiss & Bershad LLP of New York. ``NovaStar believes it is irresponsible to continue to print the false and inflammatory allegations regarding lending activities contained in this lawsuit, given that the plaintiffs have never produced any evidence to support them and they are not actually a part of the underlying claim,'' NovaStar spokesman Richard Johnson said in a statement. Johnson says three state and federal licensing and compliance actions involving the branches filed against NovaStar that are detailed in the lawsuit amount to much ado about nothing. ``None of NovaStar's operations in these states, or nationwide, were materially affected or in danger of being materially affected, in any way, and therefore those actions did not require disclosure at the time,'' Johnson said in his statement. Regulatory Patchwork The company announced in April it was exploring ``a range of strategic alternatives,'' including a sale. The proliferation of lightly licensed sales branches was enabled in part by a patchwork of regulations that cover independent mortgage brokers and lenders. While banks are overseen by federal and state regulators, mortgage brokers and independent sales outfits are overseen by a menagerie of state authorities, some of which also look after barbers and masseuses. In California, which accounts for about 40 percent of subprime borrowing in the U.S., no one even knows how many people are originating loans, according to an October 2006 report by the California Association of Mortgage Brokers. That's because while the state licenses individual mortgage brokers, anyone can work for a big lender under the umbrella of a single corporate license. The group estimated that a minimum of 600,000 people were peddling loans in the state last year. ``In other words, the corporation can hire a loan originator right off the street and have them originating loans that day without any education, licensing or individual accountability,'' the report said. California Law ``That's the way the law is in California,'' says Mark Leyes, director of communications of the state's Department of Corporations. ``We license the entity. They can have people working for them who are not licensed by us.'' Such loose regulatory oversight, combined with California's frenzied real estate market, helped make the state a natural destination for the subprime business. Even NovaStar, while headquartered in Kansas City, maintained a large presence in Orange County. Half of the 20 biggest U.S. subprime lenders were in California, including three in Orange County's Irvine, according to Inside Mortgage Finance, a Bethesda, Maryland-based industry newsletter. Orange County was also the home of Secured Funding, which specialized in home equity loans, or second mortgages, to people with lousy credit. The firm was founded in 1993 by Lorne Lahodny, who eventually built it into a 1,000-employee operation in Costa Mesa that closed more than $1.25 billion of loans by 2005, according to a company fact sheet. Neither Lahodny nor his partner in Secured, John Lynch, responded to messages left by phone and in person at their offices. Internet Trolling Secured Funding's success was fueled by sales leads generated by millions of pieces of direct mail and Internet trolling, Afghani and other former salesmen say. Typical of the direct mail was a credit card offer. When potential customers called to activate the card, they were instead hooked up with a Secured Funding account executive such as Afghani. Afghani describes chaotic office scenes that recall ``Boiler Room,'' a 2000 movie about stock brokers at a Long Island wire house. To spur sales, Secured Funding broke its salesmen into color-coded teams. ``If you weren't turning those calls into applications, they would drag you out and make your life miserable,'' he says. ``The turnover was unbelievable,'' says Afghani, who says he watched eight people pass through the neighboring desk in seven months. ``If you didn't cut it right off the bat, you were just fired.'' Dane Marin, who worked at Secured Funding for a year, says managers harangued everyone. ``If you weren't on the phone very long, you'd get an e-mail saying, `Get your head out of your ass,''' he says. Easy Money Afghani says he and fellow brokers dispensed with details about rates and fees and instead talked up how borrowers could use home equity loans to pay down other debts. ``It was easier than financing a car,'' Afghani says of getting a mortgage. At times, Secured Funding salesmen broke the rules, according to at least three lawsuits filed last year in federal courts in St. Louis and Milwaukee. The plaintiffs accuse Secured Funding of accessing their credit reports without permission for the purpose of sending them unsolicited loan offers. In one case, Secured Funding sent the plaintiff a ``personalized Platinum Equity Card'' offering ``$50,000 or more in cash'' just for calling Secured's toll-free telephone number. In the other two lawsuits, Secured sent bogus $75,000 checks that reassured the recipients their ``Less Than Perfect Credit Is OK!'' Afghani says the firm was blasting consumers with as many as 4 million pieces of mail a month. In answers to the complaints, Secured Funding denied wrongdoing. The company said it followed federal regulations when accessing ``consumer reports'' to pitch customers. Lakers and Limos Secured Funding's attorney in the lawsuits, Richard Gottlieb of the Chicago office of Dykema Gossett PLLC, resigned in April, citing ``irreconcilable professional differences'' with Secured Funding. Gottlieb declined to comment. However the leads came in, Secured Funding's salespeople made sure the fish stayed on the hook. ``You would say anything to get the loan through,'' says Cristopher Pike, who worked at Secured in 2005 and '06. Secured Funding hung photos of sales incentive trips, like the one to Cabo, around the office. As sales boomed in early 2006, limos would pull up at the office to take salesmen to Los Angeles Lakers basketball games, Pike recalls. The parking lot was so clogged with luxury cars that employees had to valet-park or board a shuttle bus to get