How I Personally Caused the Financial Crisis (part 1)

First, I'll give you my background.

In 2004 I moved from Bellingham to Seattle after completing my BA in Theatre Arts. Like every theater arts major, I eventually found myself working as a financial analyst for the nation's largest thrift bank -- Washington Mutual.

Like everything else in my life, I kinda' just "fell into it." My wife and I, both theater majors, decided to apply to a temp agency -- Adecco. She found a job working for a company that insured ski resorts. I found a job working with "rate locks." Oh...the twisted lives of creative folks.

When I first heard about "rate locks," I thought I was going to be installing actual, physical "locks"...on, like, ATM machines or safety deposit boxes or something. I had no idea. All I knew was that I was to report to the beautiful Washington Mutual Tower (now known as 1201 Third Avenue) to receive my training.

Needless to say, I learned about rate locks. But in actuality, the group that I found myself working for existed solely to publish something called the "Pricing Variance Report." It worked like this: every day a program would scan all of the locked loans and kick out "variances." Our group would research the variances, and either ignore them or assess a penalty that the loan officer, loan processor, or borrower would then have to pay.

Why did they need "people" to do this, when a single computer program could probably catch all of the same errors?

Turns out, it would have to be a pretty complicated program...and the cost of that program would be much more expensive than farming out the task to a bunch of temps. Inefficient efficiency...I guess.

This is because Washington Mutual (WaMu) had acquired several different companies in the late 90s and early 2000s...and each company used their own computer program. These programs were called "origination systems," and they tracked the loan from beginning to end. WaMu did not have its own origination system, so it just used all of the others ad hoc.

When I started working at WaMu, there were about 5 different origination systems. The one I worked in the most was called MLCS...which stood for Mortgage L-something C-something System. I think. It was created in 1984 (seriously) and it had not changed much since then -- it was text-based, and looked like something you'd find on an Apple IIe. It was the most popular origination system we had, mostly because it was so secure.

Anyhow, with all of these various systems, keeping track of lock prices was a hot mess. I'll explain later why "tracking prices" was so important, but let's just say that sometimes the bank and the loan officers did not always share the same motivation.

And the loan officers knew it. Most of the systems were not secure, and there was a shit-ton of human error and (sometimes) straight-up "intentional misrepresentation" that could take place. On top of that, occasionally there were "specials" that the systems just couldn't handle. It was a bureaucratic nightmare that could have been easily repaired by a uniform policy or system. But alas...that would have been difficult to implement across such a large, disparate company. Instead, WaMu tried to function with a cobbled-together mess instead, and I got a paycheck every two weeks.

Lucky me.

Eventually our group bloated to about 15 people as the company expanded. That's 15 people whose job it was to just "look at the variations explain them." Unsurprisingly, I was laid off in late 2006 when my position was "outsourced" to Colombia...........um, South Carolina.

Eventually I found my way to (or rather "fell into a job with") a company named Liberty Financial Group (LFG). LFG was a correspondent lender in a very nice building in Bellevue, and I worked as a "rate lock specialist" at the pricing desk. A correspondent lender is a company that has more infrastructure than a broker, not as much as a retail bank. There are other differences too...but they are boring, and if you want to read about it you can go here: http://mtgprofessor.com/a%20-%20type%20of%20loan%20provider/what_is_a_correspondent_lender.htm

My job was to publish a daily rate sheet and lock loans at various banks (such as Countrywide, US Bank, Chase, GMAC, and Greenpoint Mortgage). It was here that I discovered just how screwed up the entire industry had become -- gone were the days of the vanilla 30 year fixed loan. Now, most lenders were investing in bat-shit crazy programs...like the Option ARMs, interest-only, LIBOR, no-doc, SISA, NINA, CMT, et cetera. I had no idea what any of that shit meant...and I'm assuming neither did the borrowers.

On top of it all, I wasn't very good at that job, unfortunately. I made some pretty big pricing mistakes which still bother me to this day. But I was learning, and getting better with time.

Then, on one inauspicious morning in August (I don't remember the exact date), our boss poked his head into the converted conference room I shared with two other guys. Our boss was a quiet, laid-back, skinny older gentleman with 25 years of experience in the mortgage industry. This morning he looked absolutely terrified. He told us that the market was making massive, unprecedented moves...and that we had to "lock" every loan we had as soon as possible.

We did...but it didn't matter. The market shuddered, companies folded, homeowners started foreclosing, and worst of all I lost my job two months later. Several months after that, Liberty Financial Group also closed down, along with countless other mortgage businesses, both large and small (including my old employer, WaMu).

Turns out, I had entered the mortgage industry at the very start of the sub-prime housing bubble, and I sat and watched as it popped...which caused the financial crisis that ruined the world's economy.

Basically what I'm trying to say is: I'm sorry. For whatever small amount I may have contributed to this mess, I apologize. I had no idea what I was doing...and my biggest problem was that I assumed the people in charge knew what they were doing. I was wrong.

Click here to read part two.