“I’ve read it in the press that Alt-A lending is ‘in between’ prime and subprime lending. Well, that’s true but not very accurate given the facts."
- Toxic Liar's Loan (Alt-A) lender IndyMac's yet-to-be-arrested CEO Michale Perry in March 2007, 16 months before his mortgage-fraud-infested ponzi scheme of a company collapsed and was seized by the Federal government
(they called them "liar's loans" for a reason folks. And mortgage fraud used to be a crime in America.)
8 comments:
Dude...nobody seems to want to answer this.
What kinds of PRIME loans were there?
PRIME OPTION ARMS?
PRIME STATED INCOME?
notice something missing?
Just like Alt-A was ignored during the "subprime" crisis?
Here's an interesting read, written before IndyMac went under. And if Michael Perry isn't arrested in the next few days, then I don't know what the hell the Feds are waiting for:
http://www.responsiblelending.org/issues/mortgage/indymac-what-went-wrong.html
Indymac: What Went Wrong?
View this document (PDF)
CRL has uncovered substantial evidence that IndyMac Bank engaged in unsound and abusive lending during the mortgage boom, routinely making loans without regard to borrowers’ ability to repay.
CRL interviews with former employees and lawsuits in 10 states indicate that IndyMac:
* pushed through loans based on bogus appraisals and income data that exaggerated borrowers’ finances,
* worked hand-in-hand with mortgage brokers who misled borrowers about their rates and other loan terms and stuck them with unwarranted fees, and
* treated many elderly and minority consumers unfairly.
In interviews and court documents, 19 former employees describe an atmosphere where the hunger to close loans ruled.
More smoking guns from the report:
http://www.responsiblelending.org/pdfs/indymac_what_went_wrong.pdf
As IndyMac lowered standards and pushed for more volume during the mortgage boom of 2003-2006, the quality of loans became a running joke among its employees, according to a former IndyMac fraud investigator who is cited as a “confidential witness” in a lawsuit in California.7 The investigator says shoddily documented loans were known inside the company as “Disneyland loans” – in honor of a mortgage issued to a Disneyland cashier whose loan application claimed an income of $90,000 a year.
Another witness cited in the case, a former IndyMac vice president, claims chief executive Michael Perry and other top managers focused on increasing loan volume “at all costs,” putting pressure on subordinates to disregard company policies and simply “push loans through.”
Another former employee quoted in the suit claims Perry told him “business guys rule” and “[expletive deleted] you to compliance guys.” As a result, this ex-employee claims, IndyMac was about “production and nothing else.”
I believe ALT-A's and Option ARMs are worse than Subprime. Just look at the Credit Suisse interest rate reset graph and you will see why (you can google it) But I will tell you my thinking on this so you don't have to guess...
The first thing the lenders did was to create Subprime loans, which presumably, required documentation of income (i won't even get into the fraud that went on here and there was plenty of it). So, ostensibly, there was some "rigour" put into looking at what people had for income, assets, etc. So, the lenders spent a few years selling subprime to those they could find, and they did a great job at it.
Once all the subprime folks were used up, they moved into Alt-A's and Option ARMs...loans that required NO DOCUMENTATION or PROOF of income. These loans were given to three types of people: 1) those who were even riskier than subprime folks b/c they did not have a regular source of income (like seasonal workers, crappy workers who get fired a lot, etc.), 2) speculators and investors, and 3) high income folks who bought more than they could afford.
So, with the folks in #1 above, they are all going to default...every single solitary one of them since they couldn't afford the loan in the first place and even if they could, the recession is going to put them on welfare or worse.
The folks in #2 never ever intended to live in their homes. They bought them at low teaser rates and made minimum payments on their Option ARMs with the intent of flipping the houses to someone else with 6 to 12 months. Well, this gravy train has stopped for these folks and they are all under water now. They will default on their loans and their speculative homes will become repos.
For #3, these folks actually have decent jobs. The problem with them is that they took out these loans with the idea, like many others of more limited means, that house prices would always go up and they could refinance down the road. What they didn't see -- like the rest of the FBs -- was the chance the prices would go down. And down they are as well all know. So now they are underwater in their homes and can't refinance...and even if they could, there may not be money in the financial system for them to do so. Many of them may continue to pay the loans if they can afford the resets, but many also will just walk away when they see their $1million home is now worth $500k.
So you see, the ALT-As and Option ARMs that are going to rest starting in the Fall of 2009 are going to be an even bigger problem since the aggregate value of them is greater than that of Subprime.
Get your popcorn an batten down the hatches HPers!
The average price of a home will drop to $180K from a peak of $240K a few years ago. That is a 33% drop across the country.
Alt-A "liar's loans" are what fueled the Scottsdale real estate bubble ... it'll be fun to watch as they all go into default next :)
Great job digging up that quote -- I hope Perry's cell mate is the size of a bear.
Tatoos, weird facial hair, and a tube stuck up his nose. Now that's a statement of character.
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