Lisa Epstein

As a former mortgage broker and small business owner, one who now works for a big bank that thankfully kept its nose clean through the frakus, I continue to be amazed at the stupid and ineffective laws that congress continues to try to put in place just to look like they are doing something; and, once again, I take offense at the way people in politics continue to thoughtlessly slander the mortgage broker.

"Mortgage brokers sold unaffordable mortgages to collect their commissions. Stock brokers made huge, risky bets to get big bonuses. And now that taxpayers rescued Wall Street, greed is making a comeback. - Daniel Mintz, MoveOn.org" This is just one quote from a political action organization. But the feeling it represents seems to permeate the political world. It's bipartisan!

The blame game is a nasty game. I don't generally like to play it.

But the comment about mortgage brokers makes me kind of miffed. He goes on to say that, "fundamentally it all came down to greed." I agree that it came down to greed; however, to blame our global economic disaster on mortgage brokers and stock brokers without even mentioning banks and their "loan officers" is simplistic and laughable.

Before I begin my four-paragraph rant below, let me make one thing very clear: When I refer to big banks, I am NOT talking about the small mortgage bankers who funded loans using their own lines of credit and then immediately sold the loans to the secondary market. Ok, that being said, here goes:

In a nutshell, the problem was and is the big banks - and their continued use of smoke and mirrors to hide what they've done and continue to do. Several years ago, the big banks began offering reckless and irresponsible mortgage programs and they spent millions promoting these irresponsible loan programs through their retail (their own loan officers and branches) and wholesale channels - offering huge incentives to smaller bankers and brokers such as an extra 3 points just for adding a 5 year prepayment penalty to the loan. Of course the bank's retail and wholesale channels sold the loans; and the salesforce was heavily compensated. Then the banks made billions and billions of dollars selling packages of loans to each other.

Next they decided to insure each other's multi-billion dollar packets of loans (CDO's); but the loan package bundles were so huge (10 billion to 100 billion or more) that they ended up insuring each other for more their own net worths!

Finally, when the loans that were incomprehensibly split into various packets started going bad and the banks needed the insurance to cover their losess, they didn't have the money to pay each other because they were all experiencing the same losses at the same time (and they had never had enough money to cover the losses they had agreed to insure anyway).

The bottom line? What happened to our ecnomny certainly isn't rocket science, but you have to get through a lot of smoke and mirrors to get to the truth. I think it really does boil down to greed - but it was and is the greed of the already wealthy big bankers who used their wealth to deflect blame to others while they continued playing their games.

And the worst part? Instead of taking the time to truly understand the problem, Congress is still playing too.

I've been away from ActiveRain for a while. And I've been away from the place where my first child was born. But I'm back!

I love Ukiah. I feel like it is the perfect place to raise my two boys and I also love that after moving away 11 years ago, my family and I have been able to come back. Thank you State Farm! I'm so looking forward to putting down new roots and working with my old and new friends and neighbors in Mendocino County.

Please join the new group I just started, Ukiah Valley Lounge. We can use the group to support each other here in Mendocino County!

Here's an idea that should spark some debate:

Take $700 Billion and distribute among every American homeowner - effectively paying down up to 10% or so of every homeowner's outstanding mortgage balance. Couple this taxpayer/homeowner payout with a lender requirement to modify all 1st mortgage notes carrying an interest rate of 8% or higher to a lower rate. This provides instant equity and affordability for existing homeowners, stops the foreclosure process in its tracks and would offer immediate relief to our heavily depressed real estate market.

Bill Gates, Cindy McCain, Warren Buffet, Ted Turner, and the Bush Family can pool their vast resources with Exxon and Shell to bail the banks out.

Today, Wachovia Corp announced a loss of $1.1 Billion in their Collateralized Debt Obligations, which are investments partially comprised of subprime mortgages and as a result, the stock market suffered losses.

By now, most of us have at least some knowledge that there is a liquidity crisis in the mortgage industry. Some may even understand that the crisis has been furthered by heavy downgrades on mortgage-backed securities.

What you may not have heard about yet; however, is truly a sleeping giant and could be devastating to both the stock and US bond markets.

Here is the issue: According to Business Week, companies such as American International Group (AIG), MBIA (MBI), and Ambac Financial Group (ABK) have made a lot of money selling insurance for "bonds that are backed by mortgages and the complicated investment vehicles that hold the bonds, known as collateralized debt obligations or CDO's." The insured companies are the big banks and other major investors and the insurance protects the investors in case the securities default. And as we are all aware, many mortgage backed securities and CDO's have been heavily downgraded recently. Some of these companies have insured several billion dollars worth of CDO's but have only a few hundred million in capital for possible payouts. Wachovia reported a loss today of $1.1 Billion and this may just be the tip of the ice-berg.

While you may not have heard of some of the companies above that offer this type of insurance, I would bet that you've heard of Citi, Barclays and Bank of America (yes, the same one that recently helped to bail-out Countrywide). And according to Business Week, these companies are some of the major players in the CDO market.

It will be interesting to see where the market goes and how all this unfolds. Here is a link to one of the Business Week articles I read:

http://www.businessweek.com/magazine/content/07_46/b4058047.htm.