ANATOMY OF A TOXIC ASSET

This story is from a former mortgage broker, who was in the trenches signing up some of the people who ended up creating the toxic assets that Wall Street coveted and then insured. Here's what she did ...

I ended up at a firm that targeted talk radio listeners - the kind of working class white Americans who keep Sean Hannity and Rush Limbaugh in business, people who worked hard to keep our plants running and our department stores staffed and our school children taught. We did good business charging competitive fees and getting low rates for them, even when their credit was a little slow, or their debt to income ratios were slightly out of whack, or they were a few points shy of meeting government loan guidelines ...

After discussing how some of her colleagues gamed the system, first by building crummy homes, then getting into the "rehab" business to fix the crap they built, our mortgage broker tells us how she began to see the internal rot in the system ...

The handful of truly awful loans I've done were pretty much the borrowers last resort. The highest interest rate I've ever closed a deal on was at 12% on $250,000 for a white family who were going to have to move out of the house they were leasing from a builder if they didn't get a loan - with the tax liens they had, it was amazing that anyone funded it at all. Dozens more prospective clients, practically all of them African American, walked away from low interest rate deals I put together for them because their friends were all getting cash back at closing from the guys who peddled the 2 year ARM's with the teaser rates

Put another way, the industry actively promoted and peddled "too good to be true" loans - which offered cash back - knowing full well that the people they were lending to were already on shaky financial ground. As anticipated, many of the loans failed, when adjustable rates jumped, or because people walked away from shoddy homes, or because they lost their jobs. The result has been predictable: Boarded up houses, lenders with toxic assets, nobody willing to purchase collapsing homes in bad neighborhoods, etc.


Worse is what's happening now that the federal government has stepped in with money to help stabilize the system. Bankers don't want to get some of the goods off the books because there is the possibility that the underlying contract will pay out because of the bailout. Their thinking is the following: Might as well keep the house since the price might go up.

This is how our mortgage broker sees these dynamics ...

But the bankers aren't moving [the houses]. It is as if the poison in the toxic assets are like snake venom that has slowly begun to paralyze their ability to move in the right direction. Now if it was me who knowingly stepped into a cage full of rattlesnakes, and then got bitten, when someone came running with the anti-venom to save my life, the way the Treasury Department has, I wouldn't hesitate in taking it.

But our nation's bankers have decided, now that the swelling has stopped from all the bites they've taken from their own brand of exotic mortgage derivative snakes, snakes they grew themselves, that they aren't sure they want to take the anti-venom, which in this case is participation in the TARP program that practically pays companies who actually have money to take these loans off their hands.

The end result of our taxpayer funded bailout is that bankers are dragging their feet on negotiating new terms and write-downs because they can. Now that money is in the pipeline and very few of them fear for their jobs, they can afford to sit and wait. Our mortgage broker has this to say ...

To these lily-livered son of a bitches, the loans themselves are an abstraction. To many of us, try to do our damnedest to keep a roof over our heads, they are as real as the boarded up house across the street, and the one next to it that doesn't have any windows left, eyesores that might only need a little repair work and a reasonable price tag to get families moving into them.

There's more. Read the article.

- Mark