New York We went to Orange County and back and forth to Southern California in a tag team off and on for the last year seeing if we could get the sub-prime industry to see the risks and “do right.” We got to know a lot of the people that are in the news these days and most of the companies. For the last half-dozen years we have been trying to deal with this industry and their temptation to cut the corners even while we agreed that our members and constituency were an important part of the market.

HSBC announced that they are forsaking any major purchases in North American markets because they do not have the time to do due diligence because they need to get their Household back together. This must be especially painful since they had a couple of quick years of profit after the acquisition (right before our settlement) of Household that offset less than stellar performances elsewhere.

Ameriquest, where we had fought our first sub-prime campaign and won our first reforms and agreement, has gone from the top of the heap to life support. A line of credit from Citi is keeping them alive and was enough good news in bad times for an announcement to make the Journal.

The new market setter, New Century, where we had spent a lot of time trying to wring out reforms after watching its stock price plummet in the midst of investigations as well as questionable practices, announced that it would not be making new loans since its credit has now been cut off. Citi was also reported to have a piece of this “rock” as well.

H&R Block owns Option One, another big hitter on the skids and hoping to sell for whatever it can get.

Like I say, we know too, too many of these folks.

Somebody will survive.

Anyone who does has to address some things above everything else:

1. Changes in “stated” income, which has been totally abused. Brokers too often were allowed to make it up as they went along to qualify people. Some of the portfolios had 30-40% of their portfolios as stated income. Come on?!?
2. Escrow taxes and insurance. Don’t mislead people that their payments will be less than the nut they have to make each month.
3. Keep suitability — meaning a real ability to pay — as a foremost criteria even in the sub-prime market.
4. Stop the abuse of adjustable rate mortgages and the exotic products that forced a spiral of refinancing premised solely on the prayer that the real estate market would permanently inflate. Hope is not a plan.
5. Ban yield spread premiums (ysps in the abbreviations of the industry) because they are really little more than a way to induce the brokers and sales people — with damned little real supervision to pad the products and the final papers and skim a little off the deal.

The market has been poisoned by all of these things. The industry needs to walk away from the bar, drunk or sober, and remember that this is really about putting real families into houses where they can live affordably and securely.