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African Americans will bear the brunt of the collapsing subprime mortgage market
Institutionalized racism could lead to the greatest plunder of African American wealth in US history
Richard Mellor
AFSCME Local 444 retired
3-19-07
For any attentive observer, the crisis in the subrime mortgage market must be well understood by now. I pointed out