Lenders that Made Money and Bailed
Earlier this month, NY Times reporter Gretchen Morgenson wrote an article entitled “Lenders Who Sold and Left”. This was a great article that highlighted some of the excess and abuse that has come from the fallout of the subprime mortgage collapse.
Since the end of 2006, over 200 lenders have closed up shop and exited the mortgage business. Many of these lenders were small shops that sprung up simply to offer loans, bundle them up and sell them off to the Wall Street investors for a quick profit. Most of them didn’t care about how the loans performed. They made their money and when the whole system flopped, they simply bailed out!
Take American Home Mortgage Investment Corporation for example. John A. Johnston, a former president at American Home Mortgage made $60 billion in loans in 2006. According to the NY Times report, when American Home Mortgage filed for bankruptcy and closed down, Mr. Johnston ended up at IndyMac. However, Mr. Johnston was able to sell off shares of American Home Mortgage for a cool $7.33 million during the transition!
Or how about New Century Financial and Edward Gotschall, founder and vice-chairman of finance of New Century. According to the NY Times report, Mr. Gotschall sold stock in New Century worth roughly $24 million just before New Century warned investors it would need to postpone its 2006 earnings conference call in order to restate its year end financial statements. Afterwards, the share fell dramatically and the lender filed bankruptcy.
The most recent show of this abuse was Countrywide’s founder, Angelo Mozilo. After finally coming to the realization that Countrywide would not be able to recover from their losses, Mr. Mozilo worked out a deal to sell Countrywide to Bank of America. While Countrywide is losing millions of dollars each month, Mr. Mozilo managed to walk away with $129 million in stock sales and a severant’s package of $37.5 million. Since then, the severant’s pay has been scrutinized and Mr. Mozilo has claimed he would give the $37.5 million back. I guess the $129 million was enough for him to manage on!
In my opinion, this type of abuse should not be allowed. Creating programs that abuse the system with disregard for the final outcome should not be rewarded in such ways! For a lender to be reckless in its loans, without having some safety nets in place, just to make their quick millions and then file bankruptcy and move on in life is a slap in the face to the rest of us in this business that actually care about what we do and who we help.
I certainly hope that as we all go forward, lenders will begin to rethink risk. I am a fan of providing opprotunity to as many people as possible. And in many cases I did not see the subprime loan as the bad thing it is being portrayed as now. However, those lenders knew this day would come, and as a loan specialist I kinda assumed they had some contingency plan in place. I did not realize that plan was to dump stock, declare bankruptcy and retire.
As a professional mortgage lender in Charlotte, you can rest assured that I am here for the long haul, seeking creative and solid loan programs that fit the needs of my clients. I seek to continue to educate, inspire and assist in helping others realize the American Dream!