Subprime

First of three parts Tiffany Lee wanted a car. She was weary of the two-hour bus ride to her job at a UCLA Health System clinic. She hated having to ask friends to drive her 7-year-old son to his asthma treatments. But as a single mother with three children, bad credit and a $27,000-a-year salary, she couldn't find a bank or dealership willing to give her a loan. Then a friend steered her to Repossess Auto Sales in Hawthorne. Another buyer might have balked at the deal she was offered.

Delinquencies are lower in all 11 consumer loan categories tracked by the American Bankers Assn. , a rare occurence that reflects the nation's improving jobs picture and progress that consumers and banks have made in cleaning up their respective financial messes. During the fourth quarter of 2011, borrowers were current more often than in the third quarter on home equity loans and lines of credit, property-improvement loans and loans for cars, boats and mobile homes, the banker trade group said in a new report . Delinquencies on bank-issued credit cards were at 3.27% of all accounts, down from 5.01% in the second quarter of 2009.

The subprime litigation nightmare that Bank of America Corp. inherited with its acquisition of Countrywide Financial Corp. was compounded Thursday when 16 investors — including the giant California Public Employees' Retirement System — brought a new lawsuit alleging that Countrywide misled them about the risks it was taking. The suit filed in federal court in Los Angeles is a setback for Bank of America, which has sought to put the subprime morass behind it by striking settlements with a range of securities holders.

Federal authorities are investigating possible fraud at General Electric Co.'s former subprime mortgage arm amid increased public pressure to hold Wall Street accountable for its role in the financial crisis. The FBI and Justice Department are looking into potentially criminal business practices at WMC Mortgage Corp. in Burbank during the home-loan boom, according to four people with knowledge of the investigation. They declined to be identified because of the sensitivity of the investigation.

The federal commission probing the financial crisis took aim at the causes of the subprime mortgage meltdown, but former Federal Reserve Chairman Alan Greenspan said Wednesday that it shouldn't point at him. Summoned to address sharp criticism that the Fed failed to stop the housing bubble and the risky mortgages that helped pop it, Greenspan strongly defended his actions and warned that regulators alone couldn't stop financial crises. The best prevention, he said, would come from increasing requirements on banks and other financial institutions to have more money and collateral to carry them through rough times.

I take exception to the claim that it's difficult to figure out how "it happened or exactly who's to blame" for the refinancing problems illustrated by Vicki Miller in "Refinancing spurred subprime crisis," (The Mortgage Meltdown, July 5). Here you have a person making $26,000 a year, with less than $17,000 in take-home pay, increasing her primary mortgage by $28,000, next taking out a second mortgage of $13,000 and then borrowing an additional $5,000 for energy efficient windows. Regardless of the questionable loan disclosures and sales practices, the fundamental issue is that people somehow believe that money falls from the arms of lenders without any connection to their ability to repay it. Wake up people.

Banking giant Wells Fargo & Co. is closing its 638 subprime lending offices that operated nationwide to supply higher-cost mortgages, auto loans and credit cards in lower-income neighborhoods. About 3,800 employees will lose their jobs as the company shutters its Wells Fargo Financial subsidiary. Of the storefront offices to be closed, 74 are in California, said David Kvamme, president of the subprime unit. "We know that this decision will be extremely difficult for those dedicated team members and their families who will be affected," Kvamme said.

Lehman Bros. was an early and enthusiastic backer of subprime lending. It purchased the mortgages and used pools of the loans to back complex bonds, many of which were sold overseas. Merrill Lynch came onto the scene later. After the late-1990s meltdown in the subprime securitization business, Lehman stepped in with funds and other services that enabled First Alliance of Irvine to continue business in 1999 and 2000 despite lawsuits filed by state attorneys general, consumer groups and AARP.

The major banks now collecting federal bailout money were not unwitting victims of the mortgage meltdown but instead were directly linked to the root cause of the problem: a subprime lending machine concentrated in Southern California, a new study asserts. The banks were "enablers that bankrolled the type of lending threatening the international financial system," according to the study being released today by the Center for Public Integrity, a Washington-based watchdog group.

