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Busted

Excerpt from Busted: Life Inside the Great Mortgage Meltdown

A New York Times economics reporter details how he took out a subprime loan and nearly defaulted on his mortgage.

I pulled out my cell phone and called the only person I knew who could point me in the right direction—Susan Kilborn, a close friend who was a real estate agent. She gave me the name and number of a mortgage loan officer at American Home Mortgage Corporation named Bob Andrews. Bob wasn’t related to me, and I had never heard of the company. “Bob can be very helpful,” Susan said. “He specializes in unusual situations.”

On a Sunday afternoon, Bob returned my call within minutes. “If we had talked earlier, I could have had you preapproved for a loan in time to make an offer today,” he said. He sounded vaguely disappointed, but also wired and ready to jump. “How big a mortgage do you think you’ll need?”

“My situation is a little complicated,” I warned. I told him about my enormous child support and alimony payments, and said I was banking on Patty to earn enough money to keep us afloat. Bob cut me off. “I specialize in challenges,” he said confidently. “As you might imagine, I’ve got a lot of experience with people going through divorce.”

As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. It was a rocket of a company, even for the mortgage industry, and would ultimately flame out in a huge bankruptcy in 2007. But none of that mattered right then. It turned out that American Home’s specialty was people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what traditional banks and thrifts would allow. In industry jargon, we were “Alt-A” customers, and we paid slightly higher rates for the privilege of concealing our financial weaknesses.

I thought I knew a lot about the mortgage boom. I had already written several articles forThe New York Times about the surging growth of both subprime and Alt-A mortgages. I had interviewed people with very modest incomes who had taken out big loans. And though my own experience had been with traditional mortgages, I had owned a house for almost twenty years, had refinanced it twice, and had taken out a home equity line of credit. I had always thought of myself as conservative about borrowing. The mortgage on the first house had been a fifteen-year loan, which cost more per month but would ultimately save tens of thousands of dollars in interest charges.

Nevertheless, I had never really grasped how much had become possible.

Bob called back the next morning. “Your credit scores are almost perfect,” he said happily. “Based on your income, you can qualify for a mortgage of about $500,000.” That was an eye-opener. I had never contemplated buying a house for a half-million dollars, even before I started surrendering more than half my paycheck to my ex-wife. I was amazed that a company would even contemplate lending that much money to someone in my position, or that a lender simply wouldn’t care about the messy details of my life. Bob didn’t break a sweat. If I wanted to buy a house, he figured, it was my job to decide whether I could afford it. Once I decided what I wanted, his job was to make it happen.

“I am here to enable dreams,” he explained to me long afterward. “If you came to me and said you’d been unemployed for seven years and didn’t have a pot to piss in, who am I to tell you that you shouldn’t do what you want to do? I am here to sell money, and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage—not mine.”

You had to admire his muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be much more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. In fact, money was so cheap and plentiful that they would make it available for almost as little as a conventional mortgage.

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