Restoring Confidence in Lending

Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud, and Ignorance
by Richard Bitner.  2008.  John Wiley & Sons, Inc., Hoboken.  186 pp.

The health of the home ownership market has had no shortage of media coverage over the past four years.  Hal Crowther, contributing writer to the Oxford American, summed it up brilliantly in 2008 when he wrote on the effect of deceptive subprime mortgage activities: “…a housing crisis unequalled since the Great Depression and one that threatens to throw the entire economy into vertigo.”  Subprime lending, with its higher interest rates and less favorable terms, became a primary conduit leading to symptoms of vertigo on Wall Street.  All of the sudden, terms like toxic asset and derivative entered the pop culture lexicon.  Is there a doctor in the house?

With Richard Bitner’s book Confessions of a Subprime Lender, readers get an extensive account—a toxicology report, if you will—from an insider.  The author’s substantial experience in mortgage banking coupled with his cofounding of Kellner Mortgage Investments, a subprime company, give him the tools he needs to perform an autopsy on subprime lending.

Bitner writes of systemic flaws to document root causes of negligence and recklessness, in order to get at improved housing-related public policymaking.  He utilizes multiple case studies to take us behind the curtain for a close-up of qualifying the unqualified.  Bitner also explains the impact of securitization on the home ownership market and on the prospect of borrowers getting their loans modified. 

The author sees a need for effective regulatory legislation because, there is an upside for consumers when lending stays true to risk management principles, even for a future subprime variant product.  “When the issues are properly addressed,” Bitner contends, “it’s possible to have the best of both worlds—one that creates significant consumer protections but doesn’t reduce the availability of credit to the marketplace.”  Bitner wonders whether Congress knows how to solve the problem without overreaching.

The housing downturn may be recovering in certain localities, but the economy at large isn’t all green shoots.  Standard & Poor’s recently downgraded the nation’s credit rating to AA+.  Private mortgage insurance company losses are growing, and they are struggling to meet regulatory capital requirements.  Morgan Stanley is reporting the rate of home ownership has dipped to 1965 levels.  In times like these, Confessions of a Subprime Lender remains a healthy resource of reasonableness.

- August 2011