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Thursday, Mar 28, 2024

Sub-Par Thinking on Sub-Prime Loans

The innumerable “whooshing” sounds you hear are not the near-silent falling of a house of cards. They are the falling of cards of houses or, to be more precise, the millions of pieces of paper upon which sub-prime mortgages are written. And falling with them is the rest of the economy. So what are these papers that can bring our economy to its collective knees? They are loans provided to people who couldn’t afford to repay them, sold by people who should have known better than to make them. And then, to compound the problem, millions of these loans were packaged as “financial investments” by the firms employing those high-flying youngsters working for such Wall Street investment houses as Bear Stearns. And leave it to those geniuses to create a phrase, “sub-prime mortgages.” Why not a bit more truth in packaging: “loans to those who can’t afford them sold by those who don’t care.” Isn’t that much more descriptive? We Americans love to place blame, so let’s decide who’s to blame here. Is it the borrowers who found a way to purchase property that they hoped they’d be able to afford when their adjustable rate mortgages were reset at a higher rate, of course? Well, maybe in some cases, but who can blame ever-optimistic Americans who are sure they’ll be making more in three years than they are today. Sadly, when it comes to borrowing and a mortgage is a loan they disregarded the old saw that “if it sounds too good to be true, it probably is.” Should we wag our collective fingers (no, not the middle one) at the companies that created and sold these loans? Are these companies just rapacious predators out to take advantage of poor, misguided individuals longing for their share of the American dream? Probably to some degree, but in a capitalistic society, the concept is to sell something for more than it costs. And finally, there are the twenty-somethings on Wall Street, whom we all secretly despise for making millions not too much after they began shaving regularly, while the rest of us poor working stiffs toil away for a mere few thousands a year. In their usual well-thought-out and results-oriented approach to the problem, our lawmakers, from the U.S. Capitol in Washington to Los Angeles City Hall, figure the best way to solve the problem is to throw money at it our money, of course. Having previously assumed the mantle of the Old Curmudgeon, it pains us not one bit to suggest that those who made bad decisions about managing their money have to be responsible for those decisions, and that those businesses that sold mortgages they knew couldn’t be paid back choke on their own loan papers. Every pundit, prognosticator and politician seems to have a magical solution to the problem. The truth is, there isn’t one. Our economy is going to have to go through a year or so of too many unsold houses on the market, too many people suffering from the burden of repaying loans they can’t afford, and too many ripples going through the rest of our Iraq-war-burdened economy. There, doesn’t that cheer up your Monday morning? Here in Our Valley, we’re definitely feeling the fall-out: real estate agents are scurrying for viable listings, homebuilders are trying to reduce inventory, and jobs are being lost in every sector of the economy. Nestled in the hills of Calabasas is the mortgage industry giant, Countrywide Financial. Their website’s home page reads: “As the #1 home loan lender in the country, we specialize in finding ways to say ‘yes!'” Maybe it should be changed to: “As the #1 home loan lender in the country, we specialize in finding ways to say “‘yes when it makes sense!'” The company is laying off thousands of employees, suffering from negative press over its recalcitrance to work with struggling homeowners looking for some assistance, and casting about for additional cash infusions to remain viable. According to its third-quarter financial results, things are pretty scary at Countrywide Financial: “Mortgage loan fundings for the month of September 2007 totaled $21 billion, a 44 percent decline from September 2006 Average daily mortgage loan application activity for September 2007 was $1.7 billion, a 39 percent decrease from September 2006.” One person not struggling too much in all of this is Countrywide’s Chairman/CEO, Angelo Mozilo, who according to the San Fernando Valley Business Journal, had an aggregate take-home pay of $141,975,000 in 2005. Back in March, we suggested to Mr. Mozilo that he and a few other extremely well-compensated (that’s corporate-speak for, “what an outrageous salary”!) senior executives could help a few Valley philanthropies in dire short-term need, suggesting his organization of choice might be the Boys & Girls Club of the West Valley. None of the three executives we mentioned chose to heed our suggestion. Mr Mozilo, maybe you need some positive PR now more than ever. The Boys & Girls Club raised the money for their heating and air conditioning, but they sure could use a van or two to transport needy kids to a safe environment like the Club. Think about it. “There is no such thing as a free lunch.” — Author Robert Heinlein Martin Cooper is President of Cooper Communications, Inc. He is the Immediate Past Chairman of VICA, Past President of the Public Relations Society of America-Los Angeles Chapter, Past President of the Encino Chamber of Commerce, President of the Los Angeles Quality and Productivity Commission, and a member of the City’s Business Retention and Attraction Task Force. He can be reached at [email protected] .

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