walkitout (walkitout) wrote,

_Confessions of a Subprime Lender_, Richard Bitner

Subtitled: An Insider's Tale of Greed, Fraud and Ignorance

I had to wait a while to buy this, because I wanted a kindle edition. Waiting (in this case) paid off.

I've always been mystified by the way lending worked over the last couple decades. The lending of my childhood seemed to involve going to a bank, applying for a loan, getting it, and eventually paying it off, either by selling the house, or by paying the loan off over the duration of the loan. All loans were 30 year fixed, had no prepayment penalty, blah, blah, bleeping blah.

In my later childhood, the cost of housing took off and, more importantly, interest rates got crazy so in order to make it possible for people to move (ever), ARMs showed up. Then you had to worry about the rate reset. Also there were loans where the payment didn't cover the interest, causing negative amortization and then there were laws banning that.

Also, down payments were substantial.

By the time I bought, down payments were much lower, and there seemed to be a lot more than just banks in the game. After I bought, I kept hearing about everyone refi'ing and everyone seemed to think that only suckers went to banks -- Smart People used mortgage brokers and no one valued the loan staying in one place. Weirdest of all, a bunch of my friends from college and/or jobs and/or similar networking were writing software to assess subprime mortgages for credit quality. All very mysterious.

Then a couple years ago, when I was getting the Financial Times, I started reading about securitization and how it didn't really do to risk what people thought it did.

Bitner's book coves the same time period only he was knee- or neck- deep in these developments throughout. His tale of starting up a small subprime lending operation (with less than the minimum operating capital initially) with a couple of other guys in the business, and how they had to do a lot of questionable loans in the early days to make it at all, and how they nearly got torpedoed when they had to take back loans that didn't even make the first payment or were discovered to be fraudulent, oh, and some of those fraudulent stories involved folks going to jail -- well, it's an interesting tale. I don't know that Bitner is particularly sympathetic (altho one has to recognize his impeccable timing -- he got out early enough to sell his part of the company to his sucker partners -- and he got a book deal!). Bitner's policy recommendations accept as a first principle that the subprime lending market should exist. Currently it does not (and he anticipated that development correctly), but he feels sure it will one day return. I'm not sure I agree with him on that.

There's a fair amount of useful information here, in a readable form. Bitner is not enough of an ass, nor is he enough of a fool, to preclude successfully finishing the book. But he is kind of foolish, and kind of an ass.
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