Sunday, January 14, 2007

Option One responds to scprofessor's email

After I posted the story of Option One acting in a compassionate way scprofessor engaged the Chief Operating Officer in an email exchange. I think the items discussed are excellent. Here is the email exchange:

I read with interest your response to the Business Week article that criticized the alleged predatory practices of your employer (see it at ).

I speak from a position of experience, having served as a transactional insider during the two previous downturns in California's real estate economy ('79-'83 and '90-'94). I think it is simpler to cut to the chase rather than beat around the bush. Plain and simple, sub-prime lenders like Option One have, through loose and predatory lending practices, and with the assistance of the entire real estate community, abandoned prudent lending practices in favor of the creation of imaginary suicide loans designed to put unqualified borrowers into situations where they have little chance of paying their debt in accordance with its terms and conditions.

I would have thought we'd learned something from the savings and loan crisis. Your attempt to defend Option One fails for one specific reason. They are a direct and active participant in schemes like putting idiot borrowers in situations where they borrow more than 100% of the purchase price utilizing negative amortizing variable interest loans. Talk about a solution headed for disaster. This didn't happen when lenders made loans that would be retained in their own portfolio. The excuse that prudent lending practices can be abandoned because the originator quickly dumps the paper on the secondary market is idiotic and will result in taxpayers like me having to pay for this mess once Option One and other sub-prime lenders go out of business because of their willing participation in a scheme designed to promote fraudulent lending activity.

Turning a blind eye to situations where subordinate financing serves as a substitute to an alleged buyer down payment simply doesn't cut it. What ever happened to lender requirements that necessitated us of a "verification of deposit" form? In my humble opinion I'd be looking for a new job. Option One, like a number of other sub-prime lenders is going to be added to the list of failed sub-primes maintained at .


Teji Singh wrote:I got this e-mail today....

Interesting enough, our response is being read. However, the issue that irresponsible lending has caused an issue with many borrowers stays prevalent. So, it is not Option One that is the issue, all of sub-prime is being targeted and compared to the savings and loan crisis.


scprofessor: Date: Sun, 14 Jan 2007 07:07:33 -0800 (PST)
Business Week Article Response
To: Teji Singh, Robert Chaffin, Christine Sullivan

You are correct and I submit it is a fair comparison. There is some clear responsibility here that can't be avoided. That is acting as a willing participant in fraudulent lending practices. Those ultimate purchasers of mortgage backed securities are not going to be barred by any sort of limitation of action time line because their time doesn't begin to start for the initiation of their recovery until they, through their exercise of reasonable prudence, discover (or should have discovered) the fraud that has been committed. Hiding behind terrible industry practices like "income stated" loans just isn't going to cut it. We've all heard stories about the McDonald's shift worker who claims a $100,000 income on his loan application. Underwriting practices that ignore the unrealistic nature of such a claim, do not excuse the exercise of common sense.




Teji Singh wrote:


As a servicer of non prime loans we are constantly looking at ways to assist our borrowers. That was the purpose of the response, that was not how we were portrayed in the article. As a servicer, we are not looking at foreclosing (that is a lose/lose proposition) rather discovering innovative ways of assisting (albeit after the fact). But, I do appreciate you reading the response and reaching out to contact me.



scprofessor: Date: Sun, 14 Jan 2007 08:02:04 -0800 (PST)From:Subject: RE: Business Week Article ResponseTo: Teji Singh, Robert Chaffin, Christine Sullivan

As you no doubt sense, I've been in your position and done your job. The patchwork attempts relative to workouts don't solve the problem that could have and should have been handled at the time or origination. One of the joys of academic freedom is, having tenure; I can freely speak my peace without fear of repercussions. You and other executives at Option One cannot and I understand that.

My sense is that unless the industry has gone through even more changes than when I left it in 1995, you are a salaried employee. Back in the good old days, all who worked for lenders were. That salary provided us with an incentive designed to promote loyalty to our employer. Today many who work on the loan origination side of the house base their income on a commission. No production means no income. What a paradox. I need to act as a loan officer. However if I exercise prudent lending practices I'm going to be cutting my income. The result, as we see it, is the quality of paper that is created is not as represented.

I don't blame you. I certainly don't blame any loan servicers. But let's face it. Each day you see the results of this situation first hand. Crappy loans that never should have been written. Deals that just don't make sense now and didn't make sense when they were made. And of course lack of loyalty means the responsible employees are now working for the competition, continuing to make crappy underwriting decisions. It has to and needs to be stopped. I'm thinking RESPA II is going to be one hell of a restraint on the mortgage business. But a necessary restraint.

Take care,


scprofessor said...

You left out my closing response, which I think is key in its logical conclusions. Also misspelled the word "respond" on your title to this tread (guess it is the teacher in me)...... grin

Bakersfield Bubble said...

Thanks. It's that State University education I received. LOL.

I forget that a few thousand people will read this and should take a little more time and review the posts. My wife chews me out everytime she reads something I write.

Perfect Storm said...

Misspelled words in a blog type environment are common, but sense this is just conversation without talking the message is more important than the grammer. Blogs further education through debate and commentary, which is a great tool for our society.

From the printing press, to the encyclopedia, to mass media, to the blogsphere, these are great achievements for our society. The blogsphere is the first place where millions can read an indvidual's view, without it first being published.

What I am amazed at is how far one industry (REIC) will go in order to structure an economic environment that only benefits a few, with gross negiglent to the rest of our Country.

I quote Paul Strebel "this closed attitude of ridgity and corporate super-ego that has set in place philisophy, beliefs, and impicit strategies that shape the an organization's view of the world. A closed mind-set is, unhappily, very easy to develop. It may be created by delusions of success, ingrained strategies, or buried assumptions. Although a closed mind-set may be blind to change forces initially, their strength can cause a rapid reversal, once realization dawns.

The REIC most assuredly has a closed mind set, however due to what appears to be nothing less than a huge storm of defaulting loans on the horizon they will be forced to change. However, the example of Option One's response to the scenario noted above of trying to steer responsibility from themselves is just part of the closed mind set this industry has developed. Unfortuantely they have caused an economic disaster.

Housing Wizard said...

Wow , I really enjoyed reading your responses to Option One scprofessor.