Homewreckers
By Kai Wright | TheRoot.com
The mortgage industry is stealing black wealth--one foreclosure at a time.


Getty ImagesType Size July 14, 2008--You gotta admire, on some cynical level, a crook who can steal your money and make you believe it's your own fault for getting jacked. That's perhaps the most galling part about the con-job banks and lenders are still running on America. They spent a decade creating the "mortgage meltdown"—knocking down prescient state-level safeguards, dreaming up dangerously exotic products, relentlessly pursuing borrowers whose trust they could exploit—and yet they want everyone to believe that homeowners were the ones making bad decisions.

"The strength of our economy relies on the willingness of people to take risks," Mortgage Bankers Association chair-elect David Kittle told an April 16 House Financial Services subcommittee hearing. "But risk means one does not always win."

This rhetorical blame shifting is important. Not only because it justifies a limited, belated public-policy response to the subprime debacle. But also because it shapes how duped homeowners feel about themselves—and about the restitution they demand.

Take my mother. She's a 62-year-old retired, grade school teacher. She did everything a woman of her generation was supposed to do to earn economic security in her golden years, not least of which was moving from being a renter to investing in a home more than 10 years ago. Then Countrywide came along and convinced her to take out a subprime refinance loan she couldn't afford and from which she never stood to gain. Now she's back to being a renter, having lost the house.

She's not unique. As I reported in The Nation magazine, black folks are at the center of the storm. More than half of all black borrowers who got refinance mortgages in 2006 were sold subprime products. According to a recent study, black and Latino borrowers will collectively lose an estimated $164 billion to $213 billion in the wave of foreclosures following that lending; we'll have absorbed about half the nation's overall foreclosure loss.

But the breadth of the problem in our community has done little to change the depth of my mother's shame. She hid her troubles from my brother and me until the end. She blames herself. She feels stupid.


And that's just what the banking industry wants her to feel—and wants her elected representatives to believe about her as well. If it's her fault, the problem can be framed as one of "risky" borrowers, as a White House official put it in congressional testimony, rather than one of conniving lenders. If it's her fault, the solution is to let industry guide the way out of this mess, rather than have the public sector step in and bring order to the chaos that lenders' reckless behavior has spawned.

Congress has vowed to finally deal with the mortgage crisis this summer. But to arrive at a meaningful solution, we must acknowledge some cold realities about the problem.

The first reality is that no good came from this. An oft-repeated trope is that subprime lending fueled a surge in homeownership in black and brown communities. But as the Wall Street Journal reported, most borrowers would have qualified for prime loans had they not been steered to more expensive subprime ones. Moreover, once the foreclosure dust settles, black America will have suffered a net loss in homeownership, according to a Center for Responsible Lending analysis, because less than a tenth of all subprime loans made since 1998 went to first-time homeowners. More than half were refinances.

Another truth is that subprime lenders were willful—and that makes them predatory. They didn't just use exploding interest rates. Lenders employed a host of tools to trick people into believing clearly bad deals were good ones—undocumented income claims, interest-only payments, inflated appraisals and more.

George Mitchell, who I profiled in my Nation investigation, is typical. He was flipped through four refinances in five years, ending with a $125,000 loan on a house worth no more than $100,000. Worse, he gained nothing but a larger debt burden—all but $361 of the phantom equity he borrowed against went to his lender's fees and closing costs.

George is a 77-year-old retiree living on Social Security and a postal service pension, yet the loan application claims—without documentation—that he makes almost $5,000 a month. George says the bank rep lied without his knowledge. But regardless of where the lie came from, any lender interested in making an actually viable loan would have been troubled by such a bizarre income claim. The lender, IndyMac Bank, nonetheless insists nothing about his application looks out of place.

Why would lenders deliberately give out bad loans? Because banks and investors alike were taking a giant and decidedly "risky" gamble in the securities market, posting a let-it-ride bet that depended upon high-volume lending. Banks needed a steady supply of loans in order to bundle them and sell them to investors, and as one veteran lawyer in the fight against predatory lending put it, "They ran out of legitimately eligible borrowers a long time ago."

