A Banker Speaks, with Regret

Nicholas D. Kristof, New York Times, November 30, 2011

If you want to understand why the Occupy movement has found such traction, it helps to listen to a former banker like James Theckston. He fully acknowledges that he and other bankers are mostly responsible for the country’s housing mess.

As a regional vice president for Chase Home Finance in southern Florida, Theckston shoveled money at home borrowers. In 2007, his team wrote $2 billion in mortgages, he says. Sometimes those were “no documentation” mortgages.

{snip}

Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable–and that all this was driven by pressure from the top.

{snip}

One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers–those with less education, without previous mortgage experience, or without fluent English–and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.

Theckston, who has a shelf full of awards that he won from Chase, such as “sales manager of the year,” showed me his 2006 performance review. It indicates that 60 percent of his evaluation depended on him increasing high-risk loans.

{snip}

Topics:

Share This

We welcome comments that add information or perspective, and we encourage polite debate. If you log in with a social media account, your comment should appear immediately. If you prefer to remain anonymous, you may comment as a guest, using a name and an e-mail address of convenience. Your comment will be moderated.
  • john

    This whole reduction in credit standards was driven largely by the belief that real estate prices can only go up, a strange notion that comes around roughly every thirty years.

    Thus, shaky borrowers (and their lenders) will always be bailed out by the appreciation of the underlying asset (the house). It seems that this belief has to be exploded about once a generation, as it was in the early Seventies, mildly in the early Nineties, and powerfully in the previous and current decade.

    Any time the supply of anything exceeds demand, prices fall precipitously. The huge expansion in resort home building has utterly dynamited entire areas of Florida, Arizona, California, and Nevada. The bottom’s not yet in sight.

  • Anonymous

    It’s easy to claim racial advocacy of subprime sucker bets as something to feel ‘guilty’ about in ruining the economy.

    I personally would love to see this as an allocution in this man’s 20 year sentencing so that his followons in the business have something to weigh against the standard ‘I was just following orders’ defense.

    Yet beyond this is the reality of what the Sub Prime Balloon was _intended_ to do. And that’s flush masses of property into the hands of the very wealthy in another ‘business cycle’ (so sorry, it was just business) as these houses were always intended to default.

    What these people will DO with this real property, after the USD collapses and China starts calling in IOUs, is the big question.

    I think we have only seen the tip of the evil that is sticking it’s black-ice above the waves.

  • Ben N Indiana (AWG)

    Ten years ago blacks were complaining they were locked out of home ownership by “red lining” racist lending institutions.

    Banks buckled to the pressure and began making foolish loans to silence accusations of racism.

    Today blacks accuse those lending institutions of “predatory lending.”

  • Question Diversity

    In my long monologue a few months ago about the subprime mortgage collapse in this medium, I said that government and private industry were about equally culpable. The reason I hold private banking culpable is that they didn’t try to resist the affirmative action lending mandates, in spite of all the politicians they buy, pay for and own. That must mean they agreed with the motivation.

    I fail to see how this helps the Occutard cabal. They’re the same kind of equality nuts.

  • Anonymous

    Vi>Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable—and that all this was driven by pressure from the top.

    If it was “pressure from the top” then it is “the top” — i.e. FedGov and their wacky “Home Ownership Will Turn Blacks White” scheme — that is the MOST culpable of all. Bankers are generally a cautious bunch, to put it mildly. Not even the lure of high commissions would have been enough to send so many of them astray — taking the entire 2008 economy with them — had it not been for the additional factor of Political Correctness: banks were afraid that if they DIDN’T make these risky loans to non-English-speaking $12/hr drywallers from Michoaca, then they’d be called RACIST.

    These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes.

