SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: Mortgage crisis and subprime betting making Enron's fall look comparatively cheap

Part 1: In a stunning lack of oversight, politicians were busy counting donations while mortgage companies originated faulty loans

The Wall Street Journal front-page article Lender Lobbying Blitz Abetted Mortgage Mess reports mortgage industry efforts to stymie legislative measures aimed at lenders gone wild. Mortgage lenders and industry-affiliated lobby organizations filtered out across the nation making huge political donations — some donations finding their way to Texas. One of those lenders was Ameriquest, a unit of ACC Capital Holdings and a large political contributor in Austin.

Ameriquest, a unit of ACC Capital Holdings and now defendant in hundreds of lawsuits alleging mortgage fraud, was a leader in subprime mortgage originations and sold products in many states including Texas. Ameriquest alone handed out over $20 million in political donations — over $300,000 landed in Texas through donations made directly by Ameriquest or its holding company, ACC Capital Holdings. It’s next biggest business rival, Countrywide Financial, donated approximately $9 million in comparison.

Ameriquest was fighting legislative efforts to curb predatory lending abuses — and apparently to save its own business plan to originate faulty loans with expensive rates and minimal disclosure. Many of those loans are now defaulting in record numbers across the nation and politicians are trying to look busy while the whole mess unravels. Ameriquest’s faulty loan process resulted in $325 million in regulatory sanctions to settle claims that the company made loans with excessive interest rates and didn’t properly disclose loan risks to borrowers — but at the height of the mortgage boom, Ameriquest was successful in its efforts to prevent government meddling and defeat legislative curbs while they looted their customers.

Part 2: Winners and losers — bank wealth transferred to investor who bet on subprime defaults

Another day, another revelation. In another front-page article, Trader Made Billions on Subprime, the Wall Street Journal reports some of the winners and losers from the mortgage crisis fallout. John Paulson, a hedge-fund manager, placed bets early that the housing market would decline — personally earning $3 to $4 billion dollars by going against the conventional wisdom that housing prices would never fall and mortgage-backed securities would never default.

Recognizing that the mortgage industry was replacing fundamentals with frenzy, Paulson set about to develop a financial strategy to make money when the market went bust. Using a relatively new mortgage-related index, Paulson was able to place bets that subprime loans would default — a bet that essentially transferred billions of bank wealth into his personal checking account. While he hasn’t cashed out of all his bets, he’s recognized that the loan defaults involve real people and is working on ways to help others with his enormous wealth — wealth accumulated by betting that people would lose their homes.

Maybe in a glimpse of things to come, Mr. Paulson tells investors that it’s not too late to bet on other economic troubles — like credit card and auto loan defaults.