It is understandable that homes in the blessed climate of California will always be attractive investments, but the phenomenon of the sub-prime mortgage is one factor has fueled the artificial inflation of property values for over a decade, and now the crash has come.You don't know the players wthout a scorecard, and deep qt has provided one, as they prepare the stage for the..
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Sub-Prime Tsunami Award CeremonyMarch 17, 2007:
In 1998 "Titanic" swept the Oscars. "Subprime Tsunami" can expect no such honors. Sure, some players may get indictments and be hustled out of their offices by government suits but it's not the same. Time to create a special award for subprime talent. Since the Golden Turkey is taken another name is needed. How about The Platinum Plunger? Or more simply, The Subbie? Whatever. The name of the award isn't as important as the ceremony and who gets what. Picture this:
The show opens with a sizzling number by The Equity Strippers. Wearing little more than a few licks of paint. Shaking their booty and singing "Don't cha wish housing sales were hot like me?" The audience eats it up. M.C. David Lereah of the National Association of Realtors cracks a few jokes about the girls' curb appeal and shouts out--
The Envelope Please!
Best Subprime Performance by an Oracle: X Fed Head Alan Greenspan. A few years ago EZ Money Master Greenspan remarked on the housing market's "frothiness" and predicted a correction. Yet he still recommended that borrowers go for Adjustable Rate Mortgages. Aka ARMS. ARMs start out with low interest rates (teasers) that balloon later. No problem when the market is rising. Homeowners can refinance based on appreciation and speculators can flip before the big bad. But when the market goes south, so do those options. Borrowers get left holding exploding ARMs. Much of the Betty bouncing back on subprime lenders and Wall Street is ARM harm.
Best Subprime Performance by Invisible Hands: A group award for the Wall Street firms who underwrote and sold the same mortgage backed securities (MBS) that got rave reviews from their in-house stock and credit analysts. Bear Stearns and UBS Securities have already received subpoenas from the office of the Secretary of the Commonwealth in Massachusetts, but recognition needs to be wider.
Best Subprime Performance on Consumer Gripe Sites: New Century Financial Corp. Widely reviled by borrowers as an ultra predatory shark. Formerly the second largest subprime lender in the nation. Until a few weeks ago, a Bear Stearns analyst special. Now buried by defaults, a lack of cash, and a Justice Department probe. New Century will be missed. Not.
Best Subprime Foreign Investor: The Chinese. Their faith in real estate inflation unhinged from underlying fundamentals and eagerness to snap up dubious paper prove communists and capitalists are on the same page.
Best Subprime Pol: Governor Deval Patrick of Massachusetts. Governor Patrick was a director on the board of the good ship Ameriquest for 2 years. He signed off in July as his run for governor gained steam. Until early 2006 Ameriquest Mortgage was the nation's number one subprime lender-- with a rep for predatory lending in minority and low income nabes. Ameriquest's "associates" in myriad outposts routinely played bait and switch with interest rates and illegal fees, falsified borrower income info on mortgage aps, and based loans on inflated appraisals. Attorney generals in 49 states launched a take down. Ameriquest ultimately agreed to an financial settlement sans any acknowledgement of culpability. Deval Patrick served as board rep to Ameriquest's legal team while the deal was negotiated.
Like many other subprimes, Ameriquest was visibly foundering in 2006. By early 2007 a capital infusion and credit line was desperately needed. On February 20th, Governor Patrick called former U.S. Treasury Secretary Robert Rubin, now a top official at Citigroup. Citigroup, through subsidiaries, does big time bond work for state agencies and quasi-public authorities in Massachusetts. On February 28th, Citigroup announced an agreement to cash and carry Ameriquest. According to the office of Deval Patrick, the governor didn't ask Rubin to help Ameriquest "he simply offered himself as a reference". Ameriquest's parent company is ACC Capital Holdings. Owned by Roland Arnall, a major financial backer of President Bush. When Bush nominated Arnall as Ambassador to the Netherlands in 2005, Deval Patrick also offered himself. Calling Arnall "a man of rectitude". Like Robert Rubin, Governor Patrick served in the Clinton administration. (As assistant attorney general in charge of the Justice Department's civil rights division.) When it comes to subprime bailouts, political differences go by the board.
