Bubble history: A $500,000 loan for a McDonald's worker

The Washington Post is in the middle of a three-part series on the housing bubble -- how it happened, what happened, and what happened when it burst.  Worthwhile reading if you can carve a few minutes out of your day. Eye-poppers from the first installment, which chronicles the boom in sub-prime lending:

The annals of strange: Kevin Connelly, a loan officer at Pinnacle Financial, remembers the borrower who wanted to sign on behalf of her boyfriend because he was unavailable. Unavailable why? Well, you see, he was in jail. "Not a problem. Almost anyone could borrow hundreds of thousands of dollars for a house in those wild days. Connelly agreed to send the paperwork to the courthouse where the boyfriend had a hearing.... Still, Connelly said, "that was one of mine that goes down in the annals of the strange."

Connelly also remembered securing "many loans for restaurant workers, including one for $500,000 for a McDonald's employee who earned about $35,000 a year."

And who was selling the loans? A mortgage lender could hire practically anybody. "It's not rocket science," Connelly would tell new hires, such as the busboy who quickly traded in his Toyota Tercel (value: $1,000) for a Mazda Miata sports car (value: $25,000).

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[E]

He let that crap across his desk?

What were his paydays like?

Has he been indicted yet?

[Pasadena]

WOW.....

[Mortgage Truth]

The McDonald's thing was pretty common. And if you think that's bad, at least that borrower had a job with steady, albeit modest income.

If they indicted each person that originated a loan like that, there'd be trials for the next 1000 years.

[RZ]

Those loans should never have been made. BUT, what the heck is a McDonald's worker with a $35,000/year salary even trying to buy a $500,000 house for? Seems to me that the stupidity was on both ends.

[Nick]

Meh, if some financial institution wants to extend a 500k loan to someone who has no chance whatsoever of repaying it, as long as taxpayers don't ultimately foot the bill when they suffer the loss, I have no issue with it. I don't think the government should be telling people what they can/can't do with their money, no matter how idiotic.

That said, if the financial institution was a public company, and there was even one stockholder who requested information on their assets and was not told that they gave a 500k loan to someone in jail with no chance of paying it back, each and every one of their executives should serve jail time as well. Moreover, if that loan was wrapped into a MBS and rated anything other than absolute junk, the rating company should be civilly liable for losses.

The falling-down is where people were deceived, by misinformation or by omission, into buying the junk when they thought they were buying secure investments. Anyone should be allowed to spend their money on dumb stuff, when they know exactly what they are buying. The only way to prevent this kind of deceptive securities marketing in the future is to hit the people who were deceptive where it hurts: in their pocketbooks and their freedom.

[Wilson]

Look, if we don't have McD's employees with $35k salaries buying $500k homes, then that would prevent us from having a great bubble economy where we can just produce nothing and simply sell homes to each other at significant markups every three months...

And we wouldn't want to limit that type of economy, right sfvrealestate?

[super size (my FiCO score)]

Nick:

What you said made too much sense, was far too pragamatic and is perhaps the most rational way to look at the horrible financing that took place over the past few years.

I expect to never hear such things uttered again.

[jb]

Nick,
I am with super size on this. You need to stop being critical of the banks.

How could they possibly know that these people could not pay their loans? Their army of highly paid risk assessment professionals was busy spending their annual bonus and cannot be bothered with such details.

[MyLessThanPrimeBeef]

Here is how they train loan officers, would-be mortage applicants and aspiring politicans - they are required to chant:

Oh, what a tangled web we weave
When we first practice to deceive
But after we have practiced for a while
How vastly we improve our style!!!

Here you have it, kids - practice makes perfect.

[Uncle Billy Snorts]

MLTPB: That was like Ben Bernanke trying his hand at anapesty quadrameter.

[MyLessThanPrimeBeef]

It just goes to show my ignorance, Uncle Billy Snorts, when I read that, my first reaction was to call the fumigation company to come back again to rid of any pest in every square meter and quadrameter. Luckily Wiki educated me just in time.

