Miscellaneous musings on the mortgage mess
I'm starting to feel deja vu. Just as the establishment media failed the country miserably on the Iraq war, so it has failed us on the mortgage crisis, and the ensuing credit crunch.
For instance, file this story under "Now they tell us"…
A newly surfaced memo from banking giant JPMorgan Chase provides a rare
glimpse into the mentality that fueled the mortgage crisis. The
memo's title says it all: "Zippy Cheats & Tricks." It is a primer
on how to get risky mortgage loans approved by Zippy, Chase's in-house
automated loan underwriting system. The secret to approval? Inflate the
borrowers' income or otherwise falsify their loan application.
What? Falsified income or other information on loan applications at the height of the bubble? Say it ain't so!
Of course, long-term DR readers have known about "liar's loans" and associated look-the-other-way schemes for years. But still, credit Portland's Oregonian for getting its hands on documentary evidence:
document, a copy of which was obtained by The Oregonian, bears a Chase
corporate logo. But it's unclear how widely it was circulated or used
within Chase. . .
if the memo was penned by a single employee, it illustrates an attitude
prevalent in certain corners of the mortgage industry during the boom
years. . . During the boom, it was common for lenders and brokers to
get paid more for risky subprime loans than for 30-year fixed-rate
loans because the higher-interest loans fetched a higher price on Wall
The document recommends three "handy steps" to loan approval:
not break out a borrower's compensation by income, commissions, bonus
and tips, as is typically done in a loan application. Instead, lump all
compensation as the applicant's base income.
your borrower is getting some or all of a down payment from someone
else, don't disclose anything about it. "Remove any mention of gift
funds," the document states, even though most mortgage applications
specifically require borrowers to disclose such gifts.
all else fails, the document states, simply inflate the applicant's
income. "Inch it up $500 to see if you can get the findings you want,"
the document says. "Do the same for assets."
Chase's Kelly said the bank has never encouraged any of the suggestions in the memo.
Of course, these sorts of shenanigans were common knowledge the whole time the bubble was blowing up. But establishment media, lacking this sort of documentary evidence, mostly kept silent. It's similar to another phenomenon I've observed — that no amount of discomfiting economic news matters until it's backed up by official statistics.
Which brings me to the real source of my outrage this morning, brought to full boil by Dean Baker. Like the Agora Financial editors, Baker saw the bubble early on, but from a left-wing perspective. He mentions in passing today that during the whole time the bubble was inflating, the primary quotable source of information in establishment media was… drum roll, please… David Lereah, then the chief economist at the National Association of Realtors.
I have yet to see any mea culpas from reporters or editors, indicating
that they now recognize that relying on a guy who works for the
realtors, as their main source on the housing market, may not be good
Of course not, just as the mea culpas have been few and far between from reporters and editors who relied on such sterling examples of probity as Ahmad Chalabi when it came to claims of Saddam Hussein's weapons of mass destruction.
It's been a year, almost to the day, since I left the daily practice of journalism after 20 years. It was becoming increasingly hard to be part of a profession that so ill-served its customers that six months after U.S. troops marched into Iraq, 70% of Americans believed Saddam Hussein had a hand in 9/11.
Not surprisingly, in the last 12 months I've felt occasional pangs of longing for the newsroom environment and camaraderie. For anyone who's ever lived it, there's nothing else quite like it. But it's faded as time has elapsed. And this morning, even if I can't be at peace with the botch that America's power elite have made of the economy, the geopolitical scene, and the Constitution, I can be at peace with my decision to no longer take part in a process that serves to make matters only worse.
Update: Danny Schechter, writing in the newspaper trade magazine Editor & Publisher, is thinking much along the same lines. He grasps that "a housing bubble was engineered to replace the failed dot.com bubble." Why is it certain lefties are more economically astute these days than the ostensibly "capitalist" talking heads on business TV?