    What the NYT is much too genteel (read: lily-livered, pantywaisted, self-castrating) to mention is that blacks and Latinos are just less savvy people in general. Which means that regardless of the interest rate; and regardless of how inappropriate their getting a mortgage in the first place, they are the kind of borrowers who are disproportionately more likely to default on ANY loan. This is why the Repo Man is a more feared figure in the barrio/ghetto than in the leafy suburbs. This is why there are more of those depressing, neon-lit check-cashing insta-ca$h storefronts in their neighborhoods than in ours.

    The one lesson that EVERYBODY involved in what Steve Sailer has memorably named “The Minority Mortgage Meltdown” (what the lamestream calls “The 2008 Recession”) needs to learn is that blacks and latinos are STILL the same lousy credit risk they always were — so we need to stop putting temptation in front of them. Tempting them with a half-million-dollar McMansion that they can’t realistically pay for isn’t fair either to them OR to the taxpayer. Face it: these people just aren’t good with money.

  • E Pluribus Pluribus

    One snapshot in time during a five-decade period of diversity-induced insanity in Washington:

    1998 – The Clinton administration authorizes Fannie Mae and Freddie Mac to purchase subprime mortgages to satisfy their affordable housing obligations. Note these prophetic paragraphs in a 1999 New York Times report on Freddie and Fannie’s expanded mission:

    “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’ s.

    ‘From the perspective of many people, including me, this is another thrift industry growing up around us,’ said Peter Wallison, a resident fellow at the American Enterprise Institute. ‘If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.’”

  • passingthru

    The “higher rate” made them lose their homes? So if they got 0% interest, everything would have been fine, right? Whatever.

  • WR the elder

    Why were banks so willing to make risky loans? Because they had no intention of holding them. They earned the fees on creating the mortgages and then packaged them up and sold them off to Fannie Mae or Freddie Mac. Who supported Fannie Mae and Freddie Mac? All the Democrats and most of the Republicans, including Newt Gingrich. Who opposed Fannie Mae and Freddie Mac, and foresaw that they were creating a housing bubble? Ron Paul.

  • Kid Clorox

    “Banks buckled to the pressure and began making foolish loans to silence accusations of racism.”

    Better check up on the part Chris Dodd, Barney Frank, Freddie Mac and Fannie Mae had in this. The rate at which banks could borrow from the Federal Reserve Bank were TIED to participation in, and percentages of those loans to sub-prime borrowers.

  • Patriot

    A good book on the subject of the federal reserve is ‘The Creature from Jekyll Island’

    Private central banking is the problem. The same problem in fact that the founding fathers were dealing with during the Revolution.

    Central banking is linked to taxation, and the Federal Reserve was created in 1913 the same year as the national income tax.

    Central bankers manipulate the economy for profit – by over inflating the boom times, but also by creating crashes which allow them to buy up assets cheaply.

    Race was their excuse to do what they did. The result is more centralization of power and wealth in the hands of a small cabal of European bankers.

  • iforgot

    This whole reduction in credit standards was driven largely by the belief that real estate prices can only go up . . .

    That, and the beliefs that:

    1. The reason blacks don’t own their own homes is due to their inability to hurdle the initial down-payment requirement;

    2. Even though blacks typically have poor credit history, they won’t default on their homes, for God’s sake . . . surely they’ll care more about their homes than a blinged out ‘Eksuhlade’ and they’ll make those home payments on time every month;

    3. Once white neighborhoods become mixed with these new black homeowners, those once-racist whites will see that black folks really are, just like white folks, only with darker skin and then there will be racial harmony in America.

  • Greg

    This mess would have never happened if the banks weren’t sure that the U.S. gov’t (Freddie and Fannie) would not buy these loans.

    This policy was orchestrated by anti-U.S. operatives with in the Federal government as a way to help destroy America under the guise of the Community Reinvestment Act (CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977)

    The same thing is going on with federally backed student loans which like the housing cost bubble has caused college tuition to rise precipitously and which will leave (sub-prime) students unemployed and unable to repay their loans.

    As of now student loan debt exceeds credit card debt in the U.S..

