Tuesday, August 07, 2007

My job (explained by the Daily Show)

I must thank Jon Stewart and Larry Wilmore, the Senior Black Correspondent, for explaining subprime loans. As Mr. Wilmore says "they are the menthol cigarettes of loans."

A part of my job is to work on state policies impacting housing, small business and asset development. And the foreclosure crisis raging through the United States is a prime (pardon the pun) example.

Now don't glaze over here (I see you over there thinking this doesn't concern me). All kidding aside, did you know:
  • A Federal Reserve study found that 55 percent of blacks and 45 percent of Hispanics received home loans with rates exceeding Treasury securities by at least 3 percentage points; only 17 percent of whites received such loans.
  • The Federal Reserve, in testimony last month before the subcommitee on Oversight and Investigations for the Congressional Committee on Financial Services noted a list of financial institutions they have referred to the Department of Justice (don't laugh) for discriminatory practices. For instance, one institution had two discriminatory policies - one that prohibited lending on Native American lands. The other policy restricted lending on row houses, which resulted in discrimination against African-Americans.

And don't assume these are folks, like in the parody above, who are refinancing their homes to buy motorcycles or buying homes that are too big for them. We are hearing some heartbreaking stories:

  • a couple who didn't want to put their adult son in a nursing home after a devastating car accident. They refinanced their mortgage to pay for modification to accommodate his health care needs to keep him at home. Jobs were lost and the institution refused to renegotiate the terms of the loan. Until a large daily newspaper called about the family.
  • family members going in on a home together assuming both will be employed.
  • homeowners buying two- or three- family homes (e.g. double or triple deckers) assuming rental income will help with the mortgage.
  • and the most insidious - homeowners who are fraudulently tricked into signing for a loan they can't afford. We have seen documentation of income numbers being changed without the signatory knowing and people being bullied at the signing to agree to different conditions.

Some of these are issues that only the federal government can address since the issues cross state lines. However, one legislative option in my state is forcing mortgage companies to be graded on the same type of "report card" that banks have dealt with for over 30 years. The Community Reinvestment Act (CRA) was an attempt to address racial discrimination by banks. It forced them to publicly acknowledge what type of products (including mortgage rates) are being made available across neighborhoods.

There was a time when you bought your house from a local realtor and got your mortgage from the local bank. The banker was often someone you saw at the grocery store. It was someone who knew your family. Now loans are "owned" by large companies that don't care if a disabled son will end up in a nursing home or that entire neighborhoods are collapsing because everyone was hit with rising interest rates.

This is an example of how bigger isn't necessarily better. Of how people with little understanding of financing or banks but want to own a home for their children to grow up in are being taken advantage of. Or of how mortgage lenders are intentionally engaging in documented discriminatory practices.

This is an example of how we need to pay attention to how big business and our government (remember it is OUR government) treat us.


Flower Child said...

Excellent primer on your job! And keep up the good work. A truly devastating issue that affects us ALL. See recent articles in the NYTimes etc pointing that out.

soccer mom in denial said...

Flower child - thanks for the compliment. I struggled a bit with the ending. I'm used to writing big action steps (call your legislator! write a letter to the editor) but this is too big for one simple action step. At least on a national level.

And the Times has been great keeping this issue alive. More people are losing their homes to this subprime scandel than were lost in Katrina. It is destroying entire communities.

Yesterday's Times article was particularly well done:


aimee / greeblemonkey said...

Really interesting. Thanks, Allison... I pretty much had no idea - but sadly I am not surprised.

ZoeyBella said...

You summed it up really well with "This is an example of how we need to pay attention to how big business and our government (remember it is OUR government) treat us"

Well said.

Real Life Drama Queen said...

Well said. Though personally I can't get a loan to save my ass. But the fact that others are being treated unfairly doesn't surprise me, saddens me, but no surprise.

Keep up the good work.

Fourier Analyst said...

I know there are a lot of people that you have helped by doing your job so well and caring so much. It is outrageous and scandalous that such practices are so common on our society these days. This kind of slow boil could eventually lead to a full-blown meltdown of the US economy reminiscent of the Depression. And that should concern all of us, not just in the US. The World economy is so closely linked that for any major economic force to stumble it causes the ground to shake in all the other economies.

Thanks for your explanation and concern. Yes it is a big problem and calls for big answers, but the first step is for all of us to become aware!

Brillig said...

Very interesting. We had some neighbors in our old neighborhood who had bee fraudulently tricked into signing into a loan that they couldn't afford. Horrifying stuff. Great post!

Jami said...

Great post! And you're absolutely right that this is something that we all need to pay attention to. The mortgage meltdown is going to impact a lot of things and not just the poor folks who got snookered and then ignored. For example, when foreclosure rates are at a record high, folks who are trying to sell their home (for whatever reason) are going to find it very hard to do so when a comparable home can be had for much cheaper at a foreclosure sale. Or as more and more people are forced to move back to rental properties, it should be expected that rents for everyone will rise rapidly.

It ain't gonna be pretty.

chelle said...

I find it so refreshing to read "our government". It feels like (from an foreigners point of view) that Americans feel helpless ... "Well that is the way it is". Eh? You vote? Change it!

anno said...

Excellent and eye-opening! Thanks for posting this.

Gunfighter said...

The part of Virginia that I live in has been hit particularly hard by these lending practices. The numbe of forclosures in the area is frightening.

Jen said...

I hate our push for bigger, bigger, bigger. And what you're doing is SO important. Thanks for sharing it!