Who Was Behind the Mortgage Meltdown and Where Are They Today?

Is the recession wearing thin on you? Are you tired of scraping by on unemployment benefits, worrying about your 401(k) balance, feeling stuck because you can’t sell your house or wondering how in the world you’ll finance your next car purchase? Or worse?

Amidst your many immediate worries, hearken back to how this all started — a red-hot real estate market where big banks made big money through their willingness to disregard standard lending practices and substitute poor judgment for credit checks. These Wild West business deals led to high mortgage default rates and subsequent foreclosures that exposed widespread weaknesses in financial industry regulations and ultimately train-wrecked the global financial system.

If you’re looking for someone to throw a dart at, why not put your money where your mouth is and stop doing business with those most responsible for the mess we’re in? There are plenty of healthy regional banks or credit unions that largely steered clear of subprime lending, mortgage-backed securities and other questionable practices, and they’d dearly love your business.

The Center for Public Integrity recently released The Subprime 25, a black list of the top 25 subprime lenders and their Wall Street backers who were responsible for nearly $1 trillion in subprime loans — that’s 7.2 million high-interest loans — made from 2005 through 2007.

“Together, the companies account for about 72% of high-priced loans reported to the government at the peak of the subprime market. Securities created from subprime loans have been blamed for the economic collapse from which the world’s economies have yet to recover,” the report says.

While 20 of the top 25 companies have been sold, closed or stopped lending (I still remain uneasy about employees of these companies simply migrating elsewhere), five of The Subprime 25 remain in business.

#8-ranked Wells Fargo Financial:

Total high-interest loans, 2005-2007: At least $51.8 billion

CEO John G. Stumpf’s 2008 salary: $878,920; $13,782,433 in total compensation

Federal bailout money received: $25 billion

#12-ranked Chase Home Finance (the consumer lending unit of JPMorgan Chase):

Total high-interest loans 2005-2007: At least $30 billion

CEO James Dimon’s 2008 salary: $1,000,000; $19,651,556 in total compensation

Federal bailout money received: $25 billion. JPMorgan also benefitted when the Federal Reserve Bank of New York guaranteed against losses $29 billion in shaky Bear Stearns assets, clearing the way for the company’s sale.

#15-ranked CitiFinancial (part of Citigroup)

Total high-interest loans, 2005-2007: At least $26.3 billion

CEO Vikram Pandit’s 2008 salary: $958,333; $10,815,263 in total compensation

Federal bailout money received: $45 billion in direct investment and federal guarantees on $306 billion in assets

Settlements over lending practices:

2002: Citigroup agreed to pay $215 million to settle Federal Trade Commission charges that Associates First Capital Corp., before it was acquired by Citigroup in 2000, had practiced systematic, widespread, deceptive and abusive lending.

2004: CitiFinancial was hit by a $70 million civil penalty by the Federal Reserve for subprime lending abuses.

#18-ranked American General Finance (part of AIG)

Total high-interest loans, 2005-2007: At least $21.8 billion

Former CEO Martin Sullivan’s 2007 salary: $1,000,000; $14,330,736 in total compensation

Federal bailout money received: $187 billion in federal loans, guarantees and direct investments

Settlements over lending practices:

2007: AIG subsidiaries agreed to pay $128 million after the Office of Thrift Supervision found they ignored borrowers’ credit when making loans and charged excessive broker and lender fees. AIG also agreed to contribute $15 million to financial literacy and credit counseling.

#20-ranked GMAC Financial Services

Total high-interest loans, 2005-2007: At least $17.2 billion

CEO Alvaro G. de Molina’s salary: Not available

Federal bailout money received: In 2008, the Federal Reserve approved GMAC’s request to become a bank holding company so it could obtain a $5 billion investment from the Treasury Department.

Settlements over lending practices:

2004: GMAC-Residential Funding Corp. and other companies agreed to cough up $41 million to settle a federal class-action lawsuit over predatory lending claims.

2005: Homecomings Financial Network Inc. (a GMAC subsidiary) and Fairbanks Capital agreed to forgive $11 million in debt and pay $773,000 in restitution, account credits and refunds to West Virginia homeowners.

Tags: cause of recession, causes of recession

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