Lots of people have asked why the press didn’t tell us loudly enough that the subprime train was a-comin’. But if you read the work of Michael Hudson, you’d have had a good idea of what was in store.

Hudson, with colleague E. Scott Reckard, wrote what Audit chief Dean Starkman has called “two of the most revealing stories on the culture that overtook the lending industry” in February and March of 2005 on the criminal culture at now-disgraced Ameriquest.

Here’s a sample:

“It was like a boiler room,” said Bomchill, 37. “You produce, you make a lot of money. Or you move on. There’s no real compassion or understanding of the position they’re putting their customers in.”


Indeed, Bomchill – who said he left Ameriquest because he didn’t like the way the company treated its employees and customers, and now works as a mortgage broker – contends that the drive to close deals and grab six-figure salaries led many Ameriquest employees astray: They forged documents, hyped customers’ creditworthiness and “juiced” mortgages with hidden rates and fees.

Such claims are not unusual against sub-prime lenders, which are a frequent target of consumer groups.

Dean has also pointed to an excellent story Hudson did on Citigroup’s rotten subprime foundation in 2003:

But Hudson’s stories on dirty home-lending practices go even further back. Here’s one from 1992 in The Washington Monthly on predatory home-equity lenders.

And he wrote and edited a book in 1996 called “Merchants of Misery: How Corporate America Profits From Poverty”, which ripped subprime lending and other shady credit practices.

Hudson has been a staff reporter at The Wall Street Journal, where he wrote a great piece looking at Wall Street’s role in creating the subprime mess (and once co-wrote a story—most of which ended up on the cutting-room floor—with me on coming problems in commercial mortgages) and The Roanoke Times and written for many other major publications, including The New York Times.

Hudson is now a senior investigator for the Center for Responsible Lending and is writing a book on the rise and fall of the subprime market.

The Audit talked to him recently.

The Audit: How did you get on this? These stories go back a couple decades. What did you see that others weren’t seeing?

Mike Hudson: I was covering the poverty beat at a good mid-sized daily newspaper in Virginia, The Roanoke Times. A local legal-aid attorney took me aside and said it’s important to write about social-services programs and difficulties people have getting jobs, but one way to look at the problem of poverty is to look at how people try to better themselves. They buy a house so they can get some more stability and equity. Or they buy a car so they can get some mobility to get to a better job or get to school. Or they go back to school so they can get a better job.

That started me thinking about these kinds of issues. In ‘92 I was lucky enough to get an Alicia Patterson Journalism Fellowship, which gave me a year’s leave of absence from my paper to report and write on businesses that market to low-income and minority consumers.

TA: How key was the fellowship in allowing you to really get a grasp on this stuff?

MH: It really gave me time to talk to experts. I went all over the country. I walked around Techwood Homes (the first public-housing project) in Atlanta; went door to door talking to people. I hung out in front of check-cashing outlets, currency exchanges and interviewed people. I read lots of lawsuits. I was able to do this in-depth and really get a sense of the big picture. I eventually wrote a series of stories for my newspaper. I wrote stuff for The Nation and Mother Jones and The Washington Monthly; just tried to write as much as I could.

I wrote about the pawn shops and the check-cashing outlets and the trade schools. But eventually I started to narrow my focus and really focus in on predatory (mortgage) lending. All these other things are costly and can be hurtful to consumers but ultimately the worst way people can get taken advantage of and the deepest people can get in a hole is through a bad home loan.

One thing that a former assistant attorney general in the Midwest told me, he said “This was a catastrophe before it was a crisis”. People on the ground, actual borrowers, real people, were being hurt badly by these loans for many years. In the late 90’s, in the early 2000’s, people were losing their homes to foreclosure, but because of the run-up in real estate values a lot of this was hidden. You could get a bad loan and if the borrower refinanced in eighteen months, it looked as if you’d made a good loan. People continued to get new loans and try to stave off the inevitable. As they did this, they were having to pay more and more fees and pre-payment penalties and sometimes late fees. As long as property values were going up they could keep doing this, but eventually folks would collapse because the monthly payments would become just too big.

So the process for people defaulting and ending up in foreclosure would take eighteen months, two years, three years, five years even before people would fall apart. By having that delay and by the way they could play with the numbers because they could keep refinancing people and taking loans off their books, it didn’t look as bad. People were being hurt, people were suffering, foreclosures were high. But when property values started going down you ended up with a situation where people started defaulting very quickly. There was no way to get out of it and hide it. People could no longer refinance.