[Uncle Billy Snorts]

MLTPB: Don't worry. You're still smart and caring, just not a disciplined poet.

"A quibble is to Uncle Billy and MLTPB, what luminous vapours are to the traveller; he follows it at all adventures, it is sure to lead him out of his way, and sure to engulf him in the mire. It has some malignant power over his mind, and its fascinations are irresistible. Whatever be the dignity or profundity of his disquisition, whether he be enlarging knowledge or exalting affection, whether he be amusing attention with incidents, or enchaining it in suspense, let but a quibble spring up before him, and he leaves his work unfinished. A quibble is the golden apple for which he will always turn aside from his career, or stoop from his elevation. A quibble poor and barren as it is, gave him such delight, that he was content to purchase it, by the sacrifice of reason, propriety and truth. A quibble was to him the fatal Cleopatra for which he lost the world, and was content to lose it."

Isn't Wiki cool? It's like we have this really big, fairly reliable brain now.

If you can find some good esoteric real estate knowledge in the Upanishads, and then set it to ancient yoruba drumming, you'll have done the blog some real good.

[MyLessThanPrimeBeef]

Uncle Billy Is A Mountain, too many quibbles will give your aporia, which occurs often enough here that the government has taken it (aporia, that is) off the endangered befuddling ideas list.

[Angrier Than Thou]

Check out krugman.blogs.nytimes.com today. He's out there hunting puzzlements with an elephant gun.

We just focus on the real estate misery. That guy has a 5,000 mile radar and predators circling every roaring locus of economic hell.

[Uncle Billy Quibbles With Mt. Pelerin]

Illumination: a "quibble" is a pun.

[A Scanner Darkly]

I didn't know McDonalds paid so well.

[MyLessThanPrimeBeef]

Well, I don't know much about puns, but here is something from the last time China had a large trade surplus with the West when Latin matrons couldn't get enough of their hands on silk garments that the Roman Senate cared enough (unlike ours, notice no tax rebate there) to put in a sumptuary tax on it.

It is from Lucan, who wrote of Cleopatra's undies: "white breasts...revealed by fabric close-woven by the shuttle of Seres."

[Milla]

anyone else getting the feeling that Uncle Billy and MyLessThanPrimeBeef are really the same person? if not the same person, then definitely soulmates.

[Uncle Billy Gazes Upon Mt. Milla]

Milla: Nope. Different. He's a poetic etruscan-chinese billionaire with a love of history and celluloid hotties, and I'm just a frustrated renter-citizen. We'll get it all worked out at the blog party.

[MyLessThanPrimeBeef]

Unless Uncle the-50-foot woman gazer also sweats out of an AC-less office, he's not me.

But this I can tell you: Politicians and lobbyists, they have embraced each other so tight, there is hardly any room for love left between...maybe primal lust can squeeze in there, but not love.

[TrojanDLA]

The truth is even worse than this article. Go to any of the "go go mortgage brokerages" in Santa Ana in 2006, and you'll witness a bazaar of photoshopping activities to "create" the necessary documents.

If people only "knew" the degree of outright fraud on the part of mortgage offices.

[Michael Snyder]

Nick,
Did I hear another voice in the wilderness actually advocating personal responsibility? Did I hear something about transparency in the financial markets and full disclosure? WOW! Be careful. I'm as likely to answer the phone with, "Hover was gay", or "Start recording now" as I am with "Hello".
The last thing our lawmakers want, and the thing they fear most is an informed electorate. Welcome to the asylum.

Less Than Prime Beef & Uncle Billy,
It's nice to see you playing so well together. Do you think you can get Ann & Hula Girl on the same page as well?

[Aaron]

I would really like to know their sources. Many of us making minimum wage have tried to get loans, and were denied instantly based solely on our income. I couldn't even get a $10,000 loan. So tell me, where were these banks at giving poor people a $100,000+ loans? This smells like scapegoating and BS to me.
It's the poor people's fault. Cute.