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'Some didn't know they were getting a loan' 'Some didn't know they were getting a loan'
(31 minutes later)
By Claire Bolderson BBC News, Orange County, CaliforniaBy Claire Bolderson BBC News, Orange County, California
Eileen Loiacono sips her iced water, laughs and says maybe, when she has time one day, she'll write her life story.Eileen Loiacono sips her iced water, laughs and says maybe, when she has time one day, she'll write her life story.
They said things like 'if you decline this mortgage I'll have you taken care of' Eileen LoiaconoThey said things like 'if you decline this mortgage I'll have you taken care of' Eileen Loiacono
It would make some eye popping reading. It would make some eye-popping reading.
Loiacono was a mortgage underwriter - deciding who her firm should lend to - at the height of the subprime lending bonanza.Loiacono was a mortgage underwriter - deciding who her firm should lend to - at the height of the subprime lending bonanza.
What's more, she was working in Orange County in southern California, once the subprime capital of the US.What's more, she was working in Orange County in southern California, once the subprime capital of the US.
Five years ago, most of the leading subprime lenders had their headquarters in the area. The county was stuffed with banks specialising in risky loans to people with little or no income and bad credit histories.Five years ago, most of the leading subprime lenders had their headquarters in the area. The county was stuffed with banks specialising in risky loans to people with little or no income and bad credit histories.
Eileen Loiacono saw how they did it. It was her job to look at the prospective borrowers' files and assess whether they'd be able to repay their loans.Eileen Loiacono saw how they did it. It was her job to look at the prospective borrowers' files and assess whether they'd be able to repay their loans.
Lending frenzyLending frenzy
How many of the applications that crossed her desk looked like good prospects? "About 30%" she says. How many of the applications that crossed her desk looked like good prospects? "About 30%," she says.
BBC AFTERSHOCK SEASON The BBC reports on the first anniversary of the credit crunch across radio, TV, and online. Read how former Fed chief Alan Greenspan believes the href="/2/hi/business/8244600.stm">economy will suffer another crash See how the crisis has affected the finances of central governments around the world href="http://www.bbc.co.uk/worldservice/specialreports/aftershock.shtml">Listen to WS radio on the crisis href="http://www.bbc.co.uk/worldservice/news/2009/09/090907_california_mortgages_dm.shtml">More from Claire Bolderson in California BBC AFTERSHOCK SEASON The BBC reports on the first anniversary of the credit crunch across radio, TV, and online. See how href="/2/hi/business/8243995.stm">key players reacted in the run-up to Lehmans' collapseSee how the recession has affected you href="/2/hi/business/8214272.stm">Listen to WS radio on the crisis href="/2/hi/in_depth/business/2007/creditcrunch/default.stm">Full coverage of Aftershock online
As for the rest: "There were people who didn't even understand they were getting a loan. They couldn't read the documents, somebody had just approached them and said hey, do you want a home?"As for the rest: "There were people who didn't even understand they were getting a loan. They couldn't read the documents, somebody had just approached them and said hey, do you want a home?"
Now working for a bank in Corona, a small town in the parched brown hills east of Orange County, Ms Loiacono says she did her best to bring some sense to the lending frenzy.Now working for a bank in Corona, a small town in the parched brown hills east of Orange County, Ms Loiacono says she did her best to bring some sense to the lending frenzy.
She would try to turn down loan applications that looked too risky but the pressure from mortgage brokers and bank bosses was overwhelming.She would try to turn down loan applications that looked too risky but the pressure from mortgage brokers and bank bosses was overwhelming.
They started offering incentives to the wavering underwriters. Promises of trips to resorts on the California coast were common. "They offered cars and watches and purses," she says, "the list goes on".They started offering incentives to the wavering underwriters. Promises of trips to resorts on the California coast were common. "They offered cars and watches and purses," she says, "the list goes on".
Did she ever succumb to temptation?Did she ever succumb to temptation?
Eileen Loiacono throws back her head with a loud laugh. "I was probably threatened more than I was offered anything" she says.Eileen Loiacono throws back her head with a loud laugh. "I was probably threatened more than I was offered anything" she says.
And not just threatened with losing her job. It was more menacing than that.And not just threatened with losing her job. It was more menacing than that.
She was told her car would be vandalised if she tried to reject an applicant.She was told her car would be vandalised if she tried to reject an applicant.
