President Obama said this during his speech on affordable home ownership last week:
And unfortunately, over time, responsibility too often gave way to recklessness. You had reckless lenders who sold loans to people they knew couldn’t afford them. And let's face it, we also had some reckless buyers who knew they couldn’t afford them and still took out loans. And all this created a housing bubble. And especially in some places like Arizona, it was devastating when that bubble finally burst -- triggered a recession. Millions of Americans who had done everything right were hurt badly by the actions of other people. Housing prices plummeted.
He should have stopped at the "reckless lender" statement and instead of talking about reckless buyers, spoken to the sloppy, greedy business practices that led up to the collapse of the housing market.
Melissa Harris-Perry shot that whole banker apologist line down with some facts. More than 32 percent of subprime loans were made to women and African-Americans. Her question (and mine): Shouldn't we really place responsibility on the business practices of Wall Street and the banks like Bank of America and Wells Fargo who were feeding that derivatives machine, along with those so-called "responsible buyers" back in 2001 who bought properties expecting an unreasonable inflation in their equity?
Yes, we should. Panelist Shanna Smith from the National Fair Housing Alliance walked through the history, which seems to be conveniently forgotten whenever we get into these issues. Lest we all forget, initial targets of bankers' predatory lending schemes were African-Americans. Initial targets were African-Americans who were already homeowners and who had equity in their home. They were targeted as a way to steal that equity away from them.
Indeed, predatory lending practices in minority communities had been identified as early as 1999, yet they continued unabated. As Smith explains, they first targeted African-Americans because they didn't have enough Spanish-speaking representatives to go after the Latino community, though that soon changed. Pew Research reported that the impact on these communities was devastating, now and for future generations:
As a result, minority families have absorbed a crushing blow from the collapse of the housing market, and the larger economic crisis. According to the Pew Research Center, the median wealth of white households has grown to 20 times that of black households and 18 times that of Hispanic households. These inequalities, moreover, reinforce themselves over the course of generations.
These loans were not the consequence of reckless acts, but the consequence of greedy bankers eager to suck borrowers into commitments to subprime loan terms when they actually might have qualified as a prime borrower. By forcing them into subprime terms, they set up failure and an opportunity to make sure those borrowers lost everything.
This report by Fannie Mae executives summarizes how predatory lenders took advantage of minority communities. Keep in mind, these lenders were not the loan shark on the next street over. They were banks like Bank of America and Wells Fargo Bank. Anyone in California, at least, who owned a home received cold calls all the time asking about whether owners wanted to refinance for repairs or to buy a new car or put their kid through college. It was routine and backed by the largest banks in the country.
Predatory lenders’ advertisements claim that easy and affordable home equity loans are a quick way for consumers to pay down credit card debt, take a desired vacation, or pay off other expenses, and still have lower monthly mortgage payments. Predatory lending also often involves fraudulent home improvement scams targeted to elderly homeowners because they are more likely than younger people to live in older homes that need repair, are less likely to undertake the repairs themselves, and may not have the cash to pay for someone else to perform them. Because these homeowners have built up substantial equity in their homes, they are particularly at risk of losing a major share, if not all, of their equity. Predatory lenders also make loans to homeowners who are mentally incapacitated and do not understand the nature of the mortgage transaction or papers to be signed.
Aside from the loan itself—typically offered at very high interest rates—loan terms often include inflated and padded costs, such as excessive closing or appraisal charges, high origination and other administrative fees, and exorbitant prepayment penalties that trap lower-income borrowers into the subprime market. While prepayment fees are rarely charged in the prime market—some2 percent of mortgages carry them—they are included in 80 percent of subprime mortgages, according to the Detroit Alliance for Fair Banking. And, unlike in the prime market, where prepayment fees are a tradeoff for lower interest rates, subprime mortgage holders rarely, if ever,get anything for the added fees, which can cost as much as a 6 percent penalty for early payoff. Consumers are locked into the subprime market even if they demonstrate improving creditworthiness, and are doubly hurt because they are not free to take advantage of lower interest rates as can prime market customers.
Make no mistake about it. These practices are still very much in play at the Big Banks. The only thing that's changed is a wider targeted market. People like me are now part of those subprime targeting practices, a story I will tell soon. Interest rates are low and lending practices have tightened up, but only on responsible borrowers. They'll lend money to those so-called irresponsible borrowers who I prefer to think of as targeted equity hits, as long as the target agrees to insane fees, ridiculous terms, and higher interest rates.
Perhaps it would be good for the President to have a conversation with real people instead of economic advisers and bankers. Or perhaps he should just review the rows upon rows of CFPB complaints about these so-called "responsible lenders."
Either way, it would be good for him to get the facts right about who the hunter and who the hunted was. And is.