to the office. Watching Salesmen Charlyn Cooper, a former Secured underwriter, says she kept an electric scooter in her trunk to travel as far as a mile from her car to the office. ``They all used to laugh at me,'' says Cooper, who was dismissed in October. ``They had a van that would come by and pick you up from your car, but the van was always full.'' Cooper's job was to rein in the salespeople and make sure paperwork was legitimate so Secured Funding could sell its loans upstream. She says Secured Funding unloaded most of the loans on HSBC Holdings Plc's HSBC Finance unit, which has been racked by the subprime blowup. The bank said profit at its U.S. unit plunged 39 percent during the first quarter, primarily because of an increase in U.S. loan defaults, including the second-lien loans that were Secured Funding's specialty. Provisions set aside for credit losses almost doubled to $1.7 billion. Unwanted Scrutiny Secured Funding salespeople didn't always appreciate Cooper's scrutiny of loans, she says. ``Sales guys are always going to cry because they work on commission,'' she says. Salesmen such as Afghani made as much as $3,250 on each loan. Cooper cross-checked borrowers' stated salaries to, say, weed out any custodians or maids who claimed they earned $10,000 a month. ``There's that push-pull with sales because they're like, `Why are you arguing with me,' and I say, `Sorry, a bus driver is not making $10,000 a month,''' Cooper says. Many subprime sales techniques are now spilling out in the lawsuits, advocacy reports and Congressional hearings that predictably follow such industry meltdowns. Several lawsuits illustrate the lengths to which the big wholesalers, and ultimately Wall Street, were able to outsource the selling of the loans as far down the chain as possible. Fremont General's Fremont Investment & Loan, Wells Fargo & Co.'s home mortgage unit and a rogue's gallery of mortgage brokers come under such scrutiny in a lawsuit filed in August 2006 in San Mateo County, California, state court. Claims of Fraud Plaintiff Johnnie Damon claims he was ``fraudulently induced'' to take out a $484,000 loan from Irvine-based mortgage broker Peak Funding Inc., which allegedly falsified Damon's financial records to qualify him for the loan. Damon claims he asked for a reverse mortgage, which enables homeowners to borrow money in the form of payments charged against their home equity, and instead got a ``traditional refinance loan'' without his knowledge. Also without Damon's knowledge, the claim says, the mortgage broker falsified information on his loan application, such as his monthly income, to qualify him for the loan. Fremont sold servicing rights on the loan, which is the right to process monthly payments, to San Francisco-based Wells Fargo and flipped the loan itself to Paris-based Societe Generale SA. Wells Fargo is also named as a defendant for ignoring ``fraudulent and predatory lending practices'' in the loans it purchases and services, according to the lawsuit. The complaint also alleges that Fremont, prior to its recent decision to exit the subprime business, was using mortgage brokers to do its dirty work. `Trivial Role' ``Fremont has a history of intentionally turning a blind eye to fraudulent and predatory lending practices by the mortgage brokers who generate home loans for the company,'' the lawsuit alleges without citing any other specific examples. Expanding on the accusations, Damon's attorney, Aaron Myers of Howrey LLP, says Fremont funded a loan made ``by a bunch of crooks who completely misled the borrower, falsified his income, coerced him into the loan and then tricked him into sending the loan proceeds back to the company.'' In answers to the complaint, all of the defendants deny the accusations. ``Wells Fargo's trivial role in this case is punctuated by the fact that it has not caused the plaintiff any harm,'' Wells Fargo's attorneys said in an Oct. 10, 2006, court filing, adding that they put a hold on the loan after the dispute erupted. ``Wells Fargo does not belong in this case.'' Robert Cannone, a former chief financial officer and director of Peak Funding who's also listed as a defendant by name, says the firm closed last October after it ran out of money. He neither admits nor denies wrongdoing. `So Embarrassed' ``I'm so embarrassed,'' Cannone says in a telephone interview. ``I feel really bad.'' He says that of the 100 loans made by Peak, this is the only one in dispute. He says an employee connected with the Damon loan ``went off the reservation.'' When the boom went bust, even people on the periphery of the industry got caught in the downdraft. Carrie Feinman worked in Scottsdale, Arizona, in the wholesale prime lending division of New Century Financial, which acquired nonsubprime loans from smaller lenders and mortgage brokers. The relative health of her side of the business, which New Century acquired from Royal Bank of Canada in 2005, couldn't stop New Century's troubled subprime lending from dragging the entire company into Chapter 11 on April 2. Feinman says the news that the company was filing for bankruptcy came out of the blue, leaving her and most other employees out of pocket on unused vacation time and severance pay. ``We were shocked,'' says Feinman, who's looking for a job. ``If I had quit the week before, I would have gotten my vacation time. You wonder why no one is loyal to employers anymore.'' `Enough Is Enough' A month after leaving Secured Funding, Afghani took a new job at Irvine-based Solstice Capital Group Inc., another subprime lender. HSBC, the same bank that had been buying loans from Secured Funding, bought Solstice last year for $50 million. Afghani quit in April, vowing to find a new line of work. ``Enough is enough,'' he says, adding the good times are long gone. ``I'm so rock bottom I had to move out of my apartment in Irvine and live rent free with my girlfriend.'' The hard knocks have taught him a lesson, Afghani says. ``It was tough love and a great learning experience to live within your means and not end up like the individuals on the other side of the phone,'' he says. |
A good read.
