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My Two Cents

The Subprime 25

Chris Farrell May 6, 2009

A recent investigation by the Center for Public Integrity into the subprime mortgage debacle makes a convincing case that it wasn’t perpetrated by fly-by-night outfits working out of boiler rooms. We knew that, of course, but the Washington-based Center does a terrific job to reveal that major financial institutions spent almost $370 million in Washington over the past decade on lobbying and campaign donations to fend off tigher regulation.

These are many of the same institutions the government is now shoring up with taxpayer money.

Here’s how the Financial Times put it today:

Chronicling the explosion of subprime mortgages is a bit like reading Murder on the Orient Express. As in the novel, in which everyone is revealed to have had a hand in the murder, America’s subprime story implicates almost every power centre – including the Bush administration, the Federal Reserve and the Democratic party.

“The mega-banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves,” said Center Executive Director Bill Buzenberg. “These banks were deliberate enablers that bankrolled the type of lending that’s now threatening the financial system.”

The Center investigative reporters booted up their computers to examine almost 7.2 million “high-interest” or subprime loans made from 2005 through 2007. The analysis allows them to compile the Subprime 25 — the top 25 originators of the high-interest loans, accounting for nearly $1 trillion in loan.

A couple of highlights:

At least 21 of the top 25 subprime lenders were financed by banks that received bailout money.

Nine of the top 10 lenders were based in California, including all of the top 5 — Countrywide Financial Corp., Ameriquest Mortgage Co., New Century Financial Corp., First Franklin Corp. and, Long Beach Mortgage Co.

Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were non-bank lenders.

Eleven of the lenders on the list, including four recipients of bank bailout funds, have made payments to settle claims of widespread lending abuses.

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