Predatory lending went subprime, immoral, and reckless

President Barack Obama said the mortgage finance practices that led to the economic meltdown were “immoral, inappropriate and reckless,” but not necessarily illegal, making it difficult to punish key players, specifically in the subprime debacle.

Obama said that in September of 2011

Obama’s statement reminds me of a lawsuit years ago against predatory lender Household International. A judge described Household International’s legal position as onerous, right on the edge of legal, but not necessarily illegal.

The judge said that in the summer of 2001

Obama replied after a reporter asked the president during a news conference why the administration never filed any lawsuits or enforcement actions against corporate leaders who led lending institutions prior to the 2008 crash.

Interestingly enough, as I read Obama’s comment and remember the judge’s comment, one must ask what happened in America that allowed predatory lending by Household International to become mainstream, acceptable, and subprime.

When we find the answer over the ten-year period between the summer of 2001 and September 2011, we will have the definitive analysis of the world’s subprime crisis. By the way, HSBC Bank bought Household International in 2003 for $15.5 billion. That acquisition, lauded at the time, turned into a disaster when the mortgage market collapsed in 2007, causing tens of billions of dollars in losses for the bank. HSBC then shut down the business and closed more than 1,000 offices.

I personally never “lauded at that time” the acquisition of Household International by HSBC. In fact I strongly opposed the acquisition in letters to the OCC. At the time I wrote that HSBC would take predatory lending mainstream. Ultimately it turned out that I was correct.

Household International paid $488 million to settle charges of predatory lending in 2001. At the time it was the largest predatory lending settlement in the nation.