A $103,000 mortgage on an $18,000 shack


The Wall Street Journal

reports (subscription required) on one of the most flagrant cases of stupid underwriting decisions to have come out of the current mortgage mess:

Less than two years ago, Integrity Funding LLC, a local lender, gave a $103,000 mortgage to the owner, Marvene Halterman, an unemployed woman with a long list of creditors and, by her own account, a long history of drug and alcohol abuse. By the time the house went into foreclosure in August, Integrity had sold that loan to Wells Fargo & Co., which had sold it to a U.S. unit of HSBC Holdings PLC, which had packaged it with thousands of other risky mortgages and sold it in pieces to scores of investors.

The Avondale, Arizona house has been declared unfit for human occupancy and and was recently sold for $18,000. This lady hasn't had a job in 13 years. The appraiser claims that his estimate of the property's value was appropriate, but no one has been able to find appropriate comparable sales to justify it.

The story reads like a parody of real estate bubble excess: The borrower was even able to take out more than $10,000 in cash at closing! What makes this case so typical of all this subprime garbage are all the fees that were made by people who had no stake in it: The ironically-named Integrity Funding earned $6,153 in fees for making the loan, and then another $3,090 when it was sold to Wells Fargo. Then Wells Fargo made more when it was sold to HSBC, which also took a cut before dumping it on investors in mortgage backed securities that were inexplicably rated AAA by rating agencies that were somewhere between crooked and incompetent.

Actually, the piece perfectly illustrates the greedy, deceitful practices that has since brought our economy to its knees. It's a great piece of reporting