Best Subprime Indy: Mortgage Lenders Network USA. Closely held MLN of Connecticut, a mid-size subprime mortgage lender, captured the attention of the financial world when it went down in flames at the opening of 2007. In the months before the crash MLN execs delivered a series of glowing financial reports from the cockpit. The crash continues to echo in larger places. On March 13th, GMAC LLC (the auto and home lender owned by Cerberus Capital Management and General Motors) reported putting aside $200 million to cover losses to their mortgage unit, ResCap. Stemming primarily from one lender. According to an MLN cockpit report, ResCap securitized most of MLN's subprime mortgages until mid 2006. ResCap however, isn't naming names.
Best Subprime Sleeper: Take one case of organized multi-property subprime mortgage fraud primarily targeting Caribbean immigrants in the NYC borough of Brooklyn. A scam which according to indictments, falsely inflated the real estate values of an entire neighborhood. Throw in several national mortgage lenders now hit hard by defaults whose loans became MBS. Have the Brooklyn loans be originated by a ring of real estate crooks from New York and New Jersey. With one crook the ex-head of a notorious Haitian death squad active in the early 90's. Toss in the reluctance of the U.S. Government to deport said death squad guy since 1995, when an order of deportation was issued. Boffo box office n'est pas? Yet somehow, the subprime activities and criminal connections of Emmanuel "Toto" Constant, former leader of the Front for the Advancement and Progress of Haiti (FRAPH) have garnered no in-depth reportage in New York or Jersey. Go figure! Perhaps Toto's April 17th sentencing for grand larceny in Kings County Supreme Court will gain this sleeper the attention it deserves.
Best Subprime Couple: Maria Bartiromo of CNBC and Angelo Mozilo, chief executive of subprime mortgage giant Countrywide Financial. On March 13th, Bartzilo canoodled on Closing Bell. Maria looked soulful as Angelo bemoaned the liquidity crisis that will result if regulators respond to the subprime tsunami with too much regulation and investors say P.U. to MBS. Angelo acknowledged that some Countrywide competitors had been "irrational" and it would be "positive" if they folded. But he also invoked the little people and their need to ascend the social ladder via subprime affordable homeownership.
Best Subprime Newspeak: A group award for the entire real estate industry. Government and free market. Profit and non-profit. Washington, Wall Street and Main Street. In recognition of their success in convincing the public that "obtainable" is the same thing as "affordable". When houses cost less they're affordable. When lending standards are crap, houses are ultra obtainable. The increased demand feeds high prices. The crap lending embodied in assorted "affordability" mortgage products helped inflate the housing bubble. Which in turn pumped crap lending so buyers, via debt, could obtain what they increasingly couldn't afford. Real estate touts swore values would always rise to cover the debt and ballyhooed "buy now or be forever priced out of home ownership". Eventually the Ponzi peaked. What went up is becoming affordable. In light of this failure to control reality by transforming language perhaps the real estate industry's Newspeak Award should be reconsidered.
Subprime Coming Attractions: Somewhere along the line, taxpayers will be tapped. Various law enforcement agencies and financial think tanks will issue reports re the pervasive participation of organized crime, domestic and international, in the epidemic of mortgage fraud that contributed to the subprime crisis. Most of the mainstream press will give the info the Toto treatment. And the need to rescue The American Dream of Home Ownership will trump the need to curb illegal immigration.
Carola Von Hoffmannstahl-Solomonoff
Sources include but are not limited to:
"GMAC Reports Fourth-Quarter Loss at its ResCap Unit," Jody Sheen and Bradley Keoun, 03/13/07, Bloomberg.com
"Massachusetts subpoenas firms on subprime research," Reuters, 03/13/07
"Subprime tsunami threatens to extend housing downturn," Matt Carter, Inman News, 03/12/07
"Crisis Looms in Market for Mortgages," Gretchen Morgenson, New York Times, 03/11/07
"GM could take $1B subprime hit," CNNMoney.com, 03/07/07
"Governor made call on behalf of lender, Troubled Ameriquest sought infusion of cash," Frank Phillips, Boston Globe, 03/06/07
"'Toto' pleads guilty in real estate fraud," Craig Giammona, Times Ledger, 02/15/07
The People Of The State Of New York against Louis Sandella, Michael Sandella, etc. Attorney General Indictment No. 2899/2006
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Copyright (c) 2007 by Carola Von Hoffmannstahl-Solomonoff. This material may be freely distributed subject to the terms and conditions set forth in the Open Publication License.