The Mortgage Meltdown Exposed
|by Philip Waters
June 15, 2008
With the collapse of the mortgage industry's biggest sub-prime lender this weekend, millions of Americans are clamoring for answers.
|Free Money - It's a No Brainer
Murray Antwonette was just another Wall Street investment broker who noticed a market trend.
"Banks were starting to sell their sub-prime mortgages up to us, packaged as Structured Investment Vehicles," Antwonette explained in a condescending tone.
"Let me backtrack- the housing market kept inflating, and banks were eager to get their products into new customers hands," said Antwonette. "so they started loaning money to undesirables at outrageous, or sub-prime, interest rates."
Antwonette explained the term "undesirables."
"You know- anyone who had trashed or not established their credit. Oh- and blacks who didn't know any better."
"Clearly Murray Antwonette is a bottom-feeding asshole," said market analyst Tom Holland.
Holland explained how regional and national financial institutions were selling blocks of mortgage debt to Wall Street so they could have capitol to loan more sub-prime mortgages.
"Antwonette thought the potential for profit was so high that he made a proposal to Jones Acquisitions to form Jackal's Den Mortgage Company," said Holland.
They liked it so much that they made him president of the new venture.
"It's really simple- you make long-term loans at high interest rates, and then pay for it -using your own good credit- with short-term loans other banks give you at low interest rates," said Antwonette. "I mean, free money- it's a no-brainer."
In the case of Jackal's Den, most of the money came from the Chinese government.
"The Chinese switched from buying U.S. Treasury Bonds to investing directly in U.S. businesses," said Antwonette. "So instead of owning U.S. debt, they owned part of us. What could go wrong?"
Furthermore, Antwonette looked forward to a number of their borrowers defaulting on their loans.
"We expect a certain percent of sub-prime borrower to default, so then we could foreclose and sell their houses, which would be more money- you know, like a Christmas bonus."
"It was a disaster waiting to happen," lamented Holland.
|It's Bullshit, Of Course
Jeffery P. Morgan could be considered an expert on selling subprime loans.
"My job was to find someone who had no business owning a house, like a Wendy's assistant manager, and sell them a mortgage."
Morgan said playing on gullibility was part of the job.
"First you get them to bring their cookie jar full of money," said Morgan. "Then you convince them that they can afford a big monthly payment for now since they'll be able to refinance in six months when they have equity in the house and a better credit rating, and get a lower payment."
Morgan chuckled at this last point.
"That's bullshit, of course. Six months later their introductory fixed rate shoots up to a high variable rate. Not to mention, poor people are often late on their bills, so they've probably racked up a penalty rate. Chances are their payments will go up a couple hundred- not down."
Once the borrower would get two payments behind on their mortgage, Jackal's Den would foreclose on the house.
"And then I'd sell it to someone else, like a Burger King manager," said Morgan.
Truck driver Pete Taggart never imagined he would lose his house in Mesa, Arizona- but he did.
"Shit happens," said the 41-year-old Taggart. "My daughter needed braces, my rig needed an overhaul and then the basement flooded."
Taggart said that he didn't expect to get behind on his house payments, but he expected more leeway when he did.
"My friends have their mortgage through the credit union, and they're late all the time," said Taggart. "Jackal's Den foreclosed on my house the second month."
As many economists predicted, this misfortune worked its way up the foodchain.
"The problem, we think, is that the poor people ran out of money," said Antwonette. "Actually, they never had money. They ran out of credit- loans, advances on cards, second motgages, etc."
All told, Jackal's Den foreclosed on nearly a third of its mortgages.
"But we couldn't sell any of these crappy houses in a falling market, and we were getting stuck with millions in property taxes," said Antwonette.
As profits plummeted, the Chinese refused to issue new short-term loans and called in the existing loans.
"We were like, 'Hey, shit happened,' but the Chinese weren't having it," said Antwonette.
Picking Up the Pieces
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