No Pity Party for Big Banks

15. CitiFinancial / Citigroup Inc.
At least $26.3 billion

16. EquiFirst Corp./Regions Financial Corp./Barclays Bank plc
At least $24.4 billion

17. Encore Credit Corp./ ECC Capital Corp./Bear Stearns Cos. Inc.
At least $22.3 billion

18. American General Finance Inc./American International Group Inc. (AIG)
At least $21.8 billion ***

19. Wachovia Corp.
At least $17.6 billion.

20. GMAC LLC/Cerberus Capital Management
At least $17.2 billion ***

21. NovaStar Financial Inc.
At least $16 billion

22. American Home Mortgage Investment Corp.
At least $15.3 billion

23. GreenPoint Mortgage Funding Inc./Capital One Financial Corp.
At least $13.1 billion

24. ResMAE Mortgage Corp./Citadel Investment Group
At least $13 billion

25. Aegis Mortgage Corp./Cerberus Capital Management
At least $11.5 billion

[*** includes subsidiaries]

In fact, # 1–Countrywide–said Dunbar, “was so big and controlled so much of the lending industry, they could almost dictate who they sold their loans to.” Headquarters for Countrywide, whose name was discontinued when it was purchased by Bank of America, was Calabasas in Southern California’s Los Angeles County.

Nine of the top 10 subprime lenders were located in California, seven of them in Orange and Los Angeles Counties, Dunbar pointed out, offering some reasons why the area was “such a hotbed of mortgage lending.” Not only is it easy to get a mortgage lender’s license in the state, he noted, but you can then hire as many unlicensed people as you want. Moreover, oversight was “generally lousy,” he added. “And some were non-bank lenders who were not regulated by the FDIC.

“But before lack of regulation–state and federal–was demand. The overwhelming driver for these complex, mortgage backed securities was the tremendous demand for investment product. “Large institutions and investors around the world were looking for places to put their money,” said Buzenberg, “and the only way to provide these bonds was to write more mortgages.” The study found that from 2005 through 2007, U.S. and European investment banks “invested enormous sums in subprime lending due to unceasing demand for high-yield, high-risk bonds backed by home mortgages.”

“Credit Default Swaps and the ratings agencies also played a role,” Dunbar said, adding that “any regulatory responsibility” for MBS was “passed on to the ratings agencies.”
No one felt responsibility for MBS. A “legal wall” allowed [responsibility] to be handed off in a circular fashion, Buzenberg explained, adding that, in his and Dunbar’s opinion, cities and municipalities “will be going after these lenders.”

Asked whether earlier “stress tests” like those recently implemented by the Federal Reserve would have prevented banks from such predatory lending, Dunbar replied, “That might have worked, but now they’re like closing the barn door after the horse is out.”