We knew this was going to happen, and now that it seems to be "payback" time. I have no sympathy for Afghani and his ilk, and little more for people who took out a $484,000 loan.
I wonder if the credit card industry will experience a similar fallout, with more people going bankrupt, and the "unethical" targeting of college students.
Wow, I really had not thought about the ripple effect that these sub-prime lenders have created.
This is making the whole Enron fiasco look pale in comparison...
I feel for all those people that ever though they were getting a good deal.
Lesson: Always read ALL the documentation before signing ANYTHING.
[edit]: I'm so glad the Canadian banks never took these kind of risks ever if they are still blood suckers...
| quote: |
| Originally posted by Fir3start3r Lesson: Always read ALL the documentation before signing ANYTHING. |
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| Originally posted by zookeeper I wonder if the credit card industry will experience a similar fallout, with more people going bankrupt, and the "unethical" targeting of college students. |
They do seem to "hold all the cards"....so to speak.
I just remember back in the early 80s when having a gold card really meant something, now anyone can get one. To get one, you had to have a really good credit rating AND the actual assets as well, it was a symbol of being sucessful at the time.
Easy access to large amounts of money is too great of a temptation for most people.....and into big debt we go.
..and the American media sure doesn't make it easy to be frugal
ie: Lifestyles, MTV Cribs, Home Makeover, Growing Up Gotti...Etc.
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| Originally posted by zookeeper Hence the whole part about "preying" on unsuspecting minorities. AND advertising on a gospel station, which I'm sure these people trust,...that's LOW Even if you DO read all the documentation, these lenders (or others) have people whom their full time job is to figure out ways to "bury" much of the loans terms in "legal-eze", you can't really understand what you are signing for. |
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| Originally posted by Lilith Credit industry is fairly resilient to defaulters, mostly because you get the people who are really into credit cards who shuffle debt from one card to another, back again and manage to amass a fairly big debt they think is 'manageable' 100 here, 1000 there, 100 over there... etc Which isn't the same as having a big consolidated loan of 6+ figures at least mentally, it's nowhere near as intimidating but the interest rates and default charges are far more savage and you can get away with a minimum of paying off just enough to break even on the interest. In short, they're an easy way to amass debt which is only able to be gotten rid of by filing for bankruptcy and people don't want to file for bankruptcy for an amount under $100,000 unless they're truly screwed with a lot of other debts at the same time. On the other hand, they have two things which mean credit card debt isn't seen as a big killer debt- Pride, people don't want to be denied by the finance industry for a few years after filing for bankruptcy. (Plus debt recovery will get some of their assets) They can pay enough to cover the interest, but not actually make a dent in the amount owing, so it lingers around forever until the perennially optimistic think that times will get better and they can pay it off. The other thing to consider about credit cards is they're a way of increasing your credit rating without a lot of effort, you pay them on time and it soon amasses to a reasonable amount which will make you eligible for other types of larger loans. As for the deadbeat debtors, the damage they do to a financial institution is very minimal, finance industries are resilient creatures who are very good at sinking claws into people for a long time. You miss a $100 payment once a month, you're not going to kill them Even if say, 3 in 10 or even 5 in 10 people with a monthly credit debt where missing payments, they're still making money out of the others and that outgoing debt which the bank absorbs and bides its time knowing you'll pay it back (the total they loaned) in interest, one way or another. |
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| Originally posted by Fir3start3r the public really knows nothing of financial responsibility. |
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