Orange County: Subprime lending stupidity capital of the U.S. The city of Irvine's fame as a home for bankrupt mortgage brokers has deep historical roots

The ways of the Web can be obscure. I was looking for the answer to a question: Why was the subprime mortgage lending industry clustered so disproportionately in Orange Country, California? Half of the biggest twenty subprime lenders in the U.S. are (or were) located in Orange Country. Was there some kind of deep cultural explanation for why such infamous lenders such as New Century Finance Corp. and Ameriquest chose the city of Irvine as their base of operations?

Along the way, I stumbled upon a posting in a long-defunct blog, "Content Goes Here."



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I was at my local coffeehouse today and a woman came who turned a lot of heads. She was young, very tan, with one of those spectacularly unrealistic Barbie bodies. Her face was a bit worn from sun and partying. She was on the arm of a spiky-haired and also very tan guy in his 30s who exuded money and oily charm.... There are a lot of these people in my part of Orange County, California. The subprime mortgage industry, as it feeds off the desperation of strapped hicks all over the country, has created a lot of high-wage jobs for business school graduates with connections. For some reason a particular kind of person flourishes in this environment. The men are simultaneously degenerate and athletic, and spend money with abandon. The women are simultaneously degenerate and athletic, and are sexually available without much trouble... As long as interest rates are low and the nation's struggling classes are refinancing their mortgages for extra cash, this predatory class of surfer bankers can pull in very good money, as much as $30,000 to $60,000 a month in some cases... And inevitably, interest rates will rise again, the money will move, and the easy money will leave the subprime mortgage business. A lot of those $30,000 a month jobs for well-connected partiers will vanish, as will the leased supercars and the beach houses....

The posting is dated July 24, 2003, which means it may well qualify as one of the very first warnings of a subprime lending industry collapse. Nowadays, the Orange Country Register keeps a running total of layoffs in the local subprime lending business, and hardly a day goes by without another lender -- or hedge fund with exposure to some of those loans -- making an unwanted appearance in the financial press.

Orange Country -- birthplace of Richard Nixon, launching pad for No Doubt, and ground zero for mortgage brokers who specialized in offering no-money-down adjustable rate mortgages to would-be home-owners short on cash and suffering from bad credit. Why? Why do apricot orchards south of San Francisco morph into "Silicon Valley" while orange trees south of L.A. turn into "Mortgage Alley?"

One proposed explanation is that housing in Orange County is generally expensive, and the developers who dominate the region are supportive of a lending industry that absolutely, positively will find a way for people to afford to buy those new homes, no matter how fancy the gated community.

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Others blame California's lack of regulatory oversight of the mortgage lending industry. But I think there's something deeper going on. Something embedded in the deep structure of this hotbed of Southern California reactionary politics that encourages risky financial behavior. In another Bloomberg story on the subprime debacle, I ran across an intriguing passage.



After the collapse of the savings and loans in the 1980s, executives from that industry started subprime and other mortgage lenders, said Melissa Richards, general counsel for the California Mortgage Bankers Association. Their time at savings and loans gave them experience dealing with investment banks, which ended up buying packages of loans from subprime lenders for mortgage-backed securities, she said.

How could I have forgotten Charles Keating and his wacky crew at Lincoln Savings & Loan, headquartered in, you guessed it, the city of Irvine, in Orange County, California? We have yet to see whether the subprime mess ends up hitting the economy as hard as the S&L crisis did, but there's still time! Even if it doesn't, the symbolic congruence between the two outbreaks of financial irresponsibility, fueled by Wall Street capital, is compelling. Clearly, there's a there there in Orange Country, an impulse to play fast and loose that can't be repressed that manifests itself as regularly as the Santa Ana winds.

In 1990, Henry Pontell, a professor of criminology, law and society at the University of California, Irvine, co-authored an article titled "Orange County: Thrift Fraud Capital of the United States." Alas, Professor Pontell was not in his office when I called to ask if he could offer any socioeconomic or cultural reasons for why 17 years later, the time was ripe for an update: "Orange County: Subprime Lending Stupidity Capital of the United States." But if he returns my call, you can be sure to read about it here. In the meantime, we won't be shedding too many tears for those degenerate and athletic surfer bankers.