The Blame Game

Mortgage and Lending with Jay Epstein State Farm Insurance

As a former mortgage broker and small business owner, one who now works for a big bank that thankfully kept its nose clean through the frakus, I continue to be amazed at the stupid and ineffective laws that congress continues to try to put in place just to look like they are doing something; and, once again, I take offense at the way people in politics continue to thoughtlessly slander the mortgage broker.

"Mortgage brokers sold unaffordable mortgages to collect their commissions. Stock brokers made huge, risky bets to get big bonuses. And now that taxpayers rescued Wall Street, greed is making a comeback. - Daniel Mintz,"   This is just one quote from a political action organization.  But the feeling it represents seems to permeate the political world.  It's bipartisan!

The blame game is a nasty game.  I don't generally like to play it.

But the comment about mortgage brokers makes me kind of miffed.  He goes on to say that, "fundamentally it all came down to greed."   I agree that it came down to greed; however, to blame our global economic disaster on mortgage brokers and stock brokers without even mentioning banks and their "loan officers" is simplistic and laughable. 

Before I begin my four-paragraph rant below, let me make one thing very clear:  When I refer to big banks, I am NOT talking about the small mortgage bankers who funded loans using their own lines of credit and then immediately sold the loans to the secondary market. Ok, that being said, here goes:

In a nutshell, the problem was and is the big banks - and their continued use of smoke and mirrors to hide what they've done and continue to do.  Several years ago, the big banks began offering reckless and irresponsible mortgage programs and they spent millions promoting these irresponsible loan programs through their retail (their own loan officers and branches) and wholesale channels - offering huge incentives to smaller bankers and brokers such as an extra 3 points just for adding a 5 year prepayment penalty to the loan.  Of course the bank's retail and wholesale channels sold the loans; and the salesforce was heavily compensated.  Then the banks made billions and billions of dollars selling packages of loans to each other.

Next they decided to insure each other's multi-billion dollar packets of loans (CDO's); but the loan package bundles were so huge (10 billion to 100 billion or more) that they ended up insuring each other for more their own net worths! 

Finally, when the loans that were incomprehensibly split into various packets started going bad and the banks needed the insurance to cover their losess, they didn't have the money to pay each other because they were all experiencing the same losses at the same time (and they had never had enough money to cover the losses they had agreed to insure anyway).

The bottom line?  What happened to our ecnomny certainly isn't rocket science, but you have to get through a lot of smoke and mirrors to get to the truth.  I think it really does boil down to greed - but it was and is the greed of the already wealthy big bankers who used their wealth to deflect blame to others while they continued playing their games. 

And the worst part?   Instead of taking the time to truly understand the problem, Congress is still playing too.

Comments (2)

Jack Hughes
Hughes Appraisal Group Inc. HUD/FHA Approved) - Lehigh Acres, FL

What a Great Blog !!! I am an Appraiser in SW FLA. In the Real Estate Industry we are the slime. Like Mortgage Brokers we are taking abuse from everyone. The whole economic collapse was because of greedy Mortgage Brokers and corrupt Appraisers. The Big Banks were and still are squeeky clean. This HVCC Crap is the cover-up solution to blame Brokers and Appraisers create Bank Owned AMC Companies so they can control the appraisal process and make money from all aspects of the loan process. Congress knows the problem but when major Banks finance your election or re-election bid how can they tell the American People the truth. But what they should realize is that there are many people in the industry that have been adversely affected that will speak out and get the message out to the people of the banking fraud that was and still is. 

Feb 16, 2010 09:35 AM
Dale Terry
Yadkinville, NC

As a former mortgage broker, I think your post is right on!  And Jack is correct, appraisers need a little of respect here.  With that said, I am with you, no change has come out of Washington, only more greed in the form of bailouts, controlled interest rates, mortgage buy backs from Fannie and Freddie, it goes on and on. 

The only solution is to get new people in Washington that listen to us, not special interests.

Feb 17, 2010 07:15 AM