Saturday, November 30, 2013

The Leading Subprime Lenders Most Responsible for the Mortgage Meltdown

As promised, below is the 2009 list of the top 25 subprime lenders that crushed the U.S. housing market in 2007-08.  As discussed earlier this week, nearly every executive at the below banks have more than landed on their feet and are now reengaged in the business of writing loans . . .

Courtesy of The Center for Public Integrity:

"These top 25 lenders were responsible for nearly $1 trillion of subprime loans, according to a Center for Public Integrity analysis of 7.2 million “high interest” loans made from 2005 through 2007. Together, the companies account for about 72 percent of high-priced loans reported to the government at the peak of the subprime market. Securities created from subprime loans have been blamed for the economic collapse from which the world’s economies have yet to recover.
  1. Countrywide Financial Corp.
    Amount of Subprime Loans: At least $97.2 billion
  2. Ameriquest Mortgage Co./ACC Capital Holdings Corp.
    Amount of Subprime Loans: At least $80.6 billion
  3. New Century Financial Corp.
    Amount of Subprime Loans: At least $75.9 billion
  4. First Franklin Corp./National City Corp./Merrill Lynch & Co.
    Amount of Subprime Loans: At least $68 billion
  5. Long Beach Mortgage Co./Washington Mutual
    Amount of Subprime Loans: At least $65.2 billion
  6. Option One Mortgage Corp./H&R Block Inc.
    Amount of Subprime Loans: At least $64.7 billion
  7. Fremont Investment & Loan/Fremont General Corp.
    Amount of Subprime Loans: At least $61.7 billion
  8. Wells Fargo Financial/Wells Fargo & Co.
    Amount of Subprime Loans: At least $51.8 billion
  9. HSBC Finance Corp./HSBC Holdings plc
    Amount of Subprime Loans: At least $50.3 billion ***
  10. WMC Mortgage Corp./General Electric Co.
    Amount of Subprime Loans: At least $49.6 billion
  11. BNC Mortgage Inc./Lehman Brothers
    Amount of Subprime Loans: At least $47.6 billion ***
  12. Chase Home Finance/JPMorgan Chase & Co.
    Amount of Subprime Loans: At least $30 billion
  13. Accredited Home Lenders Inc./Lone Star Funds V
    Amount of Subprime Loans: At least $29.0 billion
  14. IndyMac Bancorp, Inc.
    Amount of Subprime Loans: At least $26.4 billion
  15. CitiFinancial / Citigroup Inc.
    Amount of Subprime Loans: At least $26.3 billion
  16. EquiFirst Corp./Regions Financial Corp./Barclays Bank plc
    Amount of Subprime Loans: At least $24.4 billion
  17. Encore Credit Corp./ ECC Capital Corp./Bear Stearns Cos. Inc.
    Amount of Subprime Loans: At least $22.3 billion
  18. American General Finance Inc./American International Group Inc. (AIG)
    Amount of Subprime Loans: At least $21.8 billion ***
  19. Wachovia Corp.
    Amount of Subprime Loans: At least $17.6 billion.
  20. GMAC LLC/Cerberus Capital Management
    Amount of Subprime Loans: At least $17.2 billion ***
  21. NovaStar Financial Inc.
    Amount of Subprime Loans: At least $16 billion
  22. American Home Mortgage Investment Corp.
    Amount of Subprime Loans: At least $15.3 billion
  23. GreenPoint Mortgage Funding Inc./Capital One Financial Corp.
    Amount of Subprime Loans: At least $13.1 billion
  24. ResMAE Mortgage Corp./Citadel Investment Group
    Amount of Subprime Loans: At least $13 billion
  25. Aegis Mortgage Corp./Cerberus Capital Management
    Amount of Subprime Loans: At least $11.5 billion
***Total includes subsidiaries"


  1. Allison says problems started in the 1990s when regulators pressured banks to abandon traditional mortgage underwriting standards.

    "Under Clinton, making high-risk home loans to low-income borrowers was given priority over safety and soundness from a regulatory perspective," he said.

    The ex-president used the Community Reinvestment Act as an enforcement tool. When home prices fell years later, Allison points out, loss ratios on high-risk CRA loan portfolios soared.

    Then in 2000, Clinton's HUD required Fannie Mae and Freddie Mac, which had dominated the prime lending market, to restructure their portfolios so at least half their loans were CRA and other subprime mortgages.

    "The legitimate affordable-housing market was not big enough to equal 50% of (their) giant loan portfolios," Allison said. "To meet this political goal, Freddie and Fannie would have to consistently lower their lending standards."

    And that's exactly what they did in the 2000s, dragging down standards across the entire industry. They also polluted the mortgage-backed securities market with junk posing as Treasury assets. At the same time, the Justice Department began investigating banks, including BB&T, for lending discrimination. Many stopped rejecting risky loans.

    "From my experience discussing this issue with CEOs involved, they knew their companies were not guilty," said Allison, who now heads the Cato Institute. "But they also knew there would be a high price to pay for fighting the regulators."

    BB&T fought back, and "they stopped all our mergers." But after the GOP took Congress, investigators dropped the case.

    The SEC also had a hand in the crisis by forcing investment banks to use so-called Basel accounting rules to figure their capital requirements.

    The rules were based on math models using rosy Fed economic assumptions. Banks lowered reserves and "became more and more leveraged," Allison said.

    At one point, he says, the SEC ordered SunTrust to lower its loan-loss reserves. The bank's chief credit officer was fired for building reserves.

    "This affected the behavior of every credit officer and materially brought down loan-loss reserves in the industry," he said.

    The insane policies of the Democrat Party "crushed the housing market", not the lenders on this list.

  2. Did the Community Reinvestment Act (CRA) Lead to Risky Lending? - Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming. -- The National Bureau of Economic Research

    "We want your CRA loans because they help us meet our housing goals," Fannie Vice Chair Jamie Gorelick beseeched lenders gathered at a banking conference in 2000, just after HUD hiked the mortgage giant's affordable housing quotas to 50% and pressed it to buy more CRA-eligible loans to help meet those new targets. "We will buy them from your portfolios or package them into securities."

    She described "CRA-friendly products" as mortgages with less than "3% down" and "flexible underwriting."

    From 2001-2007, Fannie and Freddie bought roughly half of all CRA home loans, most carrying subprime features.

    Left-wing social engineering was clearly responsible for the financial crisis.

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