They also worked hard to get the right to prey upon people like George. According to the Wall Street Journal, the mortgage industry has spent millions lobbying state legislatures to block, and in some cases repeal, laws that would have reined in subprime lending on the front end of the trend.

Now they want us to trust their willingness to voluntarily work things out with borrowers one at a time. A more reasonable solution would be to let bankruptcy judges review files like George's and decide on a fair settlement. But bills that would end the mortgage industry's exemption from bankruptcy court lie dormant in Congress.

I doubt that minorities were a "target" of maliscious bank loans. Everyone is feeling the hardship right now of foreclosure. I don't think it's being targeted at minorities, although I can see minorities having a harder time than others.

Congress helped create the mortgage crisis to begin with.

Btw, this is probably in the wrong forum lol ...

I think they definitely were irresponsible, if not evil, with the way they handed out loans. I could have gotten $100,000 more than I got, and I would probably be in foreclosure right now if I had taken it.

But it's not just homes, I see the kinds of cars people are driving, and I think they got huge loans for them, as well. I drive a $1000 Corolla, and it's almost always the cheapest car on the road.

My 75 year old mother-in-law got a home equity loan on her paid for house a few years ago to pay off credit card debt.

Somehow in the last 10 years, on only a $600 a month income from Social Security, she managed to get nearly every department store credit card, a Discover card, and several different Visas and Mastercards. Her debt was over $8000 on all of them.

Needless to say, she was having a very hard time paying even the minimum payments on the cards, along with her utilities, home owner's insurance and basic needs. She doesn't drive, so at least there wasn't that.

When she told me she was considering getting the loan, I tried to talk her into doing a reverse mortgage, which she wouldn't even look into.

I even told her to just file bankruptcy and get rid of all the debt. She wouldn't even hear of that!

So, she ended up getting an adjustable rate home equity loan from a sub-prime lender. They made her get flood insurance, which costs $600 a year on top of her regular insurance. She never had any of her kids or grand kids, me or even senior services help her in looking over the papers.

Now, here it is three years later and she is struggling with the nearly $150 a month payment on that, two insurance payments and of course more credit card debt because she ran those up again.

I don't know why any of those credit card companies or the mortgage lender would extend credit and loans to her with only a $600 a month income!!!

superspaceboy said:

i don't know if anyone ever sat down and planned to target minorities, but they are disproportionately nunmering among those being foreclosed upon, due to their lower income levels.

i think of this more as a classist ripoff than a racist ripoff.

I'm sorry...but people have to assume some responsibility for their own financial well-being.

Everybody's looking for somebody to blame. I feel bad for people who may lose their homes, but this idea that bankers, in general, were twirling their mustaches and looking to swindle unsuspecting people by putting them in bigger houses than they could afford is silly.

dustysgirl said:

It isn't the responsibility of the banks or the credit card companies to protect people from themselves.

dustysgirl said:

i think there are a lot of people who are not behaving responsibly when it comes to living within their means but right now some of the big lenders are being investigated for fraudulent and/or predatory lending practices. this tells me the current mess cannot be blamed entirely upon on the borrowers. somewhere, someone made a LOT of money on commissions from these sales.
[Edited 7/17/08 12:29pm]

Genesia said:

I agree with the responsibility part, but I do think people were giving out loans that were too big, also.

NDRU said:

Sure they were. And the banks should be out the money if they took a bad risk.

But regardless of how much was lent, the borrower has to look at the bottom line and say, "Can I pay this money back?"

XxAxX said:

Either way.....somebody got PAID.....and somebody got PLAYED.

Genesia said:

No it is not, but it is also not their job to target certain demographics for loans either. It's called predatory lending, and it is a swindle.

Does the con man share no blame in a con?

Mars23 said:

I honestly don't believe that "certain demographics" were targeted. In fact, I think banks were under a lot of pressure to loosen their lending standards so as not to appear as if they were redlining.

Interesting that I had several friends ask me about this and I told them NOT 2 buy into this FRAUD. All of them listened but one, he LOST his house 2 weeks ago. Very sad. This guy is 48 years old looking 4 a place 2 live. BTW, he makes $90k a year and can't afford jack in Cali with this on his credit report.

