by Bill McBride on 1/20/2013 05:03:00 PM
Sunday, January 20, 2013
Note: Tanta wrote the following post on May 8, 2007. Ownit had filed for bankruptcy a few months earlier, Countrywide was purchased by BofA in 2008, and Bear Stearns collapsed in March 2008 - both after Tanta wrote this post.
From Doris "Tanta" Dungey, May 2007:
CR used to like to quote this one every now and again, back in the days when this blog was just a little back-water hand-wringer in a sea of housing and mortgage bulls:
"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."It's amazing how ever-fresh this particular avoidance of blame is. There's the CEO of Countrywide:
John Maynard Keynes, "Consequences to the Banks of a Collapse in Money Values", 1931
"I've been doing this for 54 years," Mozilo recently said during a speech in Beverly Hills, California. For many years, he said, "standards never changed: verification of employment, verification of deposit, credit report."There's Tom Marano of Bear Stearns:
But then new players came in with aggressive lending policies. Names like Ameriquest, New Century, NovaStar Financial and Ownit Mortgage Solutions set a new, lowered standard, changing the rules of the game, Mozilo said.
"Traditional lenders such as ourselves looked around and said, 'Well, maybe there's a (new) paradigm here. Maybe we've just been wrong. Maybe you can originate these loans safely without verifications, without documentation,"' Mozilo said.
But Tom Marano, who heads the mortgage business at Bear Stearns, disputed the contention that Wall Street pressure led to the loosening of credit standards. Investment banks, he said, do not directly make many loans.And there is our famous Bill Dallas of Ownit Mortgage:
“If enough independent companies set standards, that becomes the market,” he said. “Wall Street’s role is largely one where we assess risk, we purchase loans.”
Bill Dallas, chief executive of Ownit, the nation's 20th-largest subprime lender in 2006, said he saw the handwriting on the wall in April 2005 after he overheard a rival account executive tell a customer how to get a better rate by committing occupancy or income fraud.Sound bankers, to a man.
"I just went, 'We are hosed as an industry,"' Dallas said. "I told our guys, 'We're the problem."
The structure of the industry was part of the problem, he said: "Our account reps are talking to the mortgage broker, the mortgage broker is talking to the borrower, and they're teaching them all the wrong things."