As I look forward to the debut of my latest literary fiction novel, The Exile, I thought it would be enlightening to share some surrounding context of the story (without spoilers), namely the subprime mortgage crisis of 2007/2008. As an added bonus, it’s now been 10 years since the recession, making it an ideal opportunity to reflect on what happened and what we can learn from it.
Setting the Stage: Literary Fiction Meets the Subprime Mortgage Crisis
When The Exile begins, the main protagonist, Leila, is a subprime mortgage broker in Phoenix, Arizona. She enjoys her job: the competitive pace, the ability to help people, the financial independence. While some of her coworkers bend the rules of the business for personal gain, others (including Leila) are more cautious with their approach.
Given the timeframe of the story, most readers that remember the recession will see what’s coming. The Exile provides a first-hand account of a different side of the subprime mortgage crisis: how it affected the individual women and men working in subprime mortgage offices.
My editor remarked when working on the novel, that while he had read dozens of books that cover the financial crisis from the perspective of Wall Street bankers (The Big Short by Michael Lewis comes to mind), he was unaware of any books other than mine that deal with the crisis from the viewpoint of the small-time lenders hustling to make a living.
The History of the Subprime Mortgage Crisis
Ten years ago, the great recession affected Americans across the country as unemployment rates doubled, millions of homes were foreclosed on and the stock market plummeted, causing retirement investments to vanish overnight.
Not everyone understands how the subprime mortgage crisis led to it.
Subprime mortgages were offered to those that don’t meet standards for prime mortgage rates; they often have low credit scores and struggle with debt. Because the loans are riskier for lenders, they have much higher interest rates than the standard prime mortgage loans.
Although the subprime mortgage crisis didn’t happen until 2006, the groundwork was laid in the early 2000s by a variety of factors:
- Congressional deregulation of banks and other financial institutions
- The Federal Reserve lowered the funds rate to increase growth
- Interest rates were low all around, which meant those with poor credit were able to qualify for subprime mortgages with manageable rates
- Home ownership increased exponentially
- Investors burned by the dot com bubble began shifting their investments to real estate
- Housing prices grew and the number of subprime mortgages increased rapidly
Between 2004-2006, the Federal Reserve attempted to slow down the inflation by raising the interest rate more than 12 times. But it didn’t stop the bubble from bursting.
As The Street explains, “Subprime mortgage lenders begin laying thousands of employees off.” In 2008, it seemed that another subprime mortgage office was filing for bankruptcy every week.
Home prices fell, interest rates went up and banks ended up foreclosing on homes across the country; even homeowners with good credit had a difficult time keeping up with their mortgages. Investment banks that bought and sold these loans were being defaulted on and were unable to keep up. While some were bailed out by the government, others weren’t.
Lehman Brothers, one of the most prominent financial-service firms in the world, had invested heavily in subprime mortgages. Its rapid descent into bankruptcy was a major cause of the 2008 stock market crash.
What We Can Learn from the Subprime Mortgage Crisis
Ten years later, what can we learn from the subprime mortgage crisis? In 2009, the Financial Crisis Inquiry Commission was created to look into the recession. It concluded that failures of financial regulation and supervision, as well as corporate governance and risk management at important financial institutions were responsible.
Phil Angelides, leader of the commission, told Investopedia, “The financial crisis was an avoidable disaster brought upon by the failure of regulators to curb Wall Street recklessness.”
Although financial reforms were enacted following the crisis, he cautions that, “Too much on Wall Street remains unchanged from the pre-crisis era makes a repeat of reckless conduct that precipitated the 2008 financial meltdown more likely than not…the protections put in place in the wake of the crisis are now under assault by the triumvirate of the Trump Administration, congressional Republicans, and Wall Street, with the clear agenda to return to the deregulatory policies and anemic oversight that led to the 2008 financial meltdown.”
Why Include the Subprime Mortgage Crisis in a Literary Fiction Novel?
There were a number of reasons I chose to include the subprime mortgage crisis as a theme in The Exile. First of all, my career as a mortgage consultant has given me a different perspective on the event than many experienced or heard in the news. I’ve thought about writing it into a novel for a while, to give readers a “glimpse behind the curtain,” as it were.
The subprime mortgage crisis is not the prevailing theme of this novel, but I thought it provided an interesting framework for Leila’s story. There are elements of the job that naturally attracted women (and men) like her: those without advanced education or technical training, who nonetheless have the tenacity to succeed in the high pressure world of sales. The novel also shows how even those determined to do their job with integrity can get sucked into a bad situation.
I am eager for The Exile to debut in April so you too can experience Leila’s story. The literary fiction novel is available for pre-order on Amazon, or from your favorite local bookstore; please click through to reserve your copy today.