    Today almost any moron can borrow 100K by signature because banks no that the gub’ment backs the loan. If the loan was not guaranteed by the state the banker would tell that D- student to pound sand.

  • Anonymous

    As of and up to comment #11, posters do well recognizing the political pressures that were at work in the early 90s due to lawsuits regarding mortgage loan discrimination, mostly pushed by the NAACP and other leftist organization. During the 90s and up to 9/11, the problems this was causing were evident, but somewhat within management. After 9/11, President G. W. Bush made the cause for signature only subprime loans a national campaign. I recall well his repeated endorsement of it and comments such as, “Everyone has the chance to realize the American Dream of home ownership.” These comment and the further loosening of restraints on banks and especially the real estate “industry” led to not only normally unqualified people receiving mortgages on a signature, but the practice of “flipping” real estate for a quick profit. I saw this at work in my own community and it was obviously at work nation-wide. It provided a red-hot economy to form that “bubble” and the very predictable burst. I just sat back, predicted it and watched it happen.

    Funny thing, I noticed is that all the real estate agents I have every met save one was a Republican, conservative Christian (and advertised it to me) that justified the entire scenario that they had to know was dishonest and unethical at its core. Now they all seem to want to blame the left alone. The lie is obvious and only detracts from the credibility of those who ignore the more recent and blatant nature of the more recent history made during Bush 2’s era of misrule.

    But the average citizen, regardless of color or education, is least to blame. They were led, encouraged, and even herded into these loans. Meanwhile, the banks want to hold onto the pumped up paper and let foreclosures go forward, then sell the same homes for far less money – BECAUSE THE LOANS ARE ALMOST ALL GUARANTEED BY TAXPAYER PAID INSURANCE POLICIES. This is the information I got from an HUD adviser in my town last week. The banks are making big bucks both ways. It’s just the average person suffering. More of them are white than most posters here seem to want to recognize. At least in my region.

  • Anonymous

    How many here caught the Republican sponsored bill last week that would grant visas to foreigners who would buy homes OR COMBINATIONS OF HOMES in the U.S.

    This is what I have heard some conservative business/investment pundits say lately; Up the speed of foreclosures so that (apparently) the transition of the populace from owners to renters could transpire.

    Now what I predicted on Amren last year has found a start in reality; More and more Americans will find themselves renting to absentee slumlords, possibly even foreign governments like China, who will likely sent buyers to purchase large swathes of real estate on the U.S. Mainland. First ownership, then occupation.

    The Republican who is sponsoring this bill is Senator Bill Lee R-Utah.

    Race Realists who refuse to acknowledge that many so-called conservatives, Republicans, etc., would sell them out for political or financial gains hamstrings the fledgling movement and creates a shaky foundation. I don’t think we need to lie to ourselves to justify our aims.

  • Question Diversity

    14 Anonymous:

    Whew. I’m glad I wasn’t the only one who caught that story.

    That bill is co-sponsored by Mike Lee (R-UT) and Charles Schumer (D-NY). It would mean that foreigners who buy a piece of American residential real estate for a half megabuck or more gets a green card. Jon Huntsman, former Utah Governor, never misses the occasion of a Presidential debate to pop off about the “need” for more H-xB visas. He has verbally endorsed this bill.

    I strained my brain for a few days trying to figure out why Lee and Schumer and Huntsman, Utah and New York, would team up on something so stupid. Then it hit me: Manhattan, and Park City, Utah. Just about the two most expensive cities in America for residential real estate. Schumer and Lee and Huntsman are jumping to hickory stick of their richest constituents to flood the demand end of high end real estate with big money foreigners to drive up the values of high end real estate. That way, the Manhattan condo owner and the millionaire who owns a vacation house in Park City’s ski resorts will see their real estate values go up and up and up for the foreseeable future, and they’ll be able to do cash out refis every few years.

