EppsNet Archive: Mortgage Industry

Get Rich Making Dumb Decisions

The people on the short side of the subprime mortgage market had gambled with the odds in their favor. The people on the other side — the entire financial system, essentially — had gambled with the odds against them. Up to this point, the story of the big short could not be simpler. What’s strange and complicated about it, however, is that pretty much all the important people on both sides of the gamble left the table rich. . . . The CEOs of every major Wall Street firm were also on the wrong end of the gamble. All of them, without exception, either ran their public corporations into bankruptcy or were saved from bankruptcy by the United States government. They all got rich, too. What are the odds that people will make smart decisions about money if they don’t need to make smart decisions — if they can get… Read more →

EppsNet Book Reviews: The Big Short by Michael Lewis

I worked in the information technology department of a mortgage bank in the run-up to the 2007 implosion of the subprime mortgage market . . . Given that it was fairly evident at the time that complicated financial instruments were being dreamed up for the sole purpose of lending money to people who could never repay it, it’s remarkable that very few people foresaw the catastrophe and that even fewer actually had the nerve to bet on it to happen. Long story short, the major rating agencies — Standard and Poor’s and Moody’s — were incompetent in their rating of subprime mortgage bonds, giving investment-grade and, in some cases, triple-A ratings to high-risk instruments. A lot of people took the ratings — which implied that subprime mortgage derivatives were no riskier than U.S. Treasury bonds — at face value and acted accordingly. But there were also some interesting psychological factors in play, not… Read more →

No One Listened

Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board. . . . Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. — Ron Paul, 2003 [HT: Steven Landsburg] Read more →

Chuck Schumer Can Blow Me

Disclaimer: I used to work at IndyMac. It was poorly run and deserved to fail. They got way too much credit for their success when times were good. Look — in a housing bubble, a monkey with a sign can sell mortgages. Then when things started to turn ugly, they took the approach of trying to manage the stock price rather than managing the company. They started up a blog called The IMB Report, the purpose of which was to provide timely spin control on all the bad news about the company. The title — The IMB Report — gives away the game. The IndyMac Report would be a much more obvious choice; IMB is the stock ticker symbol. In shutting down the bank, the Office of Thrift Supervision said this: The immediate cause of the closing was a deposit run that began and continued after the public release of… Read more →

Horses, Barn Doors, Etc.

Fed to crack down on shady lending practices — msnbc.com Quant le cheval est emblé dounke ferme fols l’estable. — Les Proverbes del Vilain Read more →

This Doesn’t Look Good, Indy

IndyMac, my former employer, laid off another 3,800 people this week, more than half the remaining work force. I got the axe myself almost exactly a year ago. Prediction — at job interviews, these people will hear something I heard a lot during my own interviews: “We’re seeing a lot of applicants from the mortgage industry.” Yeah . . . tell me something I didn’t know. The Elite Mortgage Daily Blog has helpfully provided a brief history of IndyMac stock: Read more →

Got a Job

After three months on the dole, I got a job offer from the IT director of a local non-profit healthcare association here in Orange County. I start next week. As Gerald Ford used to say, “Our long national nightmare is over.” It’s a small IT group — 8 people, including the director. I’ve got to admit I’m a little burned out on big corporate IT shops. I got out of hands-on programming and into leadership roles because I thought I could do a better job than the people I saw doing it. I wanted to develop teams that got things done using their skills and their collective intelligence, but in practice, you typically get locked into some corporate process standard. A process may be good for delivering consistent results, but they may not be consistently good results. Like at McDonald’s, every Big Mac is just like every other Big Mac… Read more →

Advertisement for Myself

I was laid off recently by a mortgage bank here in Southern California. Times are tough in the mortgage business, as you may have heard. First, some tips on how not to do a layoff: Call the layoff a “rightsizing,” which suggests that there was something “wrong” with the people who were let go. (Actually, the company I worked for has already announced another “rightsizing” in which 1,000 more people will be laid off over the next few months. They just can’t get these “rightsizings” right.) Overnight a layoff information packet, including a 20-page severance agreement, to the home of laid-off employees, asking them to sign and return it via the enclosed UPS envelope. Don’t enclose the UPS envelope. The next day, overnight a second packet to employees’ homes, containing the UPS envelope and a letter correcting phone numbers, email addresses and other misinformation in the previous day’s packet. Include… Read more →

Hat Trick

My son’s hockey team didn’t do so well at NARCh this time around. They got knocked out in the round-robin portion of the tournament. That left us with some extra time on our hands, some of which we used to drive up to Tampa to watch the Angels get worked by the ordinarily hapless Devil Rays, 7-2. We got good seats though! — right behind home plate about 10 rows up. Completing the hat trick of futility, I arrived back in California to find that the mortgage bank I worked for had laid off 400 people, including me. The good news is that I did get a severance package, unlike the last time I got laid off (from a dot-com company), when all I got was a handshake and an escort to the parking lot. Oh, and I’ve got more time to read the last Harry Potter book. I’m really… Read more →