Ruth Lee
There is a lot of talk about DEE-regulation… and with some of our other topics on the marriage of Wall Street and Subprime, I thought to discuss a little of my research on the deregulation topic.
The real breach of the market started with Lehman’s 1997 purchase of Harbourton, an old RTC subprime servicer…. for more see the blog post here…
Harbourton had developed an expertise in buying and servicing defaulted Federal Housing Administration (FHA) loans from Ginnie Mae pools (the precursor to special servicing) and, due to changes in tax laws affecting the company’s capital structure, had elected to sell its mortgage origination and servicing businesses. (Mortgage Banking Article)
In 1999, Congress passed GLB, also known as the Gramm-Leach-Bliley Financial Services Modernization Act. For the primary mortgage industry, GLB really applied to informational security in correspondence. However, for the secondary, GLB repealed part of the Glass-Steagall Act of 1933 allowing open competition between banks, securities companies and insurance companies, prohibited activities under Glass-Steagall. Now the game was on, leveraging their financial expertise across the trifecta of financial services, opportunities for “vertical integration” abounded. Acquisitions abounded as these companies found more product to market to their “merged” customer base.
