New Orleans A billion here, a billion there, and the next thing you know, you’re talking about real money. This is another line on the headstone of the subprime mortgage industry that was such a key player in the Great Recession. News that investors took another unexpected loss of a billion bucks in these tranches of ill begotten, broker finagled, often predatory loans batched together in toxic stews for suckers, was such nothing news that it hardly made the C-section of the Wall Street Journal. For me it was old home week from five and six years ago and a blast from the past.
Of course Wells Fargo, now the country’s largest mortgage lender, and Ocwen Financial from West Palm Beach, now the nation’s largest servicer of subprime loans are finger pointing at each other for who blew billion of course, but it is such déjà vu all over again, that it brought smiles to my face since it was such a “man bites dog” story. These investment pools are part of what banks have been hiding behind for years to avoid real loan modification programs that would prevent home foreclosures, and this new billion bust is an argument between the devils about how they stirred the brew and treated loans that were modified and altered the payment schedule to reduce the monthly payments while trying to hold on to the pretend value of the home.
Where did the Wall Street garbage come from? Well, a bunch of it was from Irving, Texas-based American Home Mortgage that would never really agree to meet with us during that period, and then capsized in 2007 after New Century fell, and ironically was picked up by IndyMac bank, which also is little more than a bad memory. The rest of the mess came from Option One Mortgage which was one of the Orange, California subprimes in the heyday and was owned then by H& R Block, and brought down its CEO along with other mayhem. They met with us frequently, but were the corporate equivalent of the teenager in the family who was out of control by the parents.
Seeing Ocwen and Wells Fargo fighting over responsibility for a billion dollar loss is also juicy because these two have become the twin faces of the current problems for homeowners. Ocwen is reportedly under current investigations by a host of regulators for how it is dealing with beleaguered borrowers and Wells Fargo seems to be settling one suit after another proving discrimination in its lending, maintenance, and general business involving African-Americans and Latinos.
None of this is funny, but at least when investors finally get burned by these boys the same way that homeowners have been continually burned, we can be reminded again that the arc of justice is long, but true.