New Orleans In negotiating with sub-prime companies and mortgage lending servicers and bankers, I have occasionally made the joke about one of the longest weeks of my life was one day in Orange County when several California ACORN leaders, the director of the ACORN Financial Justice Center, the director of counseling for ACORN Housing, and myself scurried around the county to meet with New Century, Ameriquest, and Option One. In each case we met with the very top people with the outfits and were regaled with tales of their failsafe software and algorithms that would prevent disaster. These comments were often made in the face of our asking them how they could imagine that brokers were on the “up and up” when almost 50% of their sub-prime loans were “stated” (unverifiable) income loans and so forth.
New Century at the time was the biggest mortgage lender in this space. They went belly up early in 2007 presaging the disaster to come. Their servicing business was taken over by Carrington, something of an alter ego it seems, but that’s another story for another day.
Ameriquest had been our first campaign target among predatory lenders. We found a hard campaign against them that culminated in actions at the ACORN National Convention in Philadelphia and led to our first agreement there. They were the largest lender until New Century eclipsed them. Now, they no longer really exist either having been bought out by Citi and being partially responsible for the red ink flowing on Park Avenue and the push-out of their CEO recently.
Yesterday the last vestige of that long day in Orange County finally fell to its long predicted demise when H&R Block announced that the long delayed sale of their subprime unit, Option One, to Cerberus was being cancelled and conceding that they were laying virtually everyone off and taking several charges against the losses. Several weeks ago their CEO Mark Ernst was thrown over, partially because of the subprime problem.
I wonder sometimes what lessons have really been learned here. The wire story on the Option One obituary indicated the following:
On Aug. 31, the company said it had stopped approving any new loans that didn’t comply with Fannie Mae and Freddie Mac requirements limiting loan originations to $200 million a month. Last year, the company originated $27.1 billion in loans.
Which was how far the mighty have fallen….
Purchased nine years ago, Option One had been a good provider to H&R Block’s bottom line, accumulating $2.8 billion in pretax profits over that period. But with the meltdown of the subprime market, which provides money to people with spotty credit, the bottom dropped out for Option One as it recorded a $1.2 billion loss last year and added $331 million in losses during the first quarter of this year.
Which indicates how good the good times really were when they were scarfing up the gravy on the sub-prime banquet!
None of them liked the end of the ride, but the times were so high for so long for so many of these folks that I really wonder, despite these late in the day brushes with accountability, if all of them would not have done exactly the same things all over again and the devil (largely all of us!) take the hindmost.
We may never know, but I’m not reading a lot of mea culpas in the business press. Maybe this is happening in separate sessions with their personal priests?