The mortgage crisis in miniature
If you haven't done so, read Bob Little's and Andrea Walker's story on the demise of Suburban Federal Savings Bank, which ran on Sunday. Some highlights:
Getting a mortgage from Suburban Federal Savings Bank couldn't have been much easier for Samuel Burrow Jr.A Baltimore mortgage broker introduced him to Suburban in April 2005, when he was looking for $1.3 million to refinance and finish construction of a home in Ellicott City. His loan application listed his occupation as minister and his income at about $30,000 a month. The bank didn't ask him to prove he could make the $9,100 monthly payment, just to sign a paper stating he could. Two months later, Burrow scrawled his name on some documents at a Timonium title company and got his money.
But Burrow never made a payment, according to court records, and then filed for bankruptcy. Late last year, he sued Suburban, claiming his income was just $4,700 a month and that the bank lured him into a loan he couldn't afford. He and Suburban's lawyers are still arguing in court over who misled whom.
And:
Loan officers complained to top management that "we're losing loans right and left. We can't make a living," the loan officer, who wanted to remain anonymous because she is still in the banking business, recalled in an interview this week. "We had to compete."Management relented and started offering more innovative loan products with relaxed terms and little or no credit or documentation required. It also began making considerably larger loans, often to customers it didn't know, in areas where it did little or no banking business.
And:
Another troubling sign was that loan officers at the satellite offices were paid to find borrowers and execute loans, but bore no consequences if those loans went bad. It was a formula for disaster, Ward said - a new and riskier line of business with inadequate controls.
And:
Sidney P. Levin, a Baltimore-based broker who helped arrange the loan, said he wasn't involved in checking Burrow's credit or determining whether he could afford the loan. That was Suburban's job, he said. "I just submit it to the banks, and they make up their own mind," said Levin. "Once those no-doc products came out, everyone was using them. The market was so good that's what everyone was selling."
Comments
This story makes me sick. What happened to personal responsibility in this country? How is it the bank's fault that someone making $4,700 attempted to borrow $1.3 million resulting in a known $9,100 monthly payment? I think Mr. Burrow should be thrown in prison not only for lying on his mortgage application, but for all encompassing stupidity.
Posted by: Andy | February 23, 2009 4:35 PM
"How is it the bank's fault that someone making $4,700 attempted to borrow $1.3 million..."
Because the bank is the gatekeeper in the transaction (or is supposed to be).
A responsible landlord would have verified income of the prospective tenant before they would sign Mr Burrow to a house lease... and wouldn't have done one for him at more than $1500... let alone $9100.
Do you understand now?
Posted by: MrRational | February 23, 2009 7:19 PM
So now in America party A can sue party B because party B didn't catch party A in a lie. And note that party A never made a payment. Did he ever intend to make a payment of any kind no matter the loan amount? It's clear to me party A is a dishonest thief but I guess that presumption will keep me off any juries in this town.
Posted by: Nick | February 24, 2009 7:50 AM
The civil lawsuit from Party A is the least of Party B's problems (I agree that culpability of Party A is there as well).
Party B's real problems will be the lawsuits from parties C,D,E etc and the criminal charges for malfeasance in handling their funds when Party B handed them over to party A without any substantive basis to believe those funds would remain safe... is what will put party B into prison.
Posted by: MrRational | February 24, 2009 9:58 AM