Greed, Fraud & Ignorance

A few days ago, I finished reading Richard Bitner's new book - the story of his personal experience in the business of subprime lending:

Greed, Fraud, & Ignorance
A Subprime Insider's Look at the Mortgage Collapse

It's also available at Amazon here.

For anyone interested in learning what it was like during those go-go years of mortgage lending earlier in the decade, this is a very good place to start.

A 14-year veteran of the mortgage industry, Richard owned a subprime mortgage company for the first half of the decade and, at the height of the speculative fervor in 2005, he saw the handwriting on the wall and sold the business.

Eighteen months later, it showed up as #43 on the Mortgage Lender Implode-O-Meter.

This book covers all aspects of the subprime mortgage business from a very unique insider's perspective. Though few realized it at the time, Greed, Fraud, and Ignorance were really the forces driving home prices higher at the time - despite what many were saying back then, a new era of "wealth creation" had not been augured in.

Here's one of the sections I highlighted - this one discussing Ameriquest Mortgage:

In my opinion, this lender (Ameriquest) did more to give subprime lending a bad name than any other company. In January 2006, Ameriquest settled a lawsuit with state prosecutors and lending regulators for $325 million, resolving allegations the company defrauded and misled consumers. While their tactics are now well documented, it wasn't until we hired two former Ameriquest employees that I learned of their practices. They explained how every loan was supposed to charge the maximum fees, interest rates, and prepayment penalties to make the company money. The business model focused heavily on cash-out mortgages, which enabled them to collect front-end fees from the borrower's equity. The "stick it to the consumer" mentality they described to me translated into borrowers being charged, on average, 3 to 4 points in loan origination fees.

Recall that Ameriquest was the Super Bowl half-time sponsor in 2004. Just like Pets.com a few years prior, we should've seen that one coming.