Inside the Subprime Debacle

Author Richard Bitner explains how a web of deception ensnared the U.S. economy.

Bitner says there's no end in sight to the mortgage mess.

Bitner says there's no end in sight to the mortgage mess.


Richard Bitner started buying subprime loans in 1998, eventually building a wholesale lending business handling $225 million in loans a year. Before "subprime" became a catchphrase for economic calamity, his Dallas company, Kellner Mortgage Investments, sat among a horde of brokers and eager investment banks clamoring for risky mortgage investments that eventually caused the current credit crisis. Bitner chronicles his tenure in Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud, and Ignorance. Excerpts from a chat with U.S. News:

There seems to have been a total breakdown of trust between brokers and lenders. How bad was the deception?
It was enormous. By the time we hit 2004, I estimated that 3 out of every 4 deals we were looking at were somehow deceptive, fraudulent, or manipulated. There was a huge breakdown. We truly felt like we couldn't trust anybody.

Who's the most glaring culprit in the subprime mess?
I almost assess an equal level of blame to everyone involved. It's probably the only time we've had a business debacle this wide ranging [with] malfeasance at so many levels. Having said that, the one area that would have prevented all of this from taking place is if the ratings agencies would have had a monetary interest in the accuracy of the ratings they put out.

Tell me about "Luther" from Cleveland.
The door to his office looked like it belonged on a bank vault. I'm thinking, "Why does a mortgage broker who doesn't keep any money lying around need a door that looks like it could protect Fort Knox?" I listened to him talk to a federal judge, trying to get a buddy bailed out of prison, and he talked about his experiences in jail. When I researched him after the fact, he created a massive amount of destruction. There was nothing legitimate about his operation.

Was that sort of abuse common?
"Luther" is an extreme. But the reality was you had plausible deniability where brokers let lenders set the level of acceptable risk, and then they just delivered it. You're dealing with commissioned salespeople who had no vested interest in the performance of a loan.

How will the mortgage crisis end?
You don't hit the bottom until we get ourselves back to a national six-month average [in the inventory of unsold homes on the market, which was 10.8 months in May]. I think we'll be lucky to turn the corner by late 2009.

subprime mortgages
  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at