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"Nobody had models for that."



June 16, 2008 – Comments (4)

Talk about hubris. Build an entire industry on giving destitute dreamers gobs of money for homes worth a fraction of the going price, and when these people default on payments from day one, "Nobody had models for that."

Tell me again why we're wasting a single taxpayer dollar on trying to bail out this ridiculous bubble...

The mortgage executives who gathered in a blond-wood conference room in Southern California studied their internal reports with growing alarm.

More and more borrowers were falling behind on their monthly payments almost as soon as they moved into their new homes, indicating that some of them never really had the money to begin with. "Nobody had models for that," said David E. Zimmer, then one of the executives at People's Choice, a subprime lender based in Irvine. "Nobody had predicted people going into default in their first three mortgage payments."

4 Comments – Post Your Own

#1) On June 16, 2008 at 11:12 AM, mandrake66 (50.66) wrote:

The salespeople had models for it. Stop making the shady loans and they don't get their commissions. There was no effective oversight or regulation precisely because it would turn off the money flow.

Now he was trying to make sure People's Choice could continue to raise money by pooling subprime loans. Zimmer and some other executives urged the company to tighten its lending standards. That could lower the rate of defaults. And the better the quality of the loans, the more investors would want them, he figured.

But "there was always push back" from sales executives when he advocated more conservative lending, Zimmer said. Like most big lenders, well over half of the loans made by People's Choice came not from its own employees but from independent mortgage brokers. If the company stopped taking the brokers' riskier loans, the brokers might take both those and their higher-quality loans elsewhere. What's more, People's Choice's own loan sales force -- at about 1,000 employees, the bulk of the company -- worked largely on commissions from loans they made.

"There were times when voices would get raised," Zimmer said. A colleague would pound the table, asking: Why don't you see this?"I was not," he said, "a popular person."

As his team analyzed the individual loan files, Zimmer said he was struck by evidence of fraud, such as doctored bank statements. "Fraudulent loans were a big part of the subprime mess," he said. Mortgage brokers forged borrowers' signatures and pumped up their income, he said. People seeking to buy and sell a home for a quick profit lied that they were going to live in the home -- qualifying for a lower interest rate. But People's Choice calculated that it would have been too complicated and expensive to go after fraud, Zimmer said.

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#2) On June 16, 2008 at 11:19 AM, alstry (< 20) wrote:

The crazy part is the fallout is just beginning.  Now we have exploding food and fuel prices just to make things really interesting.

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#3) On June 16, 2008 at 1:00 PM, jahbu (77.82) wrote:

They had a plan, they have lots of plans!  They will save us!

Capital must protect itself in every possible manner by combination & legislation. Debts must be collected, bonds & mortgages must be foreclosed as rapidly as possible. When, through a process of law, the common people lose their homes they will become more docile & more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers. This truth is well known among our principal men now engaged in forming an imperialism of Capital to govern the world. By dividing voters through the political party system, we get them to expend energies fighting over questions of no importance. Thus by discreet action we can secure for ourselves what has been so well planned & successfully accomplished. ~Aug. 25, 1924 USA Banker's Magazine

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#4) On June 16, 2008 at 2:14 PM, eldemonio (98.27) wrote:

What has the world come to when claiming ignorance of possible outcomes qualifies as a legitimate excuse?  Do you smell something?  Smells like BS to me.

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