Did fruad really collapse the sub prime markets?

Mortgage lenders are quick to point the finger in the aftermath when fraud is apparent and allegations need to surface. Imagine the thrill however of growing a company over a few short years with a minimum investment, in a small office suite and using a card table and phone to get started. Now, let’s fast forward to the same company trading on Wall Street and having recognition as a power house public company and market (sector) leader.Many scholarly sources would suggest playing the lottery or learning to read a racing form is a viable alternative for this comparison; growing a financial services company at a meteoric rate as some of the lenders have over recent years. So where did all the brilliance and strategy go and why have so many rags to riches lenders suddenly awaken to find they were the victim of poor credit decision making and fraud.Where did the brilliance and experience go leading up to the recent debacle in the non agency prime and subprime markets.Let’s begin with what we are being told by the press. You’ve read that subprime lending is high risk business with an added “credit” component that adds to the causes for potential business failure. Domestic lenders in this market sector make loans to high risk borrowers with difficult credit patterns that violate traditional acceptance practices. In other words in a normal lending environment you will always run the risk of  default as an inherent component of the economy, industry, regional and local market factors, etc. Now throw into the mix the added marketing component which calls for marketing loans exclusively comprised of questionable acceptance practices and catering to the borrowers that no other “prime” lender will accept, (Sounds a little like the Federal Reserve Chairman, Greenspan not too long ago). The first problematic concern addresses a business paradox or conflicting rationale. Its deals with logic and certain thought process held by nearly all of us – from financial business analysts and top executives to outsiders and the layman.  I have worked as an underwriter for 20 years and always asked myself this question when faced with a difficult borrower situation:“Would I consider using my own or family and friends capital to a make a risky loan to a stranger in exchange for a rate of return at say twice the going rate of a 30 day certificate of deposit”?There is a saying in the mortgage business that a loan is never rejected for the credit. .  . It’s the rate! Fortunately this bad joke does not hold true as Federal and State laws and compliance rules and regulations prohibit high cost loans. But in our example the truth isYes! Most loans I would make and did approve! But nothing even close to the loans I saw being made in volume over the last 18 months.But even so, you most likely will not invest your hard earned savings into a questionable, uncertain and troubling financial profile for a borrower whom YOU do not know and never met.The joke is that you may not be aware of it, but you’re are making these loans or backing them every working day of the week. If you’re retired and investing in a pension fund or other investment platform that maintains a subprime investment portfolio, guess what? You may be the fool after all.  More on this later. So what if I told you the following – “If” you fund that “risky” non-sense loan request tomorrow, I will guarantee to buy the loan from you the “nano-second” it closes. “Hello”, that right!. . . You put up the money and I will “take out” your position and reimburse you right there on the spot. Oh, yeah….and I’ll give you $10,000 for your time and trouble. After you receive the money and we release (assignment) you from the loan, your then off back to your bank with your original savings intact and some extra cash we call a premium.  And yes, you will never hear from borrower or the me (the cash sponsor who paid you) again.This gets even better….. Ready? (More to follow) No inferences or references are insinuated herein as to the integrity, business practices or direct and indirect cause for financial hardships of any business whereby such business and its management may otherwise attempt to make comparisons the writer is not appraised of or that result from timing and coincidence.