Shocking News: Subprime Lenders Took Advantage of Poor People and Minorities
| Mon Jun. 8, 2009 5:25 AM PDT
Remember when conservatives tried to blame the subprime mortgage crisis on poor people and minorities? According to the conservatives' narrative, a 1977 law called the Community Reinvestment Act caused all of our problems by encouraging the extension of credit to poor people and minorities. The problem with that argument was that the vast majority of subprime loans were made by institutions that were not subject to the CRA, and studies have shown that the act has actually increased the amount of responsible lending to poor families. Even the Federal Reserve has posted research explaining that the CRA argument is bogus.
So why, then, do we keep hearing about poor people and minorities defaulting on subprime loans? Because, as it turns out, subprime lenders didn't need any encouragement to make predatory loans to people they thought they could easily exploit. The New York Times reports:
As she describes it, Beth Jacobson and her fellow loan officers at Wells Fargo Bank “rode the stagecoach from hell” for a decade, systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages... Wells Fargo, Ms. Jacobson said in an interview, saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages. Another loan officer stated in an affidavit filed last week that employees had referred to blacks as "mud people" and to subprime lending as "ghetto loans."
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The city of Baltimore and the NAACP are among several parties suing Wells and other banks over these and similar lending practices. Wells Fargo, of course, denies the charges. But the affidavits the Times story highlights are incredibly damning. Perhaps the most disturbing allegation is that it was common practice to steer families who were eligible for prime loans into hugely more expensive subprime loans:
Loan officers employed other methods to steer clients into subprime loans, according to the affidavits. Some officers told the underwriting department that their clients, even those with good credit scores, had not wanted to provide income documentation.
“By doing this, the loan flipped from prime to subprime,” Ms. Jacobson said. “But there was no need for that; many of these clients had W2 forms.”
Other times, she said, loan officers cut and pasted credit reports from one applicant onto the application of another customer.
These practices took a great toll on customers. For a homeowner taking out a $165,000 mortgage, a difference of three percentage points in the loan rate — a typical spread between conventional and subprime loans — adds more than $100,000 in interest payments.
If this is true, there's a word for it: evil.
Comments
Shocking News: Subprime Lenders Took Advantage ...
Submitted by Dredd (not verified) on Mon Jun. 8, 2009 7:30 AM PDT.
Exactly. It is the government in crowd that is guilty for the money crisis, and everything attached to it, not the poor and underprivileged.
Banks Vs. Brokers
Submitted by ActivistMotivator (not verified) on Mon Jun. 8, 2009 8:39 AM PDT.
This is another great example of how banks with far more money and legal defense we're a much bigger part of this financial than the small brokers who are making all the headlines. It is the banks and their unlicensed employees who had little vested and to lose, that committed the lions share of the fraud.
Here is a list of the Top 20 Things You Should Know About Corporate Crime
http://is.gd/Tlog
"If you're not mad, you're not paying attention."
it is somewhat shocking, actually
Submitted by ericf on Mon Jun. 8, 2009 11:03 AM PDT.
The whole thing might eb a shock to believe credulous enough to believe a bunch of poor people in inner cities could break the financial system, but even for those of us paying attention, there is a bit of shock in this story. The frauds weren't all fly by night operations or companies dedicated to subprime lending, but loan officers at one of the country's biggest banks. I got my mortgage from Wells Fargo and I always had a sense of vulnerability in that I wonder if I could have stopped anyone trying to steer me wrong. I would have been willing to assume there was subtle deceit, like not explaining terms properly, but I wouldn't have expected anything this blatant, with this open racism, with loan officers withholding proof of income so borrowers would be shunted in subprime loans. This was just outright fraud, not merely using loopholes or taking advantage of bad rules.
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