This reminds me of a PSA I hear on the radio.

Some guy with a really cheesy voice talking to a Mrs. ______.
He introduces another guy who says "Hi, I'm ___. You can trust me because I'm African-American just like you."
Cheesy guy : "He's here to make you feel more comfortable and these papers are just here to assure that we get your house in a few months when your interest rates go up. What a lovely home."

The tagline is: "Predatory lenders are never this easy to spot." with a website with tips on what to look for in a lender and a loan.

I like the term "Predatory Lenders," I think that sums them up nicely.

Correlation != Causation, but figuring out which is which in this situation is pretty tough. I think they're predatory lenders first and foremost, with profit being their main motive. I think most of the racial discrepancies can be put into the "correlation" category, but I also think these sleazebags use racial profiling (for lack of a better term) to try to get more people on board with their pathetic business practice.

The whole subprime fiasco is deeply unpleasant for many reasons, but what's worst of all are the pundits who actually try to pin the blame for the mess on the subprime borrowers themselves, rather than the dishonest loan organisations taking advantage of them.

I can't find the link now, but I'm sure I saw an article somewhere that seemed to be saying: "How dare these feckless subprime borrowers drag down our stock market with their defaults! Why can't they just keep paying us at the punitive rates we're entitled to!"

Mortgage lending can be an ugly business indeed, and it's long overdue more regulation to stop these discriminatory, rip-off businesses destroying more lives in future.

You can't win with as much poverty as the US has - we are either denying "the poor, who are disproportionately blacks and latinos" housing, or "abusing the poor, who are disproportionately blacks and latinos by giving them bad loans".
I predict it will be the former for a few years at least. Balance seems impossible here (and btw why the hell does everyone in the US need to own a house?)

And I'm sure it's as much a class problem as a race problem. It gets worse when you're not white and poor, but it's bad for either category separately too.

I live in Cleveland, home of 3 of the top ten zip codes in the country for foreclosures. Each of those zip codes are predominately African-American, working class neighborhoods.

What pisses me off most is that these honest, hard-working neighborhods are now full of run-down houses that the banks can't take care of, and the people who used to own the houses are screwed now and in the future because they trusted the predatory assholes.

Working class families of ANY race aren't always the most well-versed in real estate financing. (Because they are too busy raising their families and working two jobs just to afford rent.) When a company comes in and says, "Hey, don't worry... you can own your own house and be part of the American Dream!," I can understand how even the most educated, skeptical person would be tempted. Don't understand the fine print, you've just sold out your family.

Our citizens and our city are going to be reeling from this fiasco long after the market rebounds. It really sickens me.

Gregg Easterbrook had an interesting perspective on this in his NFL column on ESPN.com today (Tuesday Morning Quarterback):

"Housing Problems Genuine, Sense of Crisis Phony: The sense that tighter credit and falling housing prices create some kind of "crisis" -- George W. Bush and Hillary Clinton have both said that of mortgage economics in recent weeks -- is an example of the modern urge to declare everything an emergency. Two years ago, the real estate market was overheated: Many were borrowing unrealistic amounts against the paper run-up in equity of their homes, and first-time buyers largely were shut out of the housing market. It's healthy when an overheated market cools off --now, first-time home purchases are possible again for young buyers. Those who are complaining they can't sell their homes for what they might have realized in 2004 or 2005 are still likely to come out ahead when they sell, at least if they have held their properties for more than a few years. Last week's New York Times estimated the real estate cooldown will reduce the appraised value of the U.S. housing stock 10 to 20 percent. Even the high end of that estimate would leave U.S. housing worth substantially more, in inflation-adjusted terms, than a decade ago, meaning the typical homeowner who plans to sell is still better off. Speculators who bought at the peak of the run-up in 2004 might lose out. But investing in homes or condos you don't plan to live in because you expect to double your money quickly always has been like expecting a winning lotto number.

Commentary on the real estate cooldown is rich in nonsense. Editorialists and politicians are saying that declining home prices mean millions of Americans are "losing" money. Those who don't plan to sell in the near future -- that is, the majority of homeowners -- are not affected by changing housing prices, since the paper value of their homes does not affect their wallets. Editorialists and politicians also are saying that people who forfeit mortgages are "losing" the worth of their home. When you buy a home using a mortgage, you don't own the home: The lender is the owner until the loan is satisfied. You can't lose something that does not belong to you! Suppose you buy a $500,000 home, then can't make the payments and must leave. That would be a huge, awful setback for your family. But you have not "lost" $500,000, as commentary suggests -- that $500,000 in value would not have belonged to you until you paid off the loan.

