This book is not directly about the foreclosure crisis but about the seeds of that crisis – deceptive and fraudulent mortgages that left desperate people worse off than before and without a chance of meeting the obligations of the contracts they had signed.
The seeds were initially planted over 30 years ago in the form of deregulation of the financial industry. The seeds sprouted in the late 80s and blossomed into the S&L crisis. Little if anything was learned and the deregulation continued – still more seeds were planted. By the early and mid 90's the players that had escaped the S&L crisis and even some who didn't were back at it writing predatory sub prime loans. The deception and outright fraud was becoming even more prevalent easily circumventing the few new consumer protections. At about the same time mortgage backed securities were a hot commodity. The Wall Street investment banks had stayed clear but a familiar name in the most recent crisis, Lehman Brothers, saw an opportunity it couldn't pass up. As the money to be made in subprime mortgages increased so did the deception and fraud as well as involvement by more and more Wall Street banks.
Like any good crime novel this story has a cast of villains and victims. Of course this is not a novel so the people are real. One of the main characters is Roland Arnall who grew a small Orange County S&L into the mortgage giant Ameriquest. The way it grew was to place sales and profit above all else. There was nothing an Ameriquest salesman would not do to close a loan.
At the downtown L.A. branch, some of Glover's coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the office's break room with all the tools they needed to manufacture and manipulate official documents. They dubbed it the "Art Department."There was lots of money to be made so neither the investment banks that were packaging the loans or the investors buying them questioned the loans themselves. But the continued growth depended on a continued influx of new loans and rising home values – it was in effect a Ponzi scheme. When the housing bubble deflated in 2007 the Ponzi scheme collapsed.
What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents—the ones indicating the loan had an adjustable rate that would rocket upward in two or three years—near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.
I recommend The Monster: You can pretend it is fiction and have an enjoyable read or you can learn about how greed driven fraud and deception resulted in the worst economic crisis since the great depression. While Wall Street and the bankers are still quick to blame those who don't make their mortgage payments you will see who the real victims are.
I received a review copy of this book from the publisher.
Cross posted at The Moderate Voice