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TESS VIGELAND: Last September’s collapse of Lehman Brothers is widely considered the event that pulled the pin on an economic grenade. But in fact the financial system began to combust more than a year earlier. In mid-July of 2007, Bear Sterns announced that two of its hedge funds, once valued at $16 billion, were suddenly worth nothing.
They’d put huge bets in investments in subprime mortgages and the housing market was on the verge of collapse. Today — two years hence — we can only wish it was all just a bad dream. Instead, the reality of this enormous mess has left a trail of destruction from coast to coast and just about everywhere in between.
Krissy Clark has one of those stories from in between: a Sin City mortgage broker who was done in by a mania — that he helped feed.
Krissy Clark: Stephen Doolin was far from Wall Street when those Bear Stearns hedge funds collapsed that fateful day in July. But 2,500 miles away, in Las Vegas, he still had an intimate link to the source of all the trouble. That’s because, Steve was a mortgage broker. This was back when almost anyone could get a mortgage and, as Steve will tell you, almost anyone could sell one. Even him.
Stephen Doolin: I knew nothing about the loan business. I was in construction my whole life. And I walked into my friend’s office, he was a mortgage broker, in my construction clothes and I said, “Give me a job.” He was making about $40,000 a month. I said, “Why can’t I make this kind of money?” He said, “You can.”
Steve made $100,000 in his first year, selling all sorts of loans: subprime loans, with higher interest rates for people with bad credit; adjustable rate loans, where the interest jumped up after the first few years; so-called “liar loans,” that you could get without proving you had a job or any money in the bank.
Steve got really good, making even the shakiest deals through. He made friends with the loan underwriters — they’re the ones who go over loan applications and have final say on who to lend to.
Doolin: I was taking underwriters from banks to lunch or sending them gift cards and everything, because I knew that if I had a problem loan, we could work it out.
It was the height of the real estate feeding frenzy, and Steve was one of the guys feeding it. He insists he never gave a loan to someone he didn’t think could afford one.
But Steve didn’t just sign other people up for loans. He got one for himself too, for a big house in a gated community and a lot of new stuff for his family. At the time, he could afford all the payments.
Doolin: I made a crap load of money really fast. Well, not a crap load, but more money than I was used to making. And if you want to do better for your family, so you buy a bigger house, or you buy a new car or you do that. So I bought a new house, I bought a couple cars, and like a fool, I upgraded like people do. I spent.
Maybe you’ve already guessed what happened next. But it’s useful to remember some of the excruciating details. The stories of fallen fortunes have become so common these days they take on a kind of forgettable short hand.
Here’s what happened to Steve: He became a victim of his own success. The mortgages he and his colleagues had gotten rich off of started collapsing. And so many homeowners were defaulting on their loans, banks kept tightening standards about who to lend to. Steve and his colleagues lost a lot of clients. Mortgage businesses started failing by the dozens, then the hundreds. Steve’s firm was one of them. He went from making six figures a year to making nothing. And he wasn’t prepared for it.
Doolin: I kept thinking it’s going to get better, it’s going to get better, and it just got worse and worse and worse.
Without a job, Steve found himself in the same boat as many of the people he’d sold loans to. By the fall of 2008, this former mortgage broker couldn’t pay the mortgage on the house he lives in with his wife and four kids.
When I visited Steve again this spring, he’d put back on his construction clothes and was doing odd jobs out of his garage.
Doolin: These are backdrops for an art gallery. I’m not even a finished carpenter, but you got to take what you can get. I have tried to find a job everywhere in this town. I have applied at gas stations, at supermarkets, at hotels, at restaurants, every construction company you can possibly think of — and I can’t find a job. And that’s scary. I just try to breathe right now.
His family had cut back in every way they could think of.
Doolin: We are looking at welfare right now to see if we qualify for food stamps, to make it easier. Borrowing money from our neighbors, and not being able to pay it back. My wife went to the store, and if she was here, I wouldn’t even talk to you about it, because she gets really down about it when we start talking about it.
He looks off into the distance for a sec.
Doolin: I hope people learn how to use their money properly, how to save their frickin’ money. ‘Cause, when you have none, and you’re forced to swallow your pride and ask to borrow, or you’re selling stuff you’d never sell. I mean I play guitar; playing guitar is like my life. And I have pawned or sold all of my equipment, all of my guitars, except for one. I have one left, and I won’t get rid of it, I hope.
Before I left that day, I asked Steve to play me some of his music. He thought about it, agreed to, and then said no. He was out of practice and one of his guitar strings was broken anyway. But a few days later, he sent me this recording he made of his music. That’s what we’ve been listening to.
And a couple weeks ago, Steve finally found a job, after being unemployed for more than two years. He’ll be doing maintenance on cell phone towers. Steve’s just glad he’s back to work and earning a paycheck. The boom days are gone, but he’s OK with that.
Doolin: I hope that it never comes back to the way that it was, because we might end up in the same mess again.
Steve wants his family and the rest of the country to recover from the recession, but not forget it.
In Las Vegas, I’m Krissy Clark, for Marketplace Money.
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