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In the early 1990's I worked in a retail branch of Plaza Funding located in Mill Valley California. I worked as a funding supervisor with responsibilities that included preparing loan documents for large prime loans, reviewing them for funding and executing fund via wire or by bank check. Plaza Funding had a subsidiary located in Dublin California, OptionOne Mortgage. OptionOne Mortgage was one of the very first Subprime Company in the United States. OptionOne had strict guidelines at the time. The max Loan to Value was 65%. These were equity based loans with nearly usury interest rates. Often brokers would charge up to 10 Points on these loans, before the predatory lending law was implemented. During every 10 years it seems to be a cycle of a real estate bubble market. In the early 1900's, home value was up at the same time 30 year Fixed rate mortgage were as high at 10.54% May of 1990. People began to loose their homes in foreclosure as they were unable to afford these mortgages. Because of the equity they had in their homes, they were able to refinance with Subprime companies for 65% of the value of their property. They were able to pull cash out to help them through this tough time. By 1996, Subprime Mortgage Companies were popping up everywhere. I took a job as an Account Manager for Pacific Thrift and Loans. We were licensed in several states. I worked with Account Executives on the east coast. Pacific thrift wanted to increase market share by increasing the Loan To Value requirement to 75%. They did this by offering borrowers a first mortgage of 65% and a second mortgage of 10%. At the time there were no buyers on wall street for these risky second mortgage assets. By 1999 Pacific Thrift & Loans would be the State's first banking institution to fail since 1994. 

By Jeffrey Gettleman
November 23, 1999 
"In the state’s first forced bank closure since 1994, the state Department of Financial Institutions revoked the license of Pacific Thrift and Loan, a state official said Monday.

The Woodland Hills bank was racking up operating losses and unable to generate new loans, said Lynn Owen, acting commissioner of the department.

“It was experiencing substantial operating losses and was unable to raise shareholder equity to the statutory requirement,” Owen said.

Affinity Bank of Ventura bought Pacific Thrift and Loan after state regulators turned it over to the Federal Deposit Insurance Corp. on Friday. Affinity reopened Pacific Thrift and Loan on Monday and customers were able to do business at the bank’s location at 21031 Ventura Blvd. Affinity assumed responsibility for $106.3 million in insured deposits, nearly all of the failed bank’s total deposits of $108.3 million. Federal law insures deposits up to $100,000 but does not cover any amount over that.

Pacific Thrift, which had 2,600 accounts, had been in financial trouble since 1997, Owen said. Records filed with the Securities and Exchange Commission paint a bleak picture of the bank’s parent company, Pacific America Money Center Inc., also located in Woodland Hills. The company reported a net loss of $4.1 million for the quarter ended June 30, compared with income of $4.8 million for the same period last year. And the company was unable to file any financial information for its most recent quarter, ended Sept. 30, according to records from the federal Security and Exchange Commission.


Pacific Thrift began to fail due to the holding of the second mortgages. They had no buyer for those risky assets. Right before the closure, there were having talks with Fremont Investment to buy or merge with the company. Fremont Investments didn’t want the troubled assets either. After the closure of Pacific Thrift & Loans, Fremont Investments bought some of their assets and hired Pacific Thrift employees, took over leases and business was status quo.
But let's back up to 1992. Liberal Minority Home Ownership Push Was Democrats Definition of "Affordable Housing"

An L.A.Times article from May 31, 1999 

Clinton legacy building with a Ponzi scheme strong armed by Janet Reno brought to you by Liberals defining "affordable housing" as homeownership to unqualified buyers. It’s one of the hidden success stories of the Clinton era. In the great housing boom of the 1990s, black and Latino homeownership has surged to the highest level ever recorded.

{snip}

All of this suggests that Clinton’s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate.

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more.

In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers.

{snip}

And who controlled Congress in 1992? THE DEMOCRATS.
Lenders began Rep & Warranting new securities for wall street investors. What this simply means is that Lender would write up a proposal, which would relax standard underwriting guidelines. Such as, increased loan to value, increased loan amount, and requiring less documentation from borrowers that had fair or poor credit histories. For example they would tell their wall street investor that the would pool 10 million dollars in loans, and of these loans the loan amount would be $300,000 or less, borrower will have at least a 620 mid fico score, The loan to value will be 90% or less, the borrower would not have to provide proof of income, and that they would be allow to state their income (falsely).The debt to income ratio would be less than 60%. Wall Street would tweak it a little and agree to buy these bad assets. If when the pool is bought and due diligence was completed on the pool, if there were any assets that did not meet the Rep & Warrant guidelines, the lender would be required to repurchase the loan from Wall Street. The lender would then write guidelines for these loans and Account Executive would get them to the broker for the broker to advertise to their communities. These pools became more and more risky as time went one. With the housing boom, borrowers were buying homes at 100% financing, with no income documentation and no proof of employment with less than perfect credit. Fico's were as low as 580 by 2006.  The housing boom allowed the broker, lenders and Wall Street to make a substantial profit. loans were interest only with prepayment penalties of up to 6 months interest if the borrower refinance with in a 2 - 3 year period. Borrowers were refinancing 2 -3 times a year. Appraisers were pushing the value of home up by the request of the broker or the loan officer.  The Mortgage Banking industry was getting out of control. The more conservative lenders saw the enormous profits and want to get in on it. They began opening Subprime division, and subsidiaries. Wall Street was buying these cancerous assets by the billions, and the lenders were making millions of dollars in profits. I knew there was no way the value of real estate would continue to increase at this rate and when it stalls the market would ultimately crash. Since 2006 over 286 Lenders failed. The government didn't bother to bail out these lenders, causing the loss of thousands of jobs. Borrowers began to default on these loans due the high interest rates, prepayment penalties and payments. Many homebuyers were never able to afford these loans from the beginning. This housing market crash, this time is a little different from the early 1990's and this is why....
Mortgage & Real Estate Brokers, and Stock Brokers have always been on separate sides of the fence. When one market is down, the investors move their assets to the other market. But this time Wall Street and some large servicers would be holding these toxic mortgage back securities. from the 286 failed lenders that were sold to them. Wall Street diversified their portfolios with these toxic assets foolishly out greed for over 10 years. These acidic assets would cause wall street firms to collapse along with the housing market, thereby throwing our economy into the worse recession since 1929. Now do you know who's responsible for this? Let's summarize, Congress of 1992, The Clinton administration, Subprime Lenders, Brokers, Appraiser, Loan Officers, Wall Street, The Bush administration lack of regulations, and the borrowers that took out a mortgage they knew they could not afford. How does the economy rebound? like any other bubbled asset, it has to reset itself. Loans need to be modified for borrowers currently in homes that are facing foreclosure, to make them affordable. Home value and stocks will decrease then rebound. Government should not bail out companies that bought these risky loans because of greed, but buy the assets so they can be modified to keep families in their homes. They should make stronger regulation on lending, and make affordable home ownership to qualified families.