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Bull jumped into a crowd in Spain |
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A bull jumped into a crowd of people and trampling numerous spectators last Wednesday in Spain. |
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ITV’s X Factor and Britain's got Talent reaches Costa del Sol Marbella |
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Alexandra Burke, Diversity and Jamie Archer to perform this week in Puerto Banus Bullring... |
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U.S. First Lady Michele Obama and her daughter are enjoying of the Andalucian hopitality |
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Marbella, Granada, Ronda & the Beautiful Malaga are getting the presidential seal of approval |
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100 Percent Mortgages Available in Spain |
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Dont Miss this Opportunity to own a Property in Costa del Sol Now Discounted up to 50% |
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Recession fears after housing bubble burst
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How homeowners, speculators and Wall Street rode a wave of easy money
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The black-tie party at Washington's swank Mayflower Hotel seemed a fitting celebration of the biggest American housing boom since the 1950s: filet mignon and lobster, a champagne room and hundreds of mortgage brokers, real estate agents and their customers gyrating to a Latin band.
On that winter night in 2005, the company hosting the gala honored itself with an ice sculpture of its logo. Pinnacle Financial had grown from a single office to a national behemoth generating $6.5 billion in mortgages that year. The $100,000-plus party celebrated the booming division that made loans largely to Hispanic immigrants with little savings. The company even booked rooms for those who imbibed too much.
Kevin Connelly, a loan officer who attended the affair, now marvels at those gilded times. At his Pinnacle office in Virginia, colleagues were filling the parking lot with BMWs and at least one Lotus sports car. In its hiring frenzy, the mortgage company turned a busboy into a loan officer whose income zoomed to six figures in a matter of months.
"It was the peak. It was the embodiment of business success," Connelly said. "We underestimated the bubble, even though deep down, we knew it couldn't last forever."
Indeed, Pinnacle's party would soon end, along with the nation's housing euphoria. The company has all but disappeared, along with dozens of other mortgage firms, tens of thousands of jobs on Wall Street and the dreams of about 1 million proud new homeowners who lost their houses.
The aftershocks of the housing market's collapse still rumble through the economy, with unemployment rising, companies struggling to obtain financing and the stock market more than 10 percent below its peak last fall. The Federal Reserve has taken unprecedented action to stave off a recession, slashing interest rates and intervening to save a storied Wall Street investment bank. Congress and federal agencies have launched investigations into what happened: wrongdoing by mortgage brokers, lax lending standards by banks, failures by watchdogs.
Seen in the best possible light, the housing bubble that began inflating in the mid-1990s was "a great national experiment," as one prominent economist put it -- a way to harness the inventiveness of the capitalist system to give low-income families, minorities and immigrants a chance to own their homes. But it also is a classic story of boom, excess and bust, of homeowners, speculators and Wall Street dealmakers happy to ride the wave of easy money even though many knew a crash was inevitable.
Chapter I: 'A lot of potential'
For David E. Zimmer, the story of the bubble began in 1986 in a high-rise office overlooking Lake Erie.
An aggressive, clean-cut 25-year-old, armed with an MBA from the University of Notre Dame, Zimmer spent his hours attached to a phone at his small desk, one of a handful of young salesmen in the Cleveland office of the First Boston investment bank.
No one took lunch -- lunch was for the weak, and the weak didn't survive. Zimmer gabbed all day with his clients, mostly mid-size banks in the Midwest, persuading them to buy a new kind of financial product. Every once in a while, he'd hop a small plane or drive his Oldsmobile Omega out for a visit, armed with charts and reports. The products, investments based on bundles of residential mortgages, were so new he had to explain them carefully to the bankers.
"There was a lot of education going on," Zimmer said. "I realized, as a lot of people did, this was a brand new segment of the market that had a lot of potential, but I had no idea how big this would get."
Zimmer joined the business as enormous changes were taking hold in the mortgage industry. Since World War II, community banks, also called thrifts or savings and loans, had profited by taking savings deposits, paying their customers interest and then lending the money at a slightly higher rate for 30 years to people who wanted to buy homes. The system had increased homeownership from less than 45 percent of all U.S. households in 1940 to nearly 65 percent by the mid-'60s, helped by government programs such as G.I. loans.
In 1970, when demand for mortgage money threatened to outstrip supply, the government hit on a new idea for getting more money to borrowers: Buy the 30-year, fixed-rate mortgages from the thrifts, guarantee them against defaults, and pool thousands of the mortgages to be sold as a bond to investors, who would get a stream of payments from the homeowners. In turn, the thrifts would get immediate cash to lend to more home buyers.
Wall Street, which would broker the deals and collect fees, saw the pools of mortgages as a new opportunity for profit. But the business did not get big until the 1980s. That was when the mortgage finance chief at the Salomon Brothers investment bank, Lewis Ranieri -- a Brooklyn-born college dropout who started in the company's mailroom -- and his competitor, Laurence Fink of First Boston, came up with a new idea with a mouthful of a name: the collateralized mortgage obligation, or CMO. The CMO sliced a pool of mortgages into sections, called "tranches," that would be sold separately to investors. Each tranche paid a different interest rate and had a different maturity date.
By Alec Klein and Zachary A. Goldfarb
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