I've been in banking since I got out of the Marine Corps in 1961. I had a wife, a six month old son and no job. So, I answered an ad for "mtg. trainee", not knowing what that was. Turns out it meant "mortgage trainee". As luck would have it, (or not) I was hired.
So, I haven't had a real job in 48 years. I've been a trainee; I've been (whispers) a banker.
Experience is one thing they can't take away from me. I've seen more bubbles than Mark Phelps. I survived the Savings and Loan debacle of the late 80's and got to see the debris as a consultant and during a short regulatory gig. At the time, I thought that banking poobahs couldn't ever do anything more stupid than during those years.
Of course, turns out I was wrong.
I was the president of a de novo thrift in Aspen, Colorado that was chartered in 1973 and sold in 1985 that was banking success story driven by the good fortune of being in the right place at the right time with the right business model.
I was the president Colorado Federal Savings Bank, another de novo, started in 1990 that looked like it might be repeat of the Aspen experience. In 2003 and 2004 the bank was in the top five nationally in profitability for institutions under $100 million. The operation was run as a mortgage banker with net branches across the country. Whoops; wrong place, wrong time, wrong business model.
We managed to find an acquirer in 2008 before Uncle Sam stepped in. Doesn't sound like much, but it was quite an accomplishment, even if we got virtually nothing for 18 years of work.
There isn't an aspect of mortgage lending that I haven't, at one time or another, considered myself an expert at, and then found out I wasn't.
In all of this time, I've learned a few things. Here are three of them:
- Bankers can be very smart, and yet do very dumb things.
- I was never as smart as I thought I was when things went well, or as dumb as I viewed myself when they went badly.
- And, to paraphrase Bobby Kennedy on politicians (and he got it from somebody else): "To be a banker, you've got to be smart enough to do it, and dumb enough to think it's important".
This blog takes an irreverant, contrary view of banking in a variety of its aspects, from Wall Street to Elm Street, and the elements that contributed to to the Great (Made in America) Recession of 2007.
INTEREST RESERVES:
Now, that's a nice gimmick that you'll hear a lot about today, especially if you overhear regulator talk.
It's one of those neat arrangements that make co-conspirators drool. A bank makes a loan to a developer of a commercial property, subdivision or to build a spec house and says, "Bubba, not only are we making you a loan so you can get fabulously rich, but you're not even gonna have to pay interest while you've got the loan". Then the bank lends extra money to pay the interest. The borrower doesn't pay a dime out of pocket.
A while back I talked to a developer who had an interest reserve on his loan, plus a very low rate; something like 3.5 or 4%. The loan had matured, no units had been sold, and the bank said it could extend the loan only if there was a big principal reduction and realistic rate of 8% or so.
The borrower's comment was instuctive: "I couldn't pay four percent. How am I supposed to pay eight?"
Back in the day, right after the S&L's went kerplunk, bank regulators frowned on interest reserves, which were responsible for masking bad loans until it was too late. In fact, they downright forbid the scam in most cases. In a little over ten years, lenders were lining up to offer this and other preferential terms, and regulators were studiously looking the other way.
Banking and childbirth have one thing in common: It's so much fun getting to the painful part that you forget how much it hurt the last time.
