RealEstateRaves

Here is what I have heard.  In Orange County, CA in about 1990 an investment banker, William Komperda, came up with an idea for raising money by floating bonds backed by mortgages.   The idea was not really new since it had always been done by hard money lenders.  The difference was Mr. Komperda’s efforts got these sub-prime loans securitized by Wall Street.   What’s important is he pursuaded insurers and bond rating firms to accept and whole heartedly approve this new Wall Street bound  security vehicle with a much needed AAA rating.   It became a funding bonanza in 1990 when Wall Street adopted and promoted this new investment security.   All based on loans to risky borrowers ill equipped to borrow…hence the new term “Sub-Prime”.   Reference my previous article “Collective Intelligence vs Bush’s rescue plan”.

Mr. Kamperda’s client at the time [circa 1990], Long Beach Savings, was pursuaded and agreed to float a $70m bond issue backed by home loans.  This new security helped Long Beach Savings raise lots and lots of cash and eventually allowed them to  help start Ameriquest Mortgage Corp.  Ameriquest Mortgage grew and became the largest supplier of sub-prime loans in the U.S.  In 1999 Ameriquest Mortgage was purchased by Washington Mutual for $350m and became WAMU’s sub-prime lending division.  Ameriquest Mortgage was in the news  often after the acquisition by MAMU when in 2006 Ameriquest  agreed to pay a $325m fine without admitting guilt for “predatory lending practices” in 49 states.  In 2005, the peak of the sub-prime loans, Wall Street sold $508B dollars worth of loans…in 2007 the bubble burst.

In 2007 financial firms have taken over $80B dollars in write downs.  This past Thursday, Goldman Sachs Group Inc.analyst doubled its forecast for fourth-quarter writedowns at Citigroup Inc., Merrill Lynch & Co. and J.P. Morgan Chase & Co.to $33.6 billion.   Forecasters say there is more to come in 08. 

Joe Parsons

Filed under: Uncategorized