Many of those who bought into the overheated housing market using gimmick instruments such as piggyback loans, in which downpayments were borrowed, put hardly any cash into the purchase -- the home's equity would not have been theirs for years or decades, even if everything went well. In most cases, a person who forfeits a recently purchased home will have paid only a tiny fraction of the appraised value of the property, and thus will suffer relatively small out-of-pocket losses. (The exceptions are speculators who bought on margin and victims of the fraudulent practice known as "equity stripping," but the latter is something done by criminals, not by legitimate mortgage lenders.) Blue-blooded Merrill Lynch is reeling from bad mortgage loans -- it'll need to cut back on caviar in the executive dining room! Pinstriped, made-of-money Citicorp is reeling from bad mortgage loans -- the executives will need to share company-paid private jets to Aruba instead of each taking their own! Some estimates hold that mortgage-loan losses might total $400 billion, almost double the inflation-adjusted cost of the savings and loan losses of the 1980s. But remember, most losses are by lenders, not by individuals who bought homes on credit.

Mortgages based on initially low gimmick loans that are now "resetting" at higher rates are causing genuine grief in the lives of many people. The fact that big-deal credit-rating agencies such as Moody's gave high ratings to bonds backed by subprime or gimmick mortgages reminds us again how much quackery there is at the top of American financial institutions. Former Labor Secretary Robert Reich, whose new book "Supercapitalism" is quite good, explains how the bond-rating agencies essentially operate on commission to investment banking houses, in an arrangement as shady as Enron's deal with its accountants.

What about people who jumped into the hot market from 2002 to 2005 using gimmick loans and might face default? There's no doubt many were snowed by mumbo jumbo from mortgage brokers, and no doubt many never read what they signed. But reading before you sign is, after all, your responsibility -- not a responsibility that should be passed along to fellow taxpayers who did read before they signed. Recent columns and politicians' statements on the mortgage "crisis" have suggested that those who signed gimmick loans, such as interest-only or adjustable-rate loans that are cheap initially but become much more expensive later, really aren't to blame for their own decisions. If you sign something that allows you to live beyond your means for a few years, and seems too good to be true, in what sense are you not responsible for that decision? Last week on a local newscast, I heard a woman who had signed a gimmick loan, and now was in danger of losing her house, say, "The broker told me it was no problem because if interest rates went up, I could just refinance." We would not take seriously someone who said, "The broker told me it was no problem because if interest rates went up, I could find a bar of gold on the sidewalk." If interest rates went up, so would refinancing rates; the way to lock in a low mortgage rate was to buy only what you could afford and sign a conventional fixed loan. People who didn't do that, preferring a promise of something for nothing, are now complaining they should be bailed out.

Wherever bailout demands go, bad legislation follows, and last month Rep. Barney Frank of Massachusetts proposed one of the most wrong-headed pieces of legislation in United States history: quite a bar to vault, obviously. TMQ has always admired Frank, from the time of his early congressional campaigns, when his slogan was "Neatness Isn't Everything." (Frank is perennially rumpled.) Plus, Frank is frank; honesty and sense of humor are qualities all big institutions need more of. But his proposed mortgage legislation is incredibly dopey. First, he would make firms that securitize mortgages, meaning package them for sale as bonds, liable if borrowers can't repay. That is -- if you lend me money and I can't pay you back, you are the one at fault. The argument boils down to: Your Honor, this company was wrong to give me money, and therefore it must give me more money. Frank's bill -- an obvious valentine to trial lawyers, who want new openings to sue banks and firms such as Merrill Lynch -- would make it the lender's legal responsibility to determine whether borrowers can repay, not the borrower's responsibility to be honest to the lender. Your Honor, the mortgage company is to blame for not stopping me from lying on my loan application.

