"The Center for Public Integrity in 2009 identified the top 25 lenders by subprime loan production from 2005 through 2007. Today, senior executives from all 25 of those companies or companies that they swallowed up before the crash are back in the mortgage business. Most of these newer "non-bank" lenders are making or collecting on loans that may be too risky to qualify for backing by the U.S. government. As the industry regains its footing, these specialty lenders represent a small but growing portion of the market.
The role of big subprime lenders in teeing up the financial crisis is well documented.
Lawsuits by federal regulators and shareholders have surfaced tales of predatory lending, abusive collection practices and document fraud. A commission charged by Congress to look at the roots of the crisis said lenders "made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities."
Risky loans, a Senate investigation concluded, "were the fuel that ignited the financial crisis."
As borrowers defaulted at increasing rates in 2006 and 2007, global financial markets tightened, then froze. The result was the worst economic crash since the Great Depression. Today, millions of Americans still face foreclosure. Yet few subprime executives have faced meaningful consequences.
"Old habits die hard, especially when there's no incentive to do things differently," says Rachel Steinmetz, a senior underwriter-turned-whistleblower who worked at subprime lender GreenPoint Mortgage, later bought by Capital One, until June 2006. "The same shenanigans are going on again because the same people are controlling the industry."
To be sure, loans offered by their new companies face unprecedented scrutiny by regulators and investors. Many of the riskiest practices from the subprime era have been outlawed.
"We could never, ever go back to the kinds of products we were selling. They were disastrous," says John Robbins, who founded three mortgage lenders — two before the crisis, and one in 2011, from which he recently stepped down. The new Holy Grail for some lenders, according to Robbins: a mortgage that complies with new rules yet "creates some opportunity to lower the bar a little bit and allow consumers the opportunity to buy homes [who] really deserve them."
Robbins is one of several executives identified in the Center's investigation who have gathered up their old teams and gotten back into the mortgage business. Others have tapped the same private investors who backed out-of-control lending in the previous decade.
The lenders vary in how willing they are to accept lower down payments, weaker credit scores or other factors that can make a loan more risky."
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