And worse. "They said things like 'if you decline this mortgage I'll have you taken care of'. And some underwriters cars were scratched and stuff like that".And worse. "They said things like 'if you decline this mortgage I'll have you taken care of'. And some underwriters cars were scratched and stuff like that".
'Chain of blame''Chain of blame'
Eventually the FBI were called in to investigate. Ms Loiacono left in disgust.Eventually the FBI were called in to investigate. Ms Loiacono left in disgust.
Port of LA: How recession is hitting US PortsPort of LA: How recession is hitting US Ports
But she says what she experienced was common in an industry she describes as having "no morals at all".But she says what she experienced was common in an industry she describes as having "no morals at all".
It was an industry that thrived in southern California while a buoyant economy attracted new residents in search of homes.It was an industry that thrived in southern California while a buoyant economy attracted new residents in search of homes.
And in Orange County, one of the wealthiest parts of the state, there were plenty of entrepreneurs ready to give anything a try.And in Orange County, one of the wealthiest parts of the state, there were plenty of entrepreneurs ready to give anything a try.
According to Mathew Padilla, author of a book on the birth of subprime "Chain of Blame", the East Coast had Wall Street and its established means of making money. According to Mathew Padilla, author of a book on the birth of subprime - Chain Of Blame - the East Coast had Wall Street and its established means of making money.
The financial innovators of southern California were looking for their own cut of the action.The financial innovators of southern California were looking for their own cut of the action.
From his desk at the Orange County Register where he's followed every twist and turn of the crisis, Mr Padilla explains "to make your niche you have to be creative and a lot of folks here were very creative".From his desk at the Orange County Register where he's followed every twist and turn of the crisis, Mr Padilla explains "to make your niche you have to be creative and a lot of folks here were very creative".
Spiral downwardsSpiral downwards
The results of their "creativity" are all too clear in the Orange County capital Santa Ana, where children play out on the streets on a warm summer evening and families congregate on their front steps and wait for the ice cream van.The results of their "creativity" are all too clear in the Orange County capital Santa Ana, where children play out on the streets on a warm summer evening and families congregate on their front steps and wait for the ice cream van.
On almost every one of the roads in the mostly Mexican neighbourhood at the heart of the city, there are boarded up houses with for sale signs outside.On almost every one of the roads in the mostly Mexican neighbourhood at the heart of the city, there are boarded up houses with for sale signs outside.
Boarded-up houses are a common sight in Orange CountyBoarded-up houses are a common sight in Orange County
Estate agents show prospective buyers around empty properties that have been repossessed by banks.Estate agents show prospective buyers around empty properties that have been repossessed by banks.
At the height of the property boom, the area had one of the highest concentrations of subprime mortgages in all of California. House prices were rising fast but wages were not.At the height of the property boom, the area had one of the highest concentrations of subprime mortgages in all of California. House prices were rising fast but wages were not.
People who would never have been able to get on the housing ladder because of low incomes or poor credit histories were perfect targets for the creative new loans.People who would never have been able to get on the housing ladder because of low incomes or poor credit histories were perfect targets for the creative new loans.
So were residents of Orange County who already owned their homes but wanted to use the equity to raise new funds.So were residents of Orange County who already owned their homes but wanted to use the equity to raise new funds.
Few had trouble borrowing. Many are still heavily in debt.Few had trouble borrowing. Many are still heavily in debt.
The pattern spread all over California which has one of the highest rates of home foreclosures in the United States.The pattern spread all over California which has one of the highest rates of home foreclosures in the United States.
The impact on the economy has been devastating. Unemployment, 9.7% nationally, is nearly 12% in California where a large component of economic growth was tied to the booming housing industry.The impact on the economy has been devastating. Unemployment, 9.7% nationally, is nearly 12% in California where a large component of economic growth was tied to the booming housing industry.
Now, in the places where the subprime industry took root, the fall out is still being felt. Now, in the places where the subprime industry took root, the fall-out is still being felt.
The big fear is that even people considered prime borrowers, those who were no risk at all, are going to default and trigger another spiral downwards.The big fear is that even people considered prime borrowers, those who were no risk at all, are going to default and trigger another spiral downwards.
With so many people losing their jobs, a lot more mortgages are likely to go unpaid.With so many people losing their jobs, a lot more mortgages are likely to go unpaid.