The primary reason home sales have slowed so much in 2007 is that lenders have tightened their income-documentation rules and cut back on offers to subprime applicants, that is, to borrowers with poor credit histories. Which is to say, lenders are already doing what Frank says they should have done years ago. They are doing so voluntarily, to avoid losing more money; no coercive legislation would seem required. But what's the result of tighter credit? A "housing crisis," as sales slow and prices fall. You can't say it's bad when credit is loose, causing prices to soar, then also say it is bad when credit is tight, causing the housing industry to slow. Wait -- I guess you can, because Frank and many others in Washington are saying exactly this.

In this new paper, Anthony Downs of the Brookings Institution gives chapter and verse on why the housing price and credit "crises" are mostly hot air. His summary: "The facts hardly indicate a credit crisis. As of mid-2007, data show that prices of existing homes are not collapsing. Despite large declines in new home production and existing home sales, home prices are only slightly falling overall but are still rising in many markets. Default rates are rising on subprime mortgages, but these mortgages -- which offer loans to borrowers with poor credit at higher interest rates -- form a relatively small part of all mortgage originations. About 87 percent of residential mortgages are not subprime loans. Subprime delinquency rates will most likely rise more in 2008 as mortgages are reset to higher levels as interest-only periods end or adjustable rates are driven upward. Unless the U.S. economy dips dramatically, however, the vast majority of subprime mortgages will be paid. And, because there is no basic shortage of money, investors still have a tremendous amount of financial capital they must put to work somewhere. On the immediate problem of mortgage defaults, some aid to the subprime borrowers might be justified, but bailing out the lenders even more than we have up to now would create a moral hazard by merely encouraging them to do it again."

There is a balance. Give poor , working class folks a decent loan with a decent rate. NACA does it. Acorn does it.

Whoa, noname. Can you post a link next time?

Sorry. Here is the link, but this is buried in a much larger column (mostly football, some astronomy, plus some random items). I wasn't sure you all would find the relevant parts easily.

Tuesday Morning Quarterback

The tagline is: "Predatory lenders are never this easy to spot." with a website with tips on what to look for in a lender and a loan.

Argh, they give a website? Having worked in a community technology center and seeing all too many people there who fell prey to this crap, I can safely say that the people most targeted by predatory lenders are also the least likely to have Internet access. Sure, they can go to the library or other community computer lab, but when you have only one or two hours a day on the computer, you're going to spend it job hunting, improving your computer skills, looking up health information, etc. And sure, you can print the information, but it costs money to print. They need to have a hotline, and widely distribute PHYSICAL copies of information about predatory lending. A damned website just isn't going to cut it.

One thing that the article touched on without elaborating is the unintended consequences of the campaign over the last 30 years against "redlining" and focus on "community reinvestment". Responsible lenders, like banks, were put on the spot regarding what loans they were or weren't offering to customers based on race. With the CRA, it made sense to get out of minority neighborhoods. And the field was left open for crooks like Countrywide.

"But the Fed study also suggests that a big part of the reason may have to do with the lenders that minority borrowers do business with. The biggest home lenders in minority neighborhoods are mortgage companies that provide only subprime loans, not full-service banks that do a range of lending."

From what I've heard (sadly, I don't remember which article it was in), many of the minority and/or low-income borrowers with subprime loans actually had good credit and totally would have qualified for prime loans. Now I know why some of them still got subprime loans...

This is an interesting take on the sub-prime mortgage issue. We were lucky enough to get a prime-rate mortgage at a low interest rate. We actually have thought part of the problem is housing inflation. After 9/11, Enron etc, many people started investing in property, started doing house flips, which has caused home prices in many areas to go up. This is great for people who bought their homes 10 year ago and are selling them now, but bad news for anyone who is currently buying a home. I can see how not having the right information could cause problems for anyone buying a home, or a car or anything for that matter.

There's a difference b/w subprime lending and predatory lending. The former is often used by community development institutions to safely make credit available to households blocked from the mainstream credit market (whether "fairly" or "unfairly", seems most readers here are familiar with the broad issue of institutional racism). It's the latter that is hugely problematic, and has worsened under the Bush Admin., which has made incr. minority homeownership a priority without putting in place strong regulatory controls (shocking, I know) to ensure this is done safely.

I spent some time clarifying b/w these 2 forms of lending back in March (you can ignore my little rich girl navel-gazing in the first 2 paragraphs if you'd like):

http://www.grahamad.com/blog/2007/03/28/achieving-and-losing-the-american-dream/