    Here’s another immigration story that got lost in the Friday afternoon shuffle:

    http://goo.gl/k128D

    Only 15 no votes. NYT roll call on that bill:

    http://goo.gl/NaeJU

    My Congressman (Akin-MO) voted yes, and usually he’s pretty good on immigration. And he’s running for Senate. But that vote was instructive, and not for a good reason. If he pulls another stunt like this, I’m asking his Senate campaign for my money back.

  • Donald

    The abrasive and dishonest foreclosure movement is creating yet another harvest of disorder.

    Unless you have examined the chain of foreclosure procedures, and noted the banks unwillingness to help undo the damage they have done through loan modifications, much less file scrupulously honest foreclosure documents, there will be another backlash because almost every deed to foreclosed property will be eligible for attack for years into the future, thus stripping new purchasers of their property, bankrupting title insurance companies, and throwing billions of dollars worth of real property into question.

    All of which is to say, the downward trajectory of the foreclosure movement will create as much havoc as the upward trajectory of subprime mortgages did…and for much longer.

  • Jack in Chicago

    This was part of the Jack Kemp, Phil Graham, George W Bush – “compassionate conservatism” – looking to turn the urban Black poor, the 3rd world immigrants in to solid, property owning “Americans” who would somehow embrace Conservative American values and become responsible (Republican) citizens, if only a few standards were lowered, they were given access to capital. This idea that any person in America, any person in the whole world should have access to “American Dream” – this is a a very uniquely American dream that leads to destruction. The Japanese never think like this and for most Europeans, they understand that this is part of America, Hollywood – rags to riches.

  • AvgDude

    I recently interviewed a woman for a programming job. She had worked at Fannie Mae for over ten years. She said flat out in the interview that part of her job was to compile lists of minorities that would be fast tracked for loans. She said it as if it were just a common, rational, everyday practice to give preferential treatment for loans solely on the the two criteria of 1) not being white and 2) not having any money.

  • Charles B. Tiffany

    This catastrophe was brewing for a lot longer than just a few years . I was a lawyer for one of our local banks. We were terrified every time an African American asked for a bank business loan. When Puerto Ricans stormed the county we were freaked by them also. We were forced by banking rules to have an out reach program for minority borrowers. They would fill out papers that were like Alice in Wonderland with mis-spellings. We did not dare to actually check their collateral because we had to explain to the bank regulators why we did. It cost the bank about 1000 to turn down a minority applicant because of the paper work alone. The default rate on these loans was 21% compared to 3% of everyone else`s. We never filed collection suits against them and even trying to call in collateral was a joke in progress.We received a special award from the government for our minority loan practices. We were absorbed by a big time bank, which since was forced into another big time bank by by the bank examiners. Our little home town bank was destroyed by our own government and hundreds of investors, mostly retired school teachers and cops were wiped out.

    Charles B. Tiffany

    Kissimmee, Florida

  • Anonymous

    Much of this financial debacle is the direct result of Washington pols deciding that home ownership for all is a worthy goal. This despite a tsunami of research indicating otherwise, as well as the experiences in other countries.

    The simple requirement of 20% down would have prevented the entire episode. To get to 20% means one has to have a job that one can afford to save, and save enough to accumulate 20%. Further with 20% down, you don’t walk from your house as you have “skin in the game”. At 3.5% or less, walking in times of price declines is easy. And lastly, 20% down prevents rampant speculation by those purchasing housing at little-to-no personal financial risk, bidding up the housing prices and inflating a bubble.

  • Paleface 6

    Anonymous 14 wrote: “…Now what I predicted on Amren last year has found a start in reality; More and more Americans will find themselves renting to absentee slumlords, possibly even foreign governments like China, who will likely sent buyers to purchase large swathes of real estate on the U.S. Mainland. First ownership, then occupation…”

    There is a persistent rumor that the big “agribusiness” outfits in California’s Central Valley buy up foreclosed houses and use them as barracks for farm workers. One person I know told me of seeing 15-20 men standing on a street corner of his subdivision getting picked by bus in the morning, and later being dropped off in the evening.