Tuesday, April 3, 2007

Respected, By Whom?

The headline in my paper today reads ‘Respected Lender Files for Bankruptcy.’


It’s just that kind of crap-reporting that makes this whole ‘subprime’ lending scam sound as if it was respectable and just went a little bit awry--just one of those unfortunate-but-unavoidable market circumstances.



Newcenturymortgage The headline in my paper today reads ‘Respected Lender Files for Bankruptcy.’

It’s just that kind of crap-reporting that makes this whole ‘subprime’ lending scam sound as if it was respectable and just went a little bit awry--just one of those unfortunate-but-unavoidable market circumstances.

The ‘lender’ in question is New Century Financial, which was put together by three escapees from the sub-prime mortgage business who saw big dough to be made off something that should have never been allowed. These ‘respected mortgage lenders’ wrote $51 billion just last year to people who had no chance of surviving the papers they’d signed.

Mortgage Paper so shot full of small print what-ifs and barely legible then this happens, that an ordinarily middle-educated literate applicant could hardly be faulted for not understanding.

Particularly with a salesman cooing encouragement, painting rosy pictures of extra cash or a larger home through the whiz-bang wizardry of new-age financial structures.

New Century calls itself “a new shade of blue-chip.” They got the shady part right.

Now New Century and a bunch of others are coming apart at the seams and the Washington Post would have us worry about their effect on markets, instead of jail-terms. David Cho’s article tells us, with a straight face

These companies specialized in "subprime" loans, generally offered to people with blemished credit or insufficient cash for a down payment. Subprime mortgages, which accounted for $600 billion, or about 20 percent, of all new home loans last year, were the main reason millions of working-class Americans were able to buy homes they otherwise could not afford.

Horsefeathers! Just what the hell does the Post mean by ‘otherwise could not afford?’

Millions of working class Americans, who could not then and cannot now afford to own homes, have been put up against the wall of financial disaster by charlatans, the largest and most blatant being New Century.

Many of these mortgages did not require down payments or had low teaser interest rates that leaped after the first two or three years.

Whitecollarcrime In this egregious sucking-up to Wall Street, the Washington Post calls a firm that writes phony mortgages with teaser rates, respected. Time was, when a newspaper uncovered a scam of this monumental dimension, they (quite properly) called for jail terms.

WaPo is not alone in respecting crooks. Of the recently failed scam-mortgage writers, “none was as large or as respected by Wall Street as New Century.”

Well of course, they were feeding off these creeps. The Wall Street co-conspirators (presently scared shitless of indictment) have shut off New Century’s money tap. Done it with great fanfare and moral indignation. Moral indignation tempered by just-posted record annual earnings--mortgage-banking juice on $600 billion from last year’s packaged mortgages.

Packaged? They ‘package’ mortgages these days?

Housingbubble You bet. That’s how people who approve loans get off the hook when those loans go bad. It’s a new invention.

Write a loan you know is worthless, unload it to the Wall Street creeps, who know it’s worthless and then they ‘package’ it (along with a few decent loans) and pass the package down the line to hedge funds. Voila! Done deal and let's go to the Hamptons for the weekend.

Everyone in the food-chain makes their personal big-buck and the losses (when they come) will be offset by other income-producing assets in the gigantic hedge funds. Lenders, home-builders, packagers and hedge funds all knew this stuff was built to bust, but it was gonna bust someone else's buck.

Mortgage2_2 Here-and-now profits too good to pass up, a swindler's dream. Now, they’re all of them putting on a brave face and running for cover. The sub-prime quake blew out a little early and will probably produce a financial tsunami that could drag down other investments.

So, the Washington Post and nearly all other papers, think we should look on these out-and-out crooks with a degree of sympathy.

Analysts worry that the woes in the lending industry will spill over to the broader economy and dampen demand for homes.

I'll bet they do, which merely shows how little talent it takes these days to call yourself an analyst. It’s not ‘woes’ in the lending industry, it’s malfeasance, greed and thievery.

These yahoo analysts are as clueless as Alan Greenspan, still unable to distinguish the difference between a burst real estate bubble and dampened demand.

"The fact that New Century is filing for bankruptcy is a real wake-up call," said James Croft, founder of the Mortgage Asset Research Institute in Reston. "It's one thing for smaller lenders to close their doors. But when the company the size of New Century declares bankruptcy, that indicates the level of severity in the current situation."

Croft, with apparently no more sense than God gave a goose, is the founder of something called the Mortgage Asset Research Institute? Good lord, Margaret, stash our money in the mattress—we are in the hands of idiots.

James, listen to me carefully. It’s not a level of severity. You missed the Sting, while you were busy researching assets that were not there. Everyone in the know, everyone (apparently) but you, knew there were no assets. The whole thing was designed around having no assets.

Now that the horse is safely gone from the barn, “at least eight states have issued cease-and-desist orders forbidding New Century from operating there.”

In a statement yesterday, chief executive Brad A. Morrice said the bankruptcy filing was "a very hard step for me personally and clearly not the outcome I would have preferred. . . . I particularly regret the impact that the bankruptcy filing will have on our dedicated associates."

Brad, like so many before him, was busily selling out his shares in New Century, so that his personal step wouldn’t be quite as hard as other people’s personal steps. His dedicated associates will now have to scrounge work back among the used car lots they came from.

Senategonzales There’s good news and bad news. The good news is that there’s a criminal investigation underway, but the bad news is that it’s being handled by Alberto Gonzales’ Justice Department.

In the past, New Century had been able to package its home loans into massive bonds, known as mortgage-backed securities, and sell them to investors, including some of the big investment banks. Such bonds were popular because they offered relatively high returns in an economic climate in which interest rates are low by historical standards.

Which is why junk bonds are called junk—Jim Croft’s wake-up call.

Analysts say Wall Street's hunger for these securities drove New Century and other companies to push a high volume of risky loans with insufficient regard for people's ability to repay them.

Here we are with the analysts again. Nothing, absolutely nothing, drove either end of this feeding-frenzy other than mutual greed.

"It's clear that people at the margin of creditworthiness will have significantly more difficulty obtaining mortgage loans," said Croft. "I think the industry has to take a lot of responsibility for the problems it is experiencing today."

Clear now, Jim. Clear that industry and asset researchers can’t find their ass among assets. “The fall of New Century and other mortgage companies sparked a broad reassessment of lending practices.” What that means in plain language is, “The game is up boys, let’s hope no one goes to jail, at least no one from the club.

Which, judging by the stellar investigative journalism over at the Washington Post, is not bloody likely to happen. Whatever happened to newspapers that were not in someone's (other than William Randolph Hearst) pocket?

The pocket these days is ubiquitous.
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