Hotshot mortgage brokers head for Playboy Mansion

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From Banking Day comes a story you wouldn’t read about:

A soiree at the Playboy Mansion in Los Angeles this week for gun brokers affiliated to the Australian Finance Group has become a talking point in the industry. The event also serves to highlight the tension fostered by “sponsorship” by the banks of one of their most important stakeholder groups over and above commissions paid for loans.

…Spokespeople for ANZ, Commonwealth Bank and Westpac all advised that their banks did not sponsor the mansion event and their staff did not attend.

…AFG set individual brokers (who work for affiliated firms) a sales target of $8 million in home loans to qualify for the tour.

Not a great look for an industry trying to regain a reputation for prudence.

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Without being too pointed about it, this kind of reminds me of a story a dug up when writing the Great Crash of 2008 with Ross Garnaut:

THE US FEDERAL RESERVE records the first salient date of the Great Crash as 7 February 2007: the day that the government-sponsored enterprise (GSE) Freddie Mac declared it would no longer buy subprime mortgages from mortgage originators.1 But Freddie Mac’s actions were clearly responding to something, and digging a little deeper pushes the time line back.

Nine months earlier, a US mortgage originator called Merit Financial had gone bankrupt. It had done so as the refinancing boom brought about by low interest rates in the post-2001 period came to an end. A subsequent investigation revealed the unorthodox lending practices that would come to characterise the Crash.

Merit was founded in 2001 by former Washington Huskies football star Scott Greenlaw, then aged twentynine. It specialised in lending to clients with a bad credit history (subprime borrowers). Within five years it had written more than $2 billion of mortgages and employed 400 people. According to the Seattle Times, Greenlaw employed loan officers in his own image. Many were ex-footballers, one an ex-Hooters girl. The loan officers went through a 19-step training program lasting one hour.

After the bankruptcy, one employee confessed that many officers ‘didn’t even know how to read a credit report’. Many former employees described Merit’s working environment as a raucous, sometimes lewd ‘frat party’. Merit provided kegs of beer for staff meetings, and employees were free to bring in six-packs on Fridays.

Several loan officers boasted online that doing drugs was a favourite pastime. ‘Let’s get hopped up and make some bad decisions’, wrote one beside a photo of himself grinning broadly.

The end of Merit Financial is an appropriate inflection point for the beginning of the Great Crash.

Perceptions of such might be best avoided?

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.