The Bush Administration Turned a blind eye on shady Subprime loans

[Ndgo]

No one ever said that there weren't discriminatory practices in the past. Notice, all the stuff you listed was prior to 1964 when it was LEGAL to discriminate. However, that has nothing to do with the sub-prime loans which were given out recently. None of that stuff you listed is at the root of this financial crisis.

And as usual, your lack of interest or abilities... I really don't know or care which one it is...  in drilling down to the root-cause of issues prevents you from reading through the treasure trove of informaton quoted in the article above... Let me highlight it ONCE AGAIN for you.... and I have to repeat it because without understanding what's happened in our very recent past, you tend to post without a historial perseptive that makes you seem a little more than just willfully ignorant... what happened in with the subprime leading recently did not happen in a vapid vacuum. You have to parse through history and examine the set-up that made it all possible... AND please note, this is all relevant info from the year 1988 to current...

"It was not until 1988 that fair housing laws were amended to expand their scope and include important enforcement provisions. In the 1970s, '80s and '90s, housing prices rose dramatically, and white homeowners who benefited from discriminatory federal policies were able to sell their homes at great profit. Meanwhile, minority groups who had been denied federal assistance had homes worth far less or faced an even higher cost of entry into the housing market.

CONCLUSION

Residential segregation didn't happen by accident. The U.S. federal government took many steps to channel resources and opportunities to whites and away from nonwhites, resulting in an enormous wealth gap that persists today.
In 1993, 86% of suburban whites still lived in places with a Black population of less than 1%. The 2000 Census showed that whites are still more likely to be segregated than any other group. Today, 71% of whites own their own home, compared to 44% of African Americans. Aside by me... THIS ALSO DID NOT HAPPEN IN A VACUUM... THESE PROBLEMS ARE GENERATIONAL.... each generation sets up the economic circumstances for their offspring... Back to the article -->
Black and Latino mortgage applicants are 60% more likely than whites to be turned down for loans.

As housing gets more expensive and wealth gets passed down from generation to generation, the legacy of past discrimination persists, giving whites and nonwhites vastly different life chances.

And no one is stopping black folx in 2008 from economic opportunity via education or entrepreneurship.

What you cannot do, is mix apples with the oranges... Whites as a group have been bestowed or gifted economic advantages that they passed onto their kids... these same economic advantages were either outright denied or rationed to blacks as a group in this country. That's one of the reasons why there are huge historical economic gaps between whites and blacks in this country. We all are NOT starting at the same start line... Whites are 20 yards ahead.   

You act like there isn't a black middle class who all have good incomes, nice homes, etc. What you're asserting would make sense if NO black people had advanced since the laws have changed but that's clearly not the case.

Nobody is countering  that NO blacks have advanced through the years. Even when slavery was alive and well in this country... not ALL blacks were slaves or servants. Why is it that when you want to ignore the history of this country you seem to NEED to deal in absolutes? Use some sort of common sense... dang   

Therefore, the issue isn't what happened in the 30s thru the 60s to assist whites with home ownership.

Ahhhhhhhh yes, it most certainly is relevant and essential to go back to those years to be able to understand and discern HOW we come to have the home ownership gaps that are STILL present in this county... even with predatory lending practices.

The issue is from the 1970s to now, what's the difference between the black folx who have achieved middle class status & those who are stuck in poverty once the discriminatory practices of the past were ended? What, government assistance or lending practices? They're all black folx right?

The issue is not that blacks haven't made gains... we have... the point is that blacks and whites are not both starting from below ground zero to do it.

The fact is, if you read the articles, Asians were given loans with higher frequency than whites prior to deregulation. The fact is banks weren't discriminating based on race but based on where they could lend money & make money as a result. If race was the mitigating factor, deregulation wouldn't have made "racist" lending institutions give loans to blacks, latinos, etc.

Ah, the problem for you is that I DO actually read "these" articles... Asians also are not starting out at the same level as other minorities

And no one is stopping black folx in 2008 from economic opportunity via education or entrepreneurship.

What you cannot do is mix apples with the oranges... Whites as a group have been bestowed or gifted economic advantages that they passed onto their kids... these same economic advantages were either outright denied or rationed to blacks as a group in this country. That's one of the reasons why there are huge historical economic gaps between whites and blacks in this country. We all are NOT starting at the same starting line... Whites are 20 yards ahead.   

You act like there isn't a black middle class who all have good incomes, nice homes, etc. What you're asserting would make sense if NO black people had advanced since the laws have changed but that's clearly not the case.