Genesia said:

I dunno about that. Banks target certain demographics for many products and services all the time.

Genesia said:

I'm not an expert, but if the banks get the house if you can't pay, they're not really out anything, right? In fact they made money on the payments a person did make before foreclosure.

As a housing counselor I see this all the time. Adjustable Rate mortgages are the big ones, but a lot is just people living beyond their means.And just because you get approved for a $200k house doesn't mean you have to get one for that amount. Some people I can help, and some we have to do bankruptcy.

Frederick96 said:

I've seen people get into big trouble with these. Thank god I knew about them.

Frederick96 said:

Exactly right. When I moved 2 Atlanta, I was approved for way more than what I purchased. My agent look at me like I was nuts. 4 years later, I'm still happy with my purchase and have not looked back.

I think banks definitely targeted minority groups--it's not sort of some Hitler type final solution mind you, but minority groups were targeted none the less.

The issue here is (and I work for a financial institution mind you), in order to meet your wall street numbers, you MUST sell sell sell. And, thanks to wallstreet, lobbyist, and congress, Banks where able to give out huge loans without assuming any direct risk (since they in turn sold those loans to hedge funds, who then in turn sold those loans, etc. etc.).

So ultimately this is about accountability and assuming risk. Congress gave these institutions no risk. And as you can see even when they're about to go under, Congress is willing to bail out these firms (though they won't dare call it a bail out). What congress doesn't appear to be willing to do is bail out those who assumed the true risk--that's your average consumer who took out these loans to live the American dream.

But I agree with Genisa--you shouldn't be taking out a loan you can't afford. I make almost 20 grand more than the 2 person income here in Tampa, and I wouldn't dare by a 400 grand house, like I saw some couples doing who earned less than me---and I need a fucking roomate to help make ends meet!

NDRU said:

The bank can be out a lot of money.

Sure, they made money on the interest initially...but who knows how long the homeowners are in arrears before the lender gets the property back? They are losing many months worth of payments before they can sell the property. And if (as has happened in a lot of places) the property can't be sold for the amount that was lent, the lender (or whoever bought the note) is out that money.

Imago said:

And those people that make less were getting approved for the loans. Shouldn't the approval process be a realistic estimation of the risk one can handle?

I was approved for 3 times the value of my house and I told them they were fucking nuts.
[Edited 7/17/08 12:59pm]

Mars23 said:

YES they should be!

The problem is that the banks weren't really assuming any risk for the loans cause they actually sold the loans to other firms.
The loan you take out with your bank has been sold at least 3 times over before all is said and done.

And now that shit is actually hitting the fan, congress is more than willing to bail out those institutions to keep the stock market going (the rich people happy), but not to assist the little man who supposedly got swindled.

NDRU said:

See the thing is...it's perceived as evil but it's really irresponsible. The banking industry is REELING from all of the loans made. Sure you got your forecloseues and the folks who lose thier homes, but conversely, you have banks losing billions on "bad loans". Loans that were made prior to the Market Crash Dot.Com bust. Loans that were made on good faith because Mr Smith got a great 6 figure job at a startup that has long since closed it's doors. I also think that the entire housing industry is way way way bloated and over priced. A home that is worth 300K should not be selling at 1MIL. Someone is bound to get the short end.

I would also add I don't see this to be a racially driven thing by design, but it was a socio-economic thing.

The very idea of loosening up loan approvals means extending more credit to those at a higher risk.

Mars23 said:

yup.

Another thing that chaps my hide about all this is that lenders are scared to death of renegotiating the loan with the client because they're afraid of.....wall-street investors suing them since the loans were sold to investors.

sick really. Systematic overthrow of the underclass

Mars23 said:

Eeeeeexactly.

XxAxX said:

I agree that some took advantage of the situation...more going for commissions rather than wanting to sucker people out of their homes.

I work for a financial institution and while we are not doing great, our losses are less because we stuck to our policy of giving the right loans to the right people.

Graycap23 said:

No one is getting played.