In the heyday of the securitization industry, when subprime mortgages could be magically transformed into AAA-rated bonds, the Wall Street alchemists who created that trillion-dollar business held their annual convention in the city that fully appreciated the idea of image over substance: Las Vegas. But this year, more than two years into the securitization market's collapse, the industry's annual confab has moved from Vegas' opulent Venetian Resort to a much less glitzy locale: the Gaylord National Hotel, just outside Washington in National Harbor, Md. More than 4,000 people were expected to attend the American Securitization Forum's convention, which officially kicked off Monday.

More than three years ago, the government rescued the nation's housing finance giants, Fannie Mae and Freddie Mac, from collapse in the wake of the mortgage market meltdown. On Friday, federal officials went after the executives who led the companies to the brink. In twin lawsuits, the Securities and Exchange Commission accused six former Fannie and Freddie officials of misleading investors and the public about how much money they had sunk into risky subprime mortgages. Taxpayers have pumped more than $150 billion into Fannie and Freddie in one of the largest bailouts, fueling widespread anger against the firms and accusations that they were the major cause of the subprime market meltdown.

Second of three parts The J.D. Byrider used-car dealership in Visalia, Calif., sits amid a jumble of tow yards, hubcap vendors and vacant lots littered with empty beer cans. It may not look like much, but selling aging cars to waitresses, secretaries and farmworkers is a lucrative business. That's why private equity firm Altamont Capital Partners of Palo Alto bought the J.D. Byrider chain in May for a reported $50 million. Altamont's offices, on the 10th floor of a luxury office tower overlooking Stanford University, are 200 miles and a world away from the Visalia lot. On a recent morning, a dozen executives could be seen huddled in a glass-walled conference room, reviewing a slide presentation on plans to buy some franchised Byrider lots.

The subprime litigation nightmare that Bank of America Corp. inherited with its acquisition of Countrywide Financial Corp. was compounded Thursday when 16 investors — including the giant California Public Employees' Retirement System — brought a new lawsuit alleging that Countrywide misled them about the risks it was taking. The suit filed in federal court in Los Angeles is a setback for Bank of America, which has sought to put the subprime morass behind it by striking settlements with a range of securities holders.

Some troubled homeowners got the promise of a little relief Wednesday in the form of separate settlements with Countrywide Home Loans and Wells Fargo & Co. Nearly $108 million in refund checks are being mailed to homeowners allegedly overcharged by Countrywide Home Loans as part of a settlement with the Federal Trade Commission. In an unrelated action against Wells Fargo, the Federal Reserve Board issued a cease-and-desist order and assessed an $85-million civil penalty over allegations that Wells Fargo Financial Inc. employees improperly pushed borrowers into more expensive subprime loans and exaggerated income information on mortgage applications from January 2004 to June 2008.

Goldman Sachs is challenging the findings of a Senate investigation that criticized the bank for making billions by betting against the housing market during the financial crisis. The bank contends that the Senate's Permanent Subcommittee on Investigations presented a misleading picture of Goldman's behavior during the crisis in a report released in April. The Department of Justice said it was reviewing the report and the New York district attorney reportedly sent Goldman a subpoena this month requesting more information about the report's allegations.

After a two-year bipartisan probe, a Senate panel has concluded that Goldman Sachs Group Inc. profited from the financial crisis by betting billions against the subprime mortgage market, then deceived investors and Congress about the firm's conduct. Some of the findings in the report by the Senate's Permanent Subcommittee on Investigations will be referred to the Justice Department and the Securities and Exchange Commission for possible criminal or civil action, said Sen. Carl Levin (D-Mich.)

Citigroup Inc. said Monday that profit more than doubled as the global economic rebound trimmed costs for bad loans, trading revenue surpassed analysts' estimates and the value of subprime mortgage bonds increased. First-quarter net income of $4.43 billion followed a loss of $7.58 billion in the fourth quarter and a profit of $1.59 billion in the first quarter of 2009, New York-based Citigroup said. Adjusted per-share earnings were 14 cents. Analysts in a Bloomberg survey had estimated the company would break even.

Federal authorities are investigating possible fraud at General Electric Co.'s former subprime mortgage arm amid increased public pressure to hold Wall Street accountable for its role in the financial crisis. The FBI and Justice Department are looking into potentially criminal business practices at WMC Mortgage Corp. in Burbank during the home-loan boom, according to four people with knowledge of the investigation. They declined to be identified because of the sensitivity of the investigation.