Mortgaged and Armed: A Self-Defense Guide Book, almost everything you wanted to know about mortgages and the Subprime crisis, but were afraid to ask. The book surveys and analyzes the origins of public policy, red lining and reverse redlining, aggressive marketing, loosened underwriting, key market players, mortgage fraud, predatory lending, vulnerable populations, increased foreclosures, and the wave of lawsuits. The sections tied to the four Ps of marketing – product, price, placement, and promotion – serve to remove the industry’s cloak of mystery. In addition, careful attention to Ameriquest and Countrywide serves to help readers understand that caveat emptor does in fact apply to mortgage lending.
Background
The research for this book was reviewed and validated from two camps: industry experts and academia. Industry insiders helped me stay on the straight and narrow in some of the more subtle areas tied to the mortgage lending industry. University professors, in addition, served in guiding both the research and encouraging that the work be produced given its timely and relevant nature.
Dr. David Olson, the founder and president of Wholesale Access Mortgage Research & Consulting, Inc. reviewed several incremental sections for this book as the work progressed as well as a two drafts while it was still a work in progress. Olson had this to say regarding the draft, “I think you have proved your thesis – heavy marketing of Subprime credit contributed to the current mortgage meltdown. I think your sub-thesis is that lenders are more to blame than brokers for selling Subprime credit too cheap and now the tightening of credit is causing home prices to decline which increases foreclosures.” Olson was instrumental in helping me to better appreciate the subtlety of some of the issues addressed in the book.
Mount St. Mary’s marketing professor Cynthia Maubert provided academic remarks pursuant to marketing. Maubert had this to say, “It’s such a complex industry. This reads like the book Whistle Blower – you are whistle blowing on the entire industry.” That remark, while apparently founded in Maubert’s reading of the initial draft, caused some concern given that my intentions were not to whistle blow but rather to analyze, narrate, and interpret without any white washing, down playing, or side skirting of the issues regardless of how troubling they may seem.
Mount St. Mary’s Dr. Richard Brocato served as the coordinator and mentor for both my finance and marketing thesis papers as I was completing an MBA degree. Brocato said, “The quality of your research shows that you have accomplished your objective in an exemplary manner. Once again, your topic is timely and very important. I am sure when published it will make a great contribution to the field.”
Some of my work was distilled and published with Scotsman Guide, a mortgage industry trade publication. My first submission made that paper’s January 2008 cover story, which served to validate the caliber of my work. Several of my other articles have since been published by Scotsman Guide.
I enlisted over one dozen readers for almost every chapter. These readers critiqued different chapters as the book developed. These readers were PhDs, MBAs, high level mortgage industry insiders, attorneys, a commercial banker, an insider at a hedge fund, a retired Wall Street insider and litigation consultant, several lay people, past borrowers, and an economist at the World Bank. I took the lead from these readers, who helped my manuscript take its tone and final form.
Finally, my spouse served as a reader for several drafts. Her recommendations focused on the need for the final product to have clarity, and I took this into account for the final book.
I am appreciative of the support and encouragement and welcomed the constructive input from many people as the book developed. Whatever shortcomings that may exist in the final shape that this book took are the due to me alone.
Some Key Findings
- There are two phases to the foreclosure crisis: First, about 8,500 foreclosures per day against the true Subprime borrower with low scores will take place between 2005 and 2008. By 2010, one third of all homeowners – 21 million people – will have negative equity. Some will mail in their keys, which will financially devastate the big banks as they lose their capital base. Second, by 2012 the high score Option ARM and 5/1 Interest Only borrower will lose their homes as well. By 2012, there will be about 6.5 million foreclosures.
- Both borrower types have similar characteristics aside from score – they overleveraged. The media initially portrayed the victims as minorities. The crisis will end, however, by including the broader, non-minority population. Moreover, these distressed borrowers in particular ignored the headlines that repeatedly warned of a housing bubble that would burst.
- The good news is that as home prices collapse, homes will become affordable to first time homebuyers, who make up 40% of the purchase market.
- The $1 trillion +/- problem on the pedestrian level may reach $50 trillion to $100 trillion at the investor level due to leverage.1 That means economic collapse.
1Several issues, as a result, come forward among several other points made in the conclusion: What will Western economies look like in 2012 and beyond? Will retirement funds be there when needed? And, will regulators cater to donors or voters as new policies and programs take shape? With only a third of homeowners mortgage free, is homeownership in America actually higher cost “financial rent” given the added expenses of taxes and maintenance as opposed to just rent? (Economist Michael Hudson argued this in a provocative Harper’s article The New Road to Serfdom).