EppsNet Archive: Mortgage Industry

Get Rich Making Dumb Decisions

31 Mar 2014 /

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 rich making dumb decisions?

— Michael Lewis, The Big Short

EppsNet Book Reviews: The Big Short by Michael Lewis

10 Nov 2013 /

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 specific to the investment arena:

  1. Nothing really bad had ever happened in the subprime mortgage market. Every tiny panic was followed by a robust boom. Since nothing really bad had ever happened (albeit over a short and statistically insignificant period of time), nothing really bad ever would happen.
  2. The collapse of the subprime mortgage market would be a national catastrophe, and was unlikely precisely because it would be such a catastrophe. Nothing that bad could ever actually happen.

No One Listened

16 Jun 2010 /

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]

Chuck Schumer Can Blow Me

14 Jul 2008 /
Monkey with sign

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.

Chuck Schumer

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 a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.

“This institution failed today due to a liquidity crisis,” OTS Director John Reich said. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”

Here’s Schumer’s response:

If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today … Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.

What a smug prick. Other than grandstanding, there was no reason to make those letters public.

Let’s say you’re concerned about the health of your elderly uncle, who has a weak heart.

Do you:

  • Discuss your concern privately with his doctor?
  • Sneak up behind him and yell “BOO!”

Horses, Barn Doors, Etc.

11 Jul 2008 /
Fed to crack down on shady lending practices
Les Proverbes del Vilain

This Doesn’t Look Good, Indy

10 Jul 2008 /

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:

A Brief History of IndyMac Stock

Got a Job

8 Nov 2007 /

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 because they have a process for making Big Macs. But is a Big Mac a high-quality dining experience? Not really . . .


A friend and former colleague, who was also recently let go by a local mortgage company, emails to say

I’m doing well… still spending a lot of time in Bakersfield, spending time with my parents. I’ve been looking for jobs, but haven’t applied for anything. I guess I actually need to apply.

She’s single, she can afford to be sanguine.

I was in contact with at least 100 companies in one way or another – sent a resume, called, phone interviews, in-person interviews – and got two job offers. So the upside with her approach is that I could have avoided 98 rejections.


Did I mention the job is with a healthcare organization? I was laid off from my last job, with a mortgage bank, when the mortgage industry tanked. Prior to that, I was laid off from a dot-com consulting company when that industry imploded.

I’ve got a knack for getting into industries at their absolute zenith, then riding them down the drain.

But healthcare — it’s recession-proof! Isn’t it? You can’t say, “I’m going to put off getting critically ill until I have a better read on the economy.”

Advertisement for Myself

14 Sep 2007 /

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:

Man with sandwich board
  1. 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.)
  1. 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.
  1. Don’t enclose the UPS envelope.
  1. 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.
  1. Include an obvious misspelling or two in the letter — ideally, something that would slip past a spell checker but be caught easily by anyone who bothered to proofread it. Suggestion: “If you have nay questions . . .”

Unemployed people like to see the kind of flamboyant incompetence that still draws a paycheck.

Want to hire me?

Here’s what I’m good at:

  • Software development
  • Project management
  • Writing
  • Training, coaching and mentoring

Hat Trick

27 Jul 2007 /
Ticket stub

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 sick of Harry Potter but I do want to find out how the whole thing wraps up . . .