All the Devils Are Here [94]
Finally, subprime loans continued to make their way, unchecked, into the national banking system, thanks to securitization. It really didn’t matter who originated them. States had no way of cutting off that all-important funding source. And the national regulators, with their energy focused on making sure that “their” institutions were free from pesky state laws, idly stood by.
What none of the regulators could see was the most obvious fact of all: if cities and states all over the country felt the need to enact their own laws—as twenty-five states, eleven localities, and the District of Columbia had by 2004, according to a GAO report—didn’t that suggest there was a problem that needed fixing? Even the FBI seemed to think so. In October 2004, Chris Swecker, the assistant director of the criminal investigative unit of the FBI, told Congress that “mortgage fraud is pervasive and growing.” He explained, “The potential impact of mortgage fraud on financial institutions and the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. Investors may lose faith and require higher returns from mortgage-backed securities.” And still the regulators remained unconcerned.
There was one halfhearted effort to enact a national law to curb some of the subprime lending abuses. But while some lenders, including Ameriquest and New Century, did want national legislation to avoid the constant need to beat back state and local laws, the powerful Mortgage Bankers Association didn’t put its weight behind a law. One former lobbyist says that the deciding factor was Angelo Mozilo, who told him, “No regulator is going to tell me what kind of products I can offer.” According to the Wall Street Journal, Countrywide spent $8.7 million between 2002 and 2006 on political donations, campaign contributions, and lobbying to defeat antipredatory lending legislation. Old-school Republicans always felt, here’s the channel of commerce and here are the curbs, says Chris Hoyer, who runs the plaintiffs’ firm James Hoyer in Tampa, Florida. “Go over them, and we’ll kill you. As soon as someone starts to cheat to get market share, and their market share gets bigger, well, guys are gonna cheat to keep and get market share. That’s why you have old-school rules. Bad shit happens if you let the curbs down.”
For the few who remember the old world of mortgages, and the concept of risk, those were surreal days. Dave Zitting, an old-fashioned mortgage banker with a homespun style, runs the Arizona-based Primary Residential, which makes mortgages across the country. Zitting started in mortgage banking in 1988, when he was eighteen, and aside from one year spent bagging groceries, he’s never done anything else. He grew up in a world where making a loan was all about the four Cs—credit, collateral, capacity, and character. “We thought of a loan like an airplane,” he says. “It couldn’t fly unless it had all four parts.” As he watched the growing insanity, he says he went from feeling scared to leave a C out to thinking, “What good am I? Have I just been fooling myself that I’m doing a job? Holy shit, maybe these guys are on to something—maybe paying for a home has nothing to do with the four Cs.” When he started in business, there were three loan products. By 2005, there were six hundred. The rule, Zitting says, was “Breathe on a mirror, and if there’s fog, you got the loan.”
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