Nobody is countering  that NO blacks have advanced through the years. Even when slavery was alive and well in this country... not ALL blacks were slaves or servants. Why is it that when you want to ignore the history of this country you seem to NEED to deal in absolutes? Use some sort of common sense... dang   

Therefore, the issue isn't what happened in the 30s thru the 60s to assist whites with home ownership.

Ahhhhhhhh yes, it most certainly is relevant and essential to go back to those years to be able to understand and discern HOW we come to have the home ownership gaps that are STILL present in this county... even with predatory lending practices.

The issue is from the 1970s to now, what's the difference between the black folx who have achieved middle class status & those who are stuck in poverty once the discriminatory practices of the past were ended? What, government assistance or lending practices? They're all black folx right?

The issue is not that blacks haven't made gains... we have... the point is that blacks and whites are not both starting from ground zero to do it. Asians as a whole are a very small minority and also not in this country starting from below ground zero... and let's throw some historical perspective on it while we are at it.... U.S. immigration policy has long been discriminatory, favoring immigrants with professional skills and higher education. (Which tends to skew the numbers .... skimming or only accepting the cream of the crop instead of the whole field in... for an example... just look at what happened when the US for political purposes allowed Hmong, Laotians, or Cambodians to immigrate into the US en masse without regard to their skills or education level)   (6) This policy began as early as 1907, when President Theodore Roosevelt and the Japanese government negotiated a "Gentlemen's Agreement" restricting the exit of unskilled Japanese laborers to the United States. (7) Asian immigration has been heavily restricted for most of this century, and has only recently become liberalized.

It's also contradictory to think that any lending institution would be "predatory" yet losing money to the point where they're going out of business? Why would any company do that? They're predators who are lending money to lose money & eventually go bankrupt? Doesn't sound very logical to me... Those are the worst predatory lenders in the history of the world.

And here you go again... skimming through articles and not gleening any of the nutrition... you're just stuck on the fluff... hey, I didn't really expect you to get it anyway... so no loss there... 

Predatory lenders were but ONE facet of the problem... but before I get to the other reasons... let's just talk about some of the practices of these lenders... at another time cause I gotta go... there is more than enough for you to chew on anyway... 

[mochagirl1]

Predatory lending is not a race issue.  I'm sick of hearing put that way.  I hate it when people say "If Black people do this and that, they'd be fine."  We are not monolithic, we are all individuals and yes, the socio-economic policies of the past do define the future.  Predatory lenders know that most of their customers are at risk, can't afford payments and it's their job to say NO.  Even worse, they charge outrageous fees, lie about interest fees and rates, and other important facts just to get customers to sign.  Banks and institutions have to take some responsibility for that.  And think about all the crazy payday loan stores you see on every corner in a poor neighborhood.  They prey on people who have no other way of paying their bills.  And I know some people will say "Well, if people would go to school and become educated they'd have no problem paying their bills."  Say that to the hundreds of thousands of people who just got laid off.  Say that to my cousins who all have doctorates and can't get anything.

Anyway, my point is, many places outright lie and scheme on people who may feel that they have no other choice.  I did an investigative report for a class one time on some payday loan stores and acted like I wanted a loan.  At every one, the people tried to switch the terms and give me a higher interest plan.  They lied about the interest rates, the payback window, everything.  That was until I told them I knew the law and they were trying to exploit me.  I ended up getting kicked out at every place I went to.  These are the kinds of things people are dealing with.  They're dealing with shady dealers that want to exploit them, not actually do legitimate business.  There's the difference. 

And I agree with you Ndgo, wealth is generational.  And people that say it doesn't matter, well, they're not being realistic.  I have a friend who is white, whose ancestors were Irish.  Her grandparents were able to get a loan for a house and start a profitable business that is still in existence today.  My grandparents on my dad's side, even after coming back from war could do nothing except move into a poor neighborhood after being turned down for a home.  My father had to fight just make it out of poverty and even now, my family is not even vaguely as monied as the girl whose family was able to get a loan.  She takes it for granted that "If you come to America, the opportunity is there."  Well for everyone it's not.  Racism is not just something that is few and far and only happens to those that are looking for it.  I remember I lost an internship that was good money because the guy was clearly not expecting an African-American girl.  He hired a friend of mine instead who had less experience because he didn't "feel as comfortable with me."  Now imagine if that scenario happens everyday, more than once a day, all over the U.S., over a period of years.  Can you imagine all the missed opportunities and the poverty that could have been avoided?  The wealth that can't be generated? How can you live in a whole country of millions that have been taught to hate you, laws created to disenfranchise you, people that discriminate against you and then you're told you are to blame for everything (even though you're only one person anyway) and still believe that it's all "Black folx"?

[devineone]

There is definitely a cumulative effect of having acquired wealth over the years and having it handed down through generation.  There is also a negative cumulative effect of not having wealth or fair housing and having that passed down through generation.

My grandparents were finally able to get an FHA home in the late 60’s and even then they had to pay a higher interest rate on their home than the white counterparts who were given the same type of home at a lower interest rate.  Why?  Because they had better paying jobs and could show collateral whereas my grandparents didn’t have much.

Not to mention how the government took land away from people without paying them to build state highways.  I have that video called Race the power of illusion which goes into detail about the discrimination of housing.  I also have a book called Jim Crow and it talks about a lot of things the government did to disenfranchise minorities.

We are still playing catch up and the past 40 years of progress while great, cannot even begin to close the gap for years and years of disenfranchisement that minorities have had to face since the inception of this country.

If white folks are suffering now, it’s going to be 10 X worse for those already suffering.

The pawn shops and high interest loan shark businesses are mainly in the poor neighborhoods not in the affluent suburbs and this is where a lot of people  in the low socioeconomic class go to get loans and do business.

HBO aired this wonderful program called the Ditch Digger’s daughters in which this black man sent all of his daughters to college.  He saved his money in the bank and approached the bank for a loan to help his daughters go to school.  That same bank that was making interest off his money refused to loan him money.  So he withdrew his money out of that bank and it was a substantial amount for back in the day. 

As late as the 90’s discrimination still occurred in housing.  In New Orleans, I had a friend who worked for the local paper there the Times Picayune and she did a story on how they steered blacks away from certain housing and towards other areas and showed the whites the better neighborhoods and better houses.  She however fought with her boss who refused to publish her story which prompted her to start free lancing.

[Ndgo]

... wealth is generational.  And people that say it doesn't matter, well, they're not being realistic. 

Well stated Mochagirl... the greatest predictor of wealth in this country is not how hard you work or how hard you study but what class you are born into. Here's a report that bears that out...

Wealth Mobility and Volatility in Black and White
 
By Dalton Conley, Rebecca Glauber | July 29, 2008

Conventional wisdom considers the United States to be a land of equal opportunity where the possibility for upward economic mobility is limitless. With hard work, everyone has a chance to move from rags to riches in a generation. To date, this “American Dream” premise has almost exclusively been tested in terms of income mobility—that is, tested by looking at the extent to which the income of parents compares to the income of their children. Most recently, the Brookings Institution, in their comprehensive report, “Getting Ahead or Losing Ground: Economic Mobility in America,” affirmed previous research that African Americans lose relative income status while whites do not....Our analysis in this paper indicates that inequality in wealth is much greater than income inequality in the United States. This report argues that to fully understand a family’s economic well being and the life chances of its children, we not only must consider income and education but also accumulated wealth.

http://www.americanprogress.org/issues/2008/07/wealth_mobility.html

[Ndgo]

There is definitely a cumulative effect of having acquired wealth over the years and having it handed down through generation.  There is also a negative cumulative effect of not having wealth or fair housing and having that passed down through generation.

Yep... everything boils down to where you come from and how much was passed on to the next generation.

Here's another report that just confirms what you just said...  http://gwbweb.wustl.edu/csd/Publications/2004/WP04-07.pdf

Wealth or poverty have a huge impact on child development. The outcomes are stark... but all the research confirms that what's most important is what people are able to pass on to the next generation. That in and of itself is the GREATEST single indicator of success in this country. Sorry, but people don't just accomplish things on their own without help. They build on a foundation that was created for them. And some of us had a little more help building that foundation than others.

[Legacy]

LOL

Can we come down from the victim mantle for one second please? 

I love how folx make a straw man argument that no one disagrees with. However, the topic isn't about generational wealth. The topic is sub-prime loans & the current financial crisis.

The reason that sub-prime loans were allowed via deregulation & why govt companies like Fannie Mae & Freddie Mac were created was to help "underserved communities" (aka people who didn't qualify for loans otherwise.)

(Oh wait, isn't that very similar to giving people loans 50s & 60s? Isn't that a form of government assistance to allow folx who otherwise wouldn't be allowed to buy homes a chance to become homeowners? Nevamind -  )

N-E-WAY, Why were certain communities underserved? Not because of race or generational wealth. Generational wealth hasn't stopped NOT ONE OF YOU ON THIS BOARD FROM GETTING A LOAN SO STOP W/ THE BS. Here's a novel concept. Uh, credit worthiness & income. That's a direct correlation to paying your bills, the skills you have to gain/retain employment & what your skills are worth to a company in terms of pay. Therefore, once the barriers of discrimination were lowered to give black folx greater access to economic opportunity, the issue becomes what folx chose to do/(or not to do) to acquire those opportunities.

My parents, along with many other black families, had ZERO GENERATIONAL WEALTH so how the fu-schnickins did they get their first home loan? UH HELLO? They have gotten home loans w/o ANY PROBLEM SINCE THE 70s once discriminatory practices ended. Why? Because they had decent jobs & they paid their bills. And any black person who did the same would have also gotten a loan. Banks aren't stupid. They're not turning down money on the basis on someone's skin color. They're also not predatory to the point where the cause their own extinction but I digress.

Either way, if certain white people NEVER got loans in the 50s & 60s, there would still be a bunch of folx today who didn't qualify for loans based on credit worthiness & income. It's a non-factor in why any of us would be approved or denied a loan.

This is a government created crisis, specifically congress. All the evidence points to that. None of those companies were willing make risky investments by lending to individuals, be they white, black, asian, latino, or alien that they could not profit from. Once the government gave companies a "license to ill" by backing any & all investments via Fannie Mae & Freddie Mac, companies gave out money to everyone be they white, black, asian, latino & yes even aliens.

However, keep believing that the evil predatory lenders are the problem when we have a congress that has us 10 TRILLION dollars in debt & just spend $700 BILLION of our tax dollars on a bailout because they're a bunch of financially illiterate retards who TOLD those very evil predatory lending corporations that they'll back any bad loan they want to write.

If congress doesn't deregulate the industry & give them free reign to write any loans they want, no financial crisis happens, PERIOD.

[Susa]

Oh and by the way.. I have nothing against Republicans.. The fact that Nixon was a lying crook; Ford an idiot; Reagan was an idiot and a fake; Bush Senior a sell out social climbing liar and Bush II a crook, an idiot, a fake, a liar and a wino has nothing to do with them being Republicans..

Please continue to vote for a party filled with men of such obvious quality..

That's just the state of politicians....Carter was incompetent ( but a nice guy) and Clinton was a rampant adulterer and is a bad looser.

[DianaPrince]

Excellent historical context references, Indigo!  I'm gonna copy and start a chain mail with it. That is the kind of ish we should be forwarding to others instead of the nonsense that one usually sees being passed around.

I have another idea, why dont someone send that info to Puffy or Kanye so they can create an enlogated rap song and video on it.  Send it to that pervert R kelly so he can do a multi part 'in the closet' series on it.  In fact, send it to the entire rap industry and challenge them to use their voices meaningfully and set THAT shit to music...make it a whole new genre of hip hop/rap...I'll help them with some names for it...Rap-history, Rap-umentary, Rap-n-Learn, Rap-2-Learn, Rap-n-Read, School House Rap 9for the kids),...ok so I wont be hired by Hallmark anytime soon... 

 

The fact is banks weren't discriminating based on race but based on where they could lend money & make money as a result.

And WHERE they could make money from lending WAS and STILL IS very highly influenced by racial (often gov't sponsored) policies and practices of the past.  Some exceptionally skilled and motivated Blacks have always been able to thrive even under the harshest circumstances, BUT if Black folks had the luxury of being able to enter the race equally equipt as White folks, then one would expect to see the same or similiar rate of success and failure in each group...as opposed to the current skewed status quo. 
However not being one to whine about water under the bridge, I could almost deal with the disparity and unfairness of the past and present if not for the added insult to injury of being expected to pretend and accept that the wealth, privileges and advantages currently being enjoyed by Whites is purely a result of their collective hard work, sacrifices, discipline,  and innate intellect.
I will say this to Whites and brain washed Blacks/Browns/yellows, I can let by gone be by gones...I can work harder to catch up...I DO work harder...and I've probably caught up in terms of individual knowledge and possessions, if not power and influence, BUT dont dare fucking suggest that I did it on an even playing field....me and mine worked harder and we made more sacrifices.  I want THAT acknowledged and accepted.

But back to the housing mess...I keep hearing from neocons  that its mainly mortgage defaults by minorities that is at the root of the mess, but I have yet to see actual quantitative data.  I want to see the actual NUMBERS...ALL the MATH!  Banks tend to give larger loans to White folks, so 5 YT families each defaulting on a $300G would be more economically damaging than 7 Black families each defaulting on a $200G.   I also want to know WHO got the money?  Didn't anyone actually get actual $$ in their hands?  When a Black person tok out a $200G loan, didn't he/she (or their bank) cut an actually CHECK and gave it to (probably some white person or builder) from who they were buying the house?  Who got the freaking money?...and what did they do with it?                   

[Ndgo]

That is the kind of ish we should be forwarding to others instead of the nonsense that one usually sees being passed around.

The information is cut and pasted from the pbs website. It's streamlined information that puts everything in historical perspective, cutting straight to the chase without a filter.

Seems like too many people are only listening to the snippets of misinformation they get on the Fox News Channel with it's related media propaganda machine... the Joe Six-Packing NY Post on the low end and Rupert Murdoch's crown jewel, The Wall Street Journal, holding up the other end.

There's so much floating garbage out there, I don't even know where to start. Pick a topic and it's being distorting and repackaged to fall on the backs of the usual suspects.... Number ONE -- CEO's, CFO's, WHOLE boards of directors, money managers, mortgage lenders, home appraisers and some too greedy regular joe's ALL need to be locked up right beside OJ for this mess.  The ONE group that has been taken advantage of are those people who struggle every day to put food on the table, keep a roof over there heads, trying to give their children a safe stable environment. And despite what many people think... putting "poor" people into homes IS NOT what caused this current crisis. In fact, it's the ONE thing that can turn this whole thing around.

What people are having a hard time paying are those "ARMs" both subprime and regular that reset after a certain period of time... And let me tell you, contrary to popular belief, it's not the loans to "poor" people that tipped the balance either. The biggest cause of the mortgage meltdown were the loans made to relatively wealthier borrowers in higher-price markets that went into foreclosure when home prices collapsed in those areas where get-rich-overnight speculators got into the game, driving home prices waaay up into the stratosphere. There wasn't ANY growth in the economy that would begin to support the huge mega salaries you'd need to pay a mortgage on some of those homes... I don't care where you look or go, if you truly research the info, you'll find that about one-third of the crisis comes from non-performing loans from lower income borrowers, while two-thirds of the problem comes from wealthier borrowers buying more expensive homes.  And that's not to mention the fact that if the banks were interesting in keeping people in homes those loans made to poorer borrowers could easily be refinanced to roll-back or off-set those awful predatory ARMs and for those that fell behind in their mortgage payments could have those payments added to the back-end of their loans... payable towards the end of 30 years.

Funny how not very many people even take the time to get a little info before blaming any and all of society's ills on the rusty feet of "poor" black folk...    I'm beginning to think that we've got some Republicans up in here dressed in sheep's clothing... right Legacy? .... lolololol

However not being one to whine about water under the bridge, I could almost deal with the disparity and unfairness of the past and present if not for the added insult to injury of being expected to pretend and accept that the wealth, privileges and advantages currently being enjoyed by Whites is purely a result of their collective hard work, sacrifices, discipline,  and innate intellect.

Giving DP a standing Ovation.... AMEN!

But back to the housing mess...I keep hearing from neocons  that its mainly mortgage defaults by minorities that is at the root of the mess, but I have yet to see actual quantitative data. 

Yep, they're always dragging out the okey doke... Always assuming people don't see what they see... Look in right in their backyards... and see where all those EMPTY and up for sale houses are located... not that I'm a person of means by ANY means but when I was out there shopping for a home, I was like a kid in a candy store... I can tell you one thing for sure though.... All those empty houses out there were NEVER built to house poor black folk.... got some nerve blaming this mess on black people!

[cool breeze]

I have another idea, why dont someone send that info to Puffy or Kanye so they can create an enlogated rap song and video on it.  Send it to that pervert R kelly so he can do a multi part 'in the closet' series on it.  In fact, send it to the entire rap industry and challenge them to use their voices meaningfully and set THAT shit to music...make it a whole new genre of hip hop/rap...I'll help them with some names for it...Rap-history, Rap-umentary, Rap-n-Learn, Rap-2-Learn, Rap-n-Read, School House Rap 9for the kids),...ok so I wont be hired by Hallmark anytime soon... 

DP those cats are too busy polishing their 'bling' to be bothered with actual world events..Well, maybe Kanye might be willing, but the other two? nahhh..I remember when Jam Master Jay, Run-DMC's dj was killed..All those cats with all their bling seemed baffeled when it came time to pay for the funeral as Jay wasn't doing that well financially..If I recall correctly, it was Eminem who stepped up and paid for the funeral..Those rap cats are the defintion of trifling..

 

I will say this to Whites and brain washed Blacks/Browns/yellows, I can let by gone be by gones...I can work harder to catch up...I DO work harder...and I've probably caught up in terms of individual knowledge and possessions, if not power and influence, BUT dont dare fucking suggest that I did it on an even playing field....me and mine worked harder and we made more sacrifices.  I want THAT acknowledged and accepted.

excellent post, DP..

[devineone]

I will say this to Whites and brain washed Blacks/Browns/yellows, I can let by gone be by gones...I can work harder to catch up...I DO work harder...and I've probably caught up in terms of individual knowledge and possessions, if not power and influence, BUT dont dare fucking suggest that I did it on an even playing field....me and mine worked harder and we made more sacrifices.  I want THAT acknowledged and accepted.

excellent post, DP..

I agree CB, well said DP!
And Thanks Ndgo for the historical prospective, it was helpful for me to view this information and not look at the current housing financial crisis in a vacuum.

[Ndgo]

This is the kind of stuff that toppled the market... there was a huge array of products all listed under the "subprime" umbrella that were used primarily NOT by people of color or of lesser means...

JUNE 16, 2005

NEWS ANALYSIS

The Mortgage Trap

Lenders are cranking out an ever-growing array of financing schemes and lowering standards to keep the housing boom going. Nicki Randolph, a San Francisco real estate agent, hasn't been scared off by talk of a housing bubble. Although she already owns both a home and a condo in Palm Springs, Calif., Randolph just closed on a third property -- dropping more than $1 million on a 1,400-square-foot loft in the heart of San Francisco. How does she juggle so many properties in the overheated California market? Lots of leverage, thanks to banks all too willing to provide ever more.

To finance her loft purchase, Randolph took out a mortgage that lets her pay only interest for the first five years -- a tactic that helps her ease into the hefty monthly payments. "Fears that the market is going to crash are way overstated," she says confidently. "It's a seven-mile-by-seven-mile city and a premier place people want to live. You have to be more aggressive here because the prices are so high."

PRESSURE KEEPS BUILDING. Randolph's story is a familiar one -- and it shows the lengths to which buyers are willing to go to snatch up real estate as well as the extremes lenders will stretch to accommodate them (see BW Online, 6/16/05, "What the Mortgage Next Door Means"). As prices continue to skyrocket in much of the country, banks and lenders are cranking out an ever-growing array of products ranging from no-money-down or interest-only mortgages, to special "Payment Power" loans that allow homeowners to defer monthly payments altogether twice a year.

Such creative financing is letting even marginal buyers purchase houses with price tags that used to appeal only to the rich and famous. In the process, banks and mortgage companies appear to be taking on more risk than ever before -- and if rates rise sharply or prices tumble, many of their customers could find themselves in deep trouble, too.

All those innovative mortgage products are a sure sign that lenders are doing everything they can to keep the housing boom going and to capitalize on yet another round of falling interest rates that no one expected. There are plenty of other signs of frenzy as well. Home appraisers complain that mortgage originators are demanding the optimistic appraisals needed to close on loans. "They started warning me to 'be a team player' and to 'hit the number' they needed to seal the deal," says Robert Burnitt, an appraiser in Midlothian, Tex.

Yet nothing screams "frenzy" louder than the huge popularity of innovative -- and risky -- mortgage products that allow buyers to stretch for those million-dollar studios and multimillion-dollar suburban colonials. With interest-only mortgages now offered by everyone from ditech.com to Washington Mutual (WM ), such loans now account for 20% of all new mortgages, up from under 5% two years ago.

Option adjustable-rate mortgages, or "option ARMs," have also become all the rage in superheated markets such as California and Washington, D.C. With an option ARM, borrowers can choose among three different payment plans each month, continually changing what they fork over as their budgets shift. The options: a regular payment of both principal and interest, just the interest, or one that may not even cover the interest -- so the overall balance owed on the mortgage could continue to grow.

TREND TOWARD RISK.  The question is, will the proliferation of interest-only and option ARM mortgages leave many buyers strapped down the road, causing higher default rates? David Liu, a mortgage strategist for UBS in New York, notes that after similar products were introduced in the red-hot California market in the late 1980s, they ultimately incurred a default rate that was three times as high as conventional mortgages when the local economy went into recession in the early '90s.

Already there are signs that current option ARM borrowers are straining to make their monthly payment: Liu notes that among a bundle of mortgages originated by Washington Mutual and securitized into the secondary market last year, fully 60% of borrowers made only the minimum payment this past March. "That's definitely a sign that people are stretching,"says Liu.

.... on June 9, Federal Reserve Chairman Alan Greenspan revealed his unease when he warned Congress that "the apparent froth in housing markets may have spilled over into mortgage markets." He noted that the increasing use of interest-only and other "relatively exotic" mortgages are "of particular concern."

TOUTING SAFEGUARDS.  Lenders insist that worries about their standards are overblown. They maintain that, thanks to the advent of automated underwriting during the 1990s, their ability to analyze statistical trends in lending is far better than before, enabling them to better price loans according to risk. "Underwriting is still more of an art than a science, but we're making it far more of a science," says Joe Anderson, a senior managing director at Countrywide Financial Corp. (CFC ), a Calabasas (Calif.) mortgage lender.

And lenders note that they've instituted more safeguards since the last housing boom in the 1980s, such as requiring that borrowers have several months of liquid assets to assure that they can keep paying their mortgages in the event of a job loss. "On a scale of 1 to 10 -- with 10 being the worst-case scenario -- my concern level is only around a 2 right now," says D.C. Aiken, senior vice-president for pricing and products at HomeBanc Mortgage Corp. (HMB ), a large lender in Atlanta.

....Of course, Nicki Randolph and many more like her who have used lenders' aggressive mortgage offers to expand their fledgling real estate empires aren't normally thought of as high-risk borrowers. But if interest rates and housing prices don't follow the rosy script that Randolph and so many others are banking on, a whole lot of homeowners could be caught in a painful trap.
 
http://www.businessweek.com/bwdaily/dnflash/jun2005/nf20050616_5078_db016.htm

[Ndgo]

Here's another article that lists some of the mortgage gimmicks used to allow the haves to snatch even more... Most of these markets were so red hot, there was NO way a person of lesser means could even find a house that a little piddly subprime loan would pay for...

Is the US housing boom turning toward bust?

6 August 2005


"...As the Wall Street Journal Online explains, the housing boom has been sustained by the “onslaught of creative mortgage products—from interest-only loans to adjustable-rate mortgages carrying starter rates as low as 1 percent-that have allowed buyers to keep initial payments down even as home prices have soared.”

“In 41 out of 325 metro areas nationwide, home prices were so high during the first quarter that someone earning the median income couldn’t afford a median-priced home based on traditional lending standards.... Home-price appreciation outpaced income growth in 38 of the 50 states and the District of Columbia in the 12 months through March.... Nationwide, home prices rose 6.7 percentage points faster than incomes during this period, according to the Federal Deposit Insurance Corp,” writes the Wall Street Journal.

However, in spite of signs of trouble, home sales continue to rise nationwide. Recently, the National Association of Realtors (NAR) changed “its forecast of existing-home sales to show a rise of 2.8 percent to 6.97 million this year, setting another record.”

What is an interest-only mortgage?

These new product are designed to reduce initial monthly mortgage payments, thus luring buyers into buying new homes. Among these new loans are interest-rate only (IO) mortgages and a new variation of the Adjustable Rate Mortgage (ARM).

IOs are loans that permit the borrower to pay only the interest on the mortgage for a specified period of time—usually five or 10 years. During this period, the monthly payment contains no principal.

How do these loans really work? Consider as an example a 30-year loan at a fixed rate of 6 percent on $200,000.

In a regular full amortizing (FA) loan, the homebuyer will make monthly payments of $1,199. In an IO mortgage with a five-year IO period, the homebuyer will pay instead $1,000 for the first five years, that is, 17 percent less than the FA loan. In exchange for initial lower monthly payments, however, the holder of an IO mortgage will see his or her monthly payments jump once the five-year IO period ends—in our example it would rise to $1,288, an increase of 29 percent over the initial payments and of 7.4 percent over the traditional FA loan.

Adding an IO period to Adjustable Rate Mortgages (ARMs) can reduce initial payment even further. The added risk on this loan is that following the IO period the loan holder will bear the risk of any interest rate rise. In our example, if interest rates climbed to 8 percent in five years and remained stationary for the rest of the mortgage’s life, our home buyer would have to make average monthly payments of $1,543 (a 54.3 percent increase) and if interest rates go up to 10 percent, he or she would have to pay $1,817 (an 81.2 percent increase).

Always seeking to maximize profits, lenders have focused on homebuyers’ capacity to make payments today—and worry about higher future payments—and possible foreclosures—tomorrow.

Consequently, the growth of these high-risk financing products has been spectacular. According to a recent Fortune magazine report, in 2001 IO mortgages made up 1.6 percent of residential mortgages. That figure ballooned to 31 percent of residential mortgages in 2004.

And in the “hottest” real estate markets (particularly on the east and west coasts) it has been reported that 70 percent of new loans are interest-only.

A variety of merchandising gimmicks

Such spectacular growth has raised deep concerns about the future of the housing industry. Consumer advocates, for example, are warning of a lack of clarity on the part of mortgage lenders in disclosing the risks to middle class and working class families.

A new set of gimmicks, these advocates claim, is based on misinformation.

These advocates point out that loan officers don’t really misinform, but they don’t bother to correct the homebuyers’ misconceptions.


Exploiting the “American Dream”

For half a century, owning a home has been a cornerstone of the “American Dream” for millions of middle class and working class families.

The exploitation of this dream is at the heart of mortgage lenders’ marketing schemes. “Skip that starter house. Get the home you’ve dreamed of. You deserve it,” says one add.

Another come-on used is: refinance to an IO mortgage; by lowering monthly payments, you will free money to spend in other things you like or need.

For homeowners who have accumulated equity from the rise of home prices, lenders push for them to take a second mortgage. The argument employed by lenders is that these homeowners are “sitting on untapped gold mines in the property they own.”

[Legacy]

And WHERE they could make money from lending WAS and STILL IS very highly influenced by racial (often gov't sponsored) policies and practices of the past.  Some exceptionally skilled and motivated Blacks have always been able to thrive even under the harshest circumstances, BUT if Black folks had the luxury of being able to enter the race equally equipt as White folks, then one would expect to see the same or similiar rate of success and failure in each group...as opposed to the current skewed status quo. 

OK, but it's not MORE of an influence than credit worthiness & income tho. None of us are gonna sit here & say that not having generational wealth created by government programs in the 50s & 60s has prevented us from receiving loans, period. All of us can get any loan we want so long as we pay our bills on time & have stable income. You don't have to be exceptionally skilled to do that but you will need to be skilled to make enough money to qualify for certain loan amounts. My parents did it as I am sure most of your parents did. The recent credit crush aside, it has probably been much easier for us than even our parents.

And, we have to acknowledge that the creation of Fannie Mae & Freddie Mac is a government program which did in fact allow underserved communities who otherwise wouldn't qualify for loans to get the loans they needed to become homeowners.

However not being one to whine about water under the bridge, I could almost deal with the disparity and unfairness of the past and present if not for the added insult to injury of being expected to pretend and accept that the wealth, privileges and advantages currently being enjoyed by Whites is purely a result of their collective hard work, sacrifices, discipline,  and innate intellect.

I will say this to Whites and brain washed Blacks/Browns/yellows, I can let by gone be by gones...I can work harder to catch up...I DO work harder...and I've probably caught up in terms of individual knowledge and possessions, if not power and influence, BUT dont dare fucking suggest that I did it on an even playing field....me and mine worked harder and we made more sacrifices.  I want THAT acknowledged and accepted.

Really, what alternatives do we have? You already know I'm not coppin pleas for what this country has done. However, discrimination was illegal & it was ended & even tho the country isn't perfect we have to acknowledge that. It put us at a disadvantage but the only way for us to rectify it is to work ourselves out of it.

I doubt the playing field is still totally even today but surely it's been more even for us & our white counterparts than past generations.

But back to the housing mess...I keep hearing from neocons  that its mainly mortgage defaults by minorities that is at the root of the mess, but I have yet to see actual quantitative data.  I want to see the actual NUMBERS...ALL the MATH!  Banks tend to give larger loans to White folks, so 5 YT families each defaulting on a $300G would be more economically damaging than 7 Black families each defaulting on a $200G.   I also want to know WHO got the money?  Didn't anyone actually get actual $$ in their hands?  When a Black person tok out a $200G loan, didn't he/she (or their bank) cut an actually CHECK and gave it to (probably some white person or builder) from who they were buying the house?  Who got the freaking money?...and what did they do with it?                   

That's another reason why "predatory" lending, which I think is a misnomer, can't be used to sight racist lending practices because TONS of white folx got hurt in this too. I see A LOT of foreclosed homes from the inner cities to the most exclusive suburbs in the state.

But you know neocons, just like the Sharptons of the world, racially bait to get a paycheck.

What's new....

[devineone]

However, discrimination was illegal & it was ended & even tho the country isn't perfect we have to acknowledge that.

Yes discrimination did become illegal, however in the south, just because laws were passed to legally end discrimination, it didn't mean the practice of it abruptly ended and everything was fine and dandy and blacks could easily enjoy the rights that were now legally theirs.  Maybe this occurred up north, but not in the south.
The old south retained the status quo looong after the passing of those anti-discrimnatory laws. My family and community can personally attest to that.