Report Says US Lenders Prey on Minorities
WASHINGTON - Martin Luther King, Jr., the legendary U.S. civil rights leader, might well turn in his grave on this 79th anniversary of his birth.
The financial services industry has wrung more money from racial minorities than any other force in modern U.S. history, researchers at the think tank United for a Fair Economy said Tuesday in a new assessment of the mortgage crisis gripping this country.
‘The subprime lending debacle has caused the greatest loss of wealth to people of colour in modern U.S. history,’ said the latest annual ‘State of the Dream’ report from research and advocacy group United for a Fair Economy (UFE).
To be sure, whites also have been mangled by the mortgage industry but the organisation’s economic and social science researchers see clear evidence of racial discrimination in the distribution of substandard loans with ballooning interest rates among borrowers of different race but similar financial standing.
‘If subprime loans had been distributed equitably, losses for white people would be 16.5 percent higher and losses for people of colour would be about 22 percent lower,’ said the report.
‘The almost 40 percent difference is the racial cost of subprime lending in the U.S. This is evidence of systemic prejudice and institutional racism,’ it added.
People of colour people — mainly African Americans and Latinos — will have lost 163 billion-278 billion dollars to subprime loans taken during the past eight years by the time the crisis runs its course, researchers said.
Even before the current crisis, blacks were 594 years from achieving parity with whites in net worth, a measure of the value of an individual’s or household’s assets minus liabilities. The report based its figures on an analysis of official trends for 1982-2004.
For home ownership, long the principal or sole asset of those without great wealth, blacks were 5,423 years from equivalence with whites.
‘The current crisis is likely to make it take much longer’ to achieve parity, the report said.
Mortgage lenders, represented by the Mortgage Bankers Association, have defended subprime loans as necessary to enable them to extend credit to chancy borrowers, the alternative being to deprive those with low incomes or spotty credit histories from entering the housing market in the first place.
UFE remained unconvinced.
‘In the hands of the mortgage lending industry, subprime loans became predatory loans — a faulty product that was ruthlessly hawked even though financial institutions were aware of its defects,’ UFE said.
‘Hungry for new and different products, the financial services industry added features to these loans — exploding adjustable rates, balloon payments, penalties for early re-payment — that hobbled their recipients financially and made it unlikely that they would be able, after a brief honeymoon period, to repay the loans at all,’ it added.
Whole communities are wrecked as pauperised borrowers default on loans and lenders repossess their homes.
Even a few foreclosures in a given neighbourhood can result in increased crime, the devaluation of surrounding properties, the erosion of the local tax base, and consequent revenue shortfalls that in turn force local authorities to cut public services.
In some U.S. cities, foreclosures have increased by as much as 300 percent since 2000. More than half a million U.S. borrowers have lost their homes since 2006 and the figure could rise to one million by the end of this year, according to industry sources.
‘The crisis is having a negative impact on property owners as well as neighbourhoods and local and state governments,’ the report said.
Local authorities, unhappy with the pace and scope of the federal response, have taken financial firms to court.
The city of Baltimore, in the eastern state of Maryland, filed a federal lawsuit last week accusing leading mortgage lender Wells Fargo & Co. of steering black borrowers to subprime mortgages while granting safer traditional loans to similar applicants who were white. The company denies the charges.
Cleveland, in Ohio, is suing 21 lenders in hopes of recouping lost taxes and money spent on cleaning up foreclosed homes that, it said, the lenders should have maintained. Buffalo, in northern New York, also is trying to hold lenders responsible for maintaining homes in foreclosure.
Additionally, Maryland officials have gathered evidence that lenders steered disproportionate numbers of women into subprime loans.
Tuesday’s report recommended measures it said would promote and protect lower-class home ownership. It offered specific prescriptions but urged that broad economic inequalities be addressed in order to ensure their success.
U.S. taxpayers are able to deduct the cost of mortgage interest from their annual income tax bill, but the limit for the indirect subsidy is set so high and the bureaucratic steps required to claim it are so cumbersome that much of the benefit accrues to wealthy homeowners as two in three eligible taxpayers find it too costly and bothersome to apply for the deduction. The report urged fixing this.
UFE further recommended sticks and carrots to spur affordable housing, saying builders lack incentives to construct anything but expensive housing. The process and costs of securing a mortgage should be simplified, it added, and regulations governing truth in lending and the settlement of disputes should give borrowers greater protection.
Beyond such measures, the organisation urged restoring affirmative action, shorthand for diverse measures aimed at promoting equality and representation.
‘Throughout the world, from Finland to Brazil to India to South Africa and in countless other countries, affirmative action policies for racial, ethnic, language, economic, gender, and other types of groups have been effectively used — and are still used — to fight institutional and historic discrimination,’ the report said.
The United States, UFE lamented, began to turn its back on such policies following King’s assassination in 1968.
Copyright © 2008 IPS North America
Anybody have kids going to college?
Student aid has dried up, BUT; They fast track you into student loans. Just sign the papers please!
Oh yea let me add, the student loan is instantly transfered into the student’s bank account to spend any way they desire.
Oh by the way; Rent’s DUE!
“7 of the Most Important Economic Events of the Last 7 Years: The Buildup to World War III”
http://www.chycho.com/?q=Economic_Events
“Since the year 2000, the following seven events have either caused or been the symptom of the present economic crises:
1) Year 2000: Iraq dumps the US dollar and switches to the Euro
2) Year 2005: Rewriting the U.S. Bankruptcy Law
3) Year 2006: Discontinuance of M3
4) Year 2006: Iran moves from US dollars to the Euro
5) Year 2006/07: Subprime Market Collapses
6) Year 2007: Run on The Bank in the UK
7) Year 2007: 52% Support U.S. Military Strike Against Iran
“…If World War III, the minimum expected death toll for which is 200 million, is allowed to take place to save the banking institutions from collapse, then it is a true sign of corporate economic intelligence and control, however this well not resonate well with humanity, but then again, corporations are anything but human and war is everything but humane.”
“My master says it is the poor who pay for everything.”—
Umberto Eco in “The Name of the Rose”
The whole sub-prime “crisis” was a well-planned means of clawing back land from the un-washed masses at pennies on the dollar. Like Mark twain said: ” buy land, they aren’t making any more.”
Back to serfdom, heathens.
btw the word for “crisis” in Chinese translates as “dangerous opportunity”, which is just what this scam is: dangerous because it could bring down a large portion of the world economy, but an opportunity further concentrate the wealth.
I have personal knowledge of some of the practices occurring on the ground by realtors, lenders, and appraisers that led to this meltdown. No, I did not participate in it.
Realtors would advertise in neighborhood papers with ads that read no money down, no closing costs. They were able to do that because a home listing on the market could be inflated by 25% in minority communities and sell. Why? Because appraisers would appraise them above value by cooking the numbers. Why? Because the Mortgage Company ordered the appraisal and would not order an appraisal from an appraiser who would appraise under contract value. Yes the appraisers were given the home contract price.
The Owner/Seller just wanted what the original asking price was for the home and they were satisfied. The realtor explained to the owner that he/she had special contacts that could make the deal work. Now listen to this! The realtor would fill in a paper creating a second deed of trust (loan) from the seller. That deed of trust form would create “blue sky value” over and above the true original asking price. The realtor would then ask to seller to sign over the deed of trust to them, the realtor, since supposedly it had no value except “Blue Sky” value. Most sellers signed it over.
The lender required this 25% second deed of trust to get beyond what is know as “Private Mortgage Insurance.” Private Mortgage Insurance insures only 25% of the mortgate. The other 75% is not required by law to be insured. So in effect the Mortgage Companies eliminated the need for the Private Mortgage Insurance to underwrite the loans, and greased the skids to an easy, if dishonest, deal.
Most no money down, no closing costs borrowers typically have what is know as B or C rated credit, less than good credit. So the borrower would be placed in a sub-prime loan program. The sub-prime loan programs carried significantly higher interest rates than did “A” loans or good credit loans. The value of the loan then increased very significantly because of the higher interest rate. Two things happened. One, the Mortgage Company made a large amount of money on each loan, and two, these loans were packaged in million dollar packages with other sub-prime loans and sold to Fannie Mae, a third party company whose business it was to securitize these loans and sell them to investers. Investors (hedge funds) among them would invest in these loans because the yields were so high.
So here is the result.
On a hundred thousand dollar sale:
The real estate co. would earn a commission of 5%. $ 5,000.00
The real estate agent would get half of the commission,
$2,500.00
The real estate agent would also get the Second Deed of Trust that he would sell to an investor for a 25% discount.
#20,000.00
Total Real Estate agent earnings $22,500.00
The Mortgage Company through a little know technique would not lock the interest rate of the loan for the borrower until the last ten days before the closing thereby increasing the Company’s earnings. 1% of %75,000.00
$ 750.00
The Mortgage Company would get a bonus on what is know as back end earnings of 4% and sometimes more depending upon the interest rate sold.
$3,000.00
The Mortgage Company would add a processing fee of $250.00
Mortgage Company earnings per loan, $4,000.00
The Appraiser, the one person who made this whole scheme possible would earn $350.00 per appraisal.
Realtor earnings $25,000.00
Mortgage Co. earnings 4,000.00
Appraiser earnings 350.00
Total earnings $29,350.00 per #100,000.00 sale.
The Clinton Administration and Fannie Mae looked the other way because home ownership was increasing, especially in minority communities, to it’s highest ever total. This is good news for housing right! So from top to bottom financial corruption was in full bloom. This process lasted for almost a decade.
Now that the economy has cooled, many of the high monthly payments on these high interest rate loans are in default. Guess who gets to foot the bill? The American tax payer does. As a special bonus you get to watch the value of your home collapse. As icing on the cake you get to watch the U.S. Government bail out the banks.
I retired from the industry because of the greed and corruption and I retired clean! I also reported this stuff and nobody cared. Today, it’s the American way.
Thank you, Doom n Gloom, for post above. First-hand accounts are not frequent enough here at CD, but always they are the most insightful of all the posts.
So goes the country!
We will sell our infrastructure to foreign interests because we will no longer be able to maintain it.
It will then be a privatized business; for profit!
They were actively discouraged from reading the contract and encouraged to trust the person selling it to them. There must have been a law broken somewhere.
U.S. Mortgage Meltdown
Neil Macdonald exposes the foreclosure epidemic in Cleveland, Ohio - a victim of the U.S. subprime mortgage scandal
http://www.cbc.ca/national/blog/video/politicseconomy/clevelands_housing_disaster.html
RE: - The whole sub-prime “crisis” was a well-planned means of clawing back land from the un-washed masses at pennies on the dollar.
So that explains why they were pressuring people in Cleveland to take out Mortgages on houses they had already paid off. Seems like a variant of what they are doing in New Orleans.
RE: - Now listen to this! The realtor would fill in a paper creating a second deed of trust (loan) from the seller. That deed of trust form would create “blue sky value” over and above the true original asking price. The realtor would then ask to seller to sign over the deed of trust to them, the realtor, since supposedly it had no value except “Blue Sky” value. Most sellers signed it over.
What did they prey on? Sounds like a bit of psychology going on here. The added complexity that most people (including myself) would not understand makes one more reliant on the seller, who seems to have your best interest at heart. But it also relies on one’s ability to read the person’s insecurities.
How does your mark view home ownership compared to renting? How susceptible are they when you present “Blue sky value” as the “smart” or the viagra-like financial option making those who pass it by seem like dim-witted impotent losers - rather than rationally cautious?
RE: - I retired from the industry because of the greed and corruption and I retired clean! I also reported this stuff and nobody cared.
Some didn’t believe you and some didn’t want anyone else to believe you. It is often difficult to figure out how to be heard. Did the NDP or Marketplace (cbc.ca/marketplace) turn you down?
The strange thing is that Canada seems to have avoided much of the subprime fiasco so far. For one thing, our loan system is different (though there are some shafting going on here too, it is more regulated and, thus, not as wide spread). We also seemed to have avoided most of the impact of the hedge funds. We still have a housing boom in that there are not as many houses as people wanting to buy them. However, we did not get off scot free.
Seems that with subprime, there are less houses being built. When there is less houses being built in the US, truck sales go way down - our auto industry is suffering.
http://www.cbc.ca/news/background/personalfinance/mortgage-meltdown.html
Also, with the recession in the US, demand for Canadian exports in the US is going to go down. And everyone from industry to (even left of centre) politicians is panicking over how to keep the loonie for gaining at the expense of the greenback. They are so worried about the rise of the loonie that they are brainstorming on ways of how to prevent it.
“What did they prey on? Sounds like a bit of psychology going on here. The added complexity that most people (including myself) would not understand makes one more reliant on the seller, who seems to have your best interest at heart. But it also relies on one’s ability to read the person’s insecurities.”
The seller was happy just to sell his home at the original asking price. The rest of the techniques were just seen as creative and necessary to make the deal work. Often thees sales were in areas that were rapidly becoming minority dominant. More often than not the sellers were not of the dominant minority group and were anxious to make the sale and move on.
The sale of these homes fueled the new home construction industry because many of the sellers would purchase a new home, often a condo.
RE: - The rest of the techniques were just seen as creative and necessary to make the deal work.
So it was downplayed?
I am glad you were not part of it. That once you realised what was happening you got out.
“U.S. Mortgage Meltdown” (link top previous post) is what we have been told about it. I don’t know how accurate it is. If it is even remotely accurate, these people deserve to go to jail for a very long time!
This is America a wholly owned corporate subsidiary. To expect a fair deal is not logical.
thank you Doom n Gloom … crazy numbers
Thanks Doom n Gloom,
That was very insightful.
Can you, from your insider’s perspective, tell me what you think of internet sites assisting “For Sale by Owner”. I know the agents in Washington State have done everything they can to stop it in its tracks. They are throwing epic hissy-fits in front of the State legislature and doing everthing short of ripping their clothes off in indignation at the thought that we consumers could possibly live without them and their parasitical ways.
I sure hope you have the chance to reply. Thanks,
Ken
When I lived in Atlanta, I used to run into some of this. I was in what some might call an ‘urban pioneer’ neighborhood. It was an old neighborhood, largely minority, in the city that had fallen on hardtimes. I was a young kid working in a surveyor’s office and not making much money. So in Atlanta’s sprawl, the choices as to where I could afford a home were either this or so far out in the country that it was just silly.
I ran into a lot of predatory lending and other scams. As well as problems with ‘redlining’. It was hard just to get insurance in that neighborhood.
Some of them were so bad as to be pretty funny. I got one company temporarily shut down at one point. They’d stuck an awful looking flyer in my mailbox that basically lied and said my home was going to be condemned if I didn’t make repairs in 60 days. Of course, they offered to loan me the money to fix my home.
Since I worked for a land surveyor, I knew a lot more about land zoning and city ordinances than a typical person, so I pretty much knew this was BS from the beginning. I started to check up with the city zoning office to make sure, and discovered the bit that confirmed to me it was a fraud. The lying flyer had listed what it claimed was a city ordinance I was in violation of. When I looked up the number of the city zoning office to check on this, it turns out the flyer maker had used the phone number of the zoning office as the ordinance number.
The lady at the city zoning office asked to see the flyer, so I faxed over a copy from work the next day, and I think mailed the original. I didn’t hear much more until a few months later when two investigators from the Governor’s Office of Consumer Affairs knocked on my door (startled a young activist a bit as two guys in suits looking like FBI agents knocked on my door). That office was getting the company shut down and wanted me to come down and give an affadavit.
Of course, I’m sure the company just reformed under a new name and kept running the same scams. At best this was probably just a hassle to them.
My first loan on that house was probably also sub-prime, both from the location and my relatively low income at the time. It definitely had a pretty high interest rate. A couple of years later I refinanced with more reputable company and got a much better loan. But at first, I didn’t have too many other options if I wanted to buy a house.
the moral of the above is that if you live in a poor or minority neighborhood, you’ll see all sorts of scams. bad loans to crooked contractors to phone flipping. everyone with a scam to make money targets those neighborhoods.
Doom n Gloom,
Good post — but you inadvertently fell into a framed linguistic trap at one point. “Home ownership” was NOT increasing for minorities, and may actually be at an overall all-time low since the Great Depression.
Perhaps there’s a record number of people servicing a mortgage, but nobody “owns” a property until that last payment is made. I’ve read in several places that Americans have not owned so little equity, as a percentage of their properties, since the Great Depression.
Serfs and renters can’t lose equity — they have none to begin with. Luring people into a racketeered real estate market, making short-term profits at the time of sale (as you indicated), etc. was a godsend to some in the FIRE (financial, insurance, real estate) “industries”, but clearly not sustainable. That’s typical with crime.
“Can you, from your insider’s perspective, tell me what you think of internet sites assisting “For Sale by Owner”. I know the agents in Washington State have done everything they can to stop it in its tracks. They are throwing epic hissy-fits in front of the State legislature and doing everthing short of ripping their clothes off in indignation at the thought that we consumers could possibly live without them and their parasitical ways.”
Kendpotter, the real estate listing business, done well, is a very complicated, research heavy, education and experience heavy business. There are two kinds of agents, one, business agents, and two, professional agents.
The business agent’s primary concern is agent income. These are normally education light, research averse, and experienced about five years or less. They are in it for the money only.
The professional agent is more balanced and places his client’s interests before his own. He is heavy on education, research, and experience and applies his skills carefully. A custom plan is derived from current and near past market data. The home will be analyzed, appraised, price positioned and marketed carefully to maximize the profit for the seller. Depending upon the home a professional agent will spend from two to five days on the analysis, listing, and custom marketing plan.
In addition the Professional agent knows who the high quality professional vendors are. Lenders, title companies, appraisers, attorneys, inspection companies, repair companies, insurance agents, and closers all are required for a smooth transaction that closes on time and as expected.
An internet FSBO company shifts all of the responsibility to you the seller. All the FSBO company does is place the property in the local mls and maybe on the internet. The internet is only a small segment of the successful listing and marketing process. It has been my experience that by attempting to save commission on the front of the transaction, often results in your losing money on the back end of the transaction. The reasons are too many and too complicated to try to discuss here. Plus the complications of a poorly understood process results in delays, busted sales, late closings, lawsuits, and ongoing problems after the sale. There is always the exception but in my opinion it is not worth the risk. People are reluctant to believe this but it is true. This why the agents are so opposed to the limited risk, limited service, FSBO companies.
Note: This is especially true in a slow market like we are in now. Discount companies, internet or otherwise historically have gone out of business in slow markets or recessions. They are opportunists and only function in times of rapid growth.
This information is generally true but each market is different, each neighborhood is different.
Remember this, if you need a lawyer, or a doctor, do you seek out the experienced professional with a high quality reputation, or the newer less educated and experienced person who claims to save you money? It’s the same thing.
Your home is your largest investment in most cases so treat it with the same respect you would your other personal business.
The mistake in real estate is usually made by settling for an agent who lacks the credentials or the will to properly represent your interests. My best advice, choose carefully.
Perhaps there’s a record number of people servicing a mortgage, but nobody “owns” a property until that last payment is made. I’ve read in several places that Americans have not owned so little equity, as a percentage of their properties, since the Great Depression.”
Paul Bramscher, so true. The tax deductibility of the intrest on the loan just discounts the cost of occupying a hume until it is paid for.
Regarding home equity, the problem is worse than imagined. Many people borrowed 125% of the value of their home for their mortgage. Now with prices falling, they are walking away from their homes.
Borrowing one’s home equity for rapidly depreciating purchases such as cars has depleated most of the equity. Often people cannot sell their home because there is not enough equity left for the payment of real estate commissions. Add to that rising monthly payments on adjustable rate mortgages, job losses, underemployment, and shipping off to Iraq and you have a bitter stew.
The effects of job losses from NAFTA and the internet bubble bursting, real estate licensees swelled enormously. The tremendous excess of real estate agents led to unsustainable discounting of commissions. I estimate that there are ninty percent more real estate agents than are needed. So now that the market has burst, agents can no longer make a living, so the true cost of NAFTA and the Internet Bubble job losses will be felt for the first time. I know that this is something that economists have not taken into consideration in their projections. The storm seems to get worse each day.
A Swiss banker once said: ‘money has no conscience’. It seems that these scumbags either.
All you Ron Paul supporters should understand that, by supporting a lebertarian, you are in support of such practices as well. Uncontrolled capitalism naturally invents ways to gain more and more profit, legality or morality doesnt matter.
The fact is that minorities, new to credit and slowly inching up the economic ladder, are the natural prey of these predatory lenders. Ever note the interest on credit cards and how they vary from high to usurous dependent upon ones economic status? I hold no cards with interest rates above single digits. My grandson, out of college now and in the job force, has been offered cards with rates as high as 18%, and clauses that can kick it even higher once he is ensnared.
I have nothing against a company turning a legitimate profit, but for the government to turn its back on all of us and refuse to control or even moniter the nefarious practices rampant in todays capitalism is heinous and falls directly on such as Reagen, Bush the first and second and little Billy Clinton too…..also on we the people for allowing this to continue because credit makes the purchase of cheap crap from China so, so easy!
Greed knows no boundaries. Capitalism will destroy humanity and the planet if we do not destroy it first.
“A scoundrel’s worst fear is a society without money: for in such a society he would only get the respect he deserves.”
– Ben Franklin
I’d like to ask the Ron Paul supporters if they favor getting rid of the police, sheriff and courts (all funded by tax dollars) whose job, among others, entails the socialized underwriting of the power to evict people. Once we get away with public law, let’s do away with laws themselves also. Ultimately, the landlord or bank has no more authority to boot someone out — or charge rent/mortgage — than the renter/evictee has to do the reverse.
Is that where Libertarians are going, or do they still prefer the socialized underwriting of gross economic/real estate disparity?
Doom n Gloom,
There’s no (inherrent) scam with FSBO that I’ve seen. Keep in mind that an agent does nothing, really, except create an MLS and print ad — and show your house to prospective buyers. For the thousands that they extort, it’s a waste of money.
When I sell my house, I’ll certainly FSBO it — but I’ll rely on a title/transfer company to do the legal and closing paperwork. That’s a much smaller fee, last I looked, and you’d still have to pay that — whether or not you have an agent.
“There’s no (inherrent) scam with FSBO that I’ve seen. Keep in mind that an agent does nothing, really, except create an MLS and print ad — and show your house to prospective buyers. For the thousands that they extort, it’s a waste of money.”
Paul Bramscher, I have no stake in the For Sale By Owner Vs. Real Estate Agent decision. I was asked to state my opinion.
I do take issue with your statement that an agent does nothing except create an MLS, a print ad, and show your house.
The discount and business agents do as you suggest but the Professional Agent is a person of real estate substance and accomplishment on behalf of their client’s interests. It is easy to dismiss that based upon an incomplete understanding of the real complexities and challenges of the real estate business. I stand by my previous statements as accurate.
D n G — Thank you.