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The Bad Guys of Subprime Lending Are Raking in Bailout Billions

Naming the top 25 lenders and their Wall Street backers that juiced the subprime industry.

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The objective was to gather data encompassing "substantially all of the subprime mortgage market while generally avoiding coverage of prime loans," according to the Federal Reserve.

The Center analyzed these loans from 2005 through the end of 2007 to come up with its top 25 list of high-interest lenders. (The 2004 data were excluded due to poor compliance and other factors.) The market for these loans, driven by Wall Street investors, grew through the early 2000s, peaked in 2005, and crashed in 2007. The top 25 subprime lenders represent nearly 5 million loans.

There are multiple definitions of what constitutes a subprime loan. For the Center's criteria and to learn how the list was created, please see our methodology page.

Most of the top subprime lenders were high-volume, "non-bank" retail lenders that advertised heavily, generated huge profits, and flamed out when Wall Street benefactors yanked their funding. Nine of the top 10 lenders were based in California -- seven were located in either Los Angeles or Orange counties. At least eight of the top 10 were backed at least in part by banks that have received bank bailout money.

Countrywide Financial Corp., which made at least $97.2 billion worth of loans from 2005 through the end of 2007, ranked No. 1 among subprime lenders nationally. The company was purchased by Bank of America last year. No. 1 was Calabasas, California-based Countrywide Financial Corp., with at least $97.2 billion worth of loans from 2005 through the end of 2007. Countrywide was bought by Bank of America last year, saving it from probable bankruptcy. Second was Ameriquest Mortgage Co. of Orange, California, now defunct, which originated at least $80.6 billion worth of loans. Third was now-bankrupt New Century Financial Corp. of Irvine, California, with more than $75.9 billion in loans.

Non-Bank Lenders Dominate

Independent mortgage companies like Ameriquest and New Century were among the most prolific subprime lenders. Since they were not banks, they could not accept deposits, which limited their access to funds. At least 169 independent mortgage companies that reported lending data in 2006 ceased operations in 2007, according to the Federal Reserve.

Some of the nation's largest banks have subprime lending units, including Wells Fargo & Co., which ranked No. 8, JPMorgan Chase & Co. at No. 12, and Citigroup Inc. at No. 15. The big banks' mortgage business was less reliant on subprime lending than that of the non-bank lenders. But most of the big investment banks also purchased subprime loans made by other lenders and sold them as securities.

Several other lenders among the Top 25 were subsidiaries of Wall Street banks or hedge funds. Encore Credit Corp. (No. 17), for example, was a subsidiary of Bear Stearns, and BNC Mortgage Inc. was part of Lehman Brothers (No. 11).

The lending totals in the survey include subsidiaries owned by the parent companies. British bank HSBC Holdings plc (No. 9) owned American subsidiary HSBC Finance Corp., which in turn owned subprime lender Decision One and also operated under the names Beneficial and HLC.

Two of the top subprime lenders were seized by the government. IndyMac Bank (No. 14) and Washington Mutual (owner of Long Beach Mortgage Co., No. 5) were each taken over by federal banking regulators after big losses on their portfolios of subprime loans.

American International Group (AIG), better known for insurance and complex trades in financial derivatives, made the list at No. 18, thanks to subsidiaries like American General Finance Inc., MorEquity, and Wilmington Finance Inc.

The five banks on the list that are still lending are Wells Fargo, JPMorgan Chase, GMAC LLC, Citigroup, and AIG. All have received billions from the government's bank bailout programs.

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