Confessions of a Former Sub-Prime Lender

Confessions of a Former Sub-Prime Lender So most of us are to the point where we can’t handle hearing one more negative news story on the recession, failing banks or the bail out.   Personally, I think we had it coming to us.     I think back to my first job after college where I was selling sub-prime mortgages for one of the largest and most reputable financial institutions in the world.   My experience there is the perfect example of why I feel this way.     For those of you who aren’t familiar, sub-prime lending is when financial institutions give loans to customers with less than ideal credit scores.   These customers are considered high risk and get loans at a higher rate than someone with good credit.     At my job, we were trained to believe that we were doing something great for our customers!   That 12% interest rates plus 3 points (3 points = an upfront cost of 3% of the mortgage amount added to the loan balance) on mortgage refinances was totally normal.   I found this interesting considering the mortgage rate at that time was about 7% with no points.     I was told that giving a hardworking customer a loan for more than their house was worth was GREAT because we were paying off their $70,000 in credit card debt and reducing their monthly payments.   One time, I did a mortgage refinance which used the equity in the customer’s home to pay off their brand new Cadillac Escalade, because the $800 monthly car payments were “really killing them”…(Um hello, do you REALLY need an Escalade?!?)   Of course we mainly closed Adjustable Rate Mortgages (aka ARM’s) that I knew the customers wouldn’t be able to afford once the rate adjusted upwards.   We took  ALL the equity out of their homes which they had worked their whole lives to pay for which means they’d have no nest egg for the future.     I could go on, but I think you understand why my time at this company lasted only a short time.   Although not all the mortgages I closed were as extreme as the examples above, I couldn’t sleep at night knowing what I was doing to make a living.   Even as a ripe newbie, something just didn’t feel right.   Turning on the news almost 3 years later shows that my gut feelings were right.   Americans and their big corporations had this coming.   Credit was way too easy to get, it seems like almost anyone could walk off the street and get a loan- even if they couldn’t pay for it.   The people giving out these loans had no stake in whether or not they were paid back because, in many cases, mortgages were bundled together and sold off like commodities to other huge financial monsters.   How did I end up at a job like this?!   Well, I had no clue what I was getting into from the interviews.   NO clue.   But thats another story.   I will say  that I was also told that I would “definitely” make $70,000 my first year and that this was the hot new career path for sales-oriented  finance majors.     So maybe it’s not just the big companies who are responsible for the economic downturn:  people like me and my sub-prime customers are responsible for the economic downturn too.     I went into this job solely for the opportunity to make a lot of money at age 22:  greedy and unnecessary? Maybe.   Were my customers being responsible by allowing themselves to buy Escalades they couldn’t pay for and racking up sometimes over $100,000 in credit card debt and hoping someone could fix their mistakes?   Maybe.   No one forced me to take that job, nor my customers to make their excessive purchases.   For some reason we, as Americans, felt the need to prove something to keep up with the Jones’.   Yes, technically financial institutions let us take it too far but in the end, we were the ones making those decisions.   And now the bubble has burst and everyone wonders what happened.   The good news is that even the wealthy can feel the effects of being greedy this time.   The recession is affecting everyone and I think it has caused all social classes to take a step back and re-evaluate their basic needs and values.   I hope America learns a lesson from this rather than allowing the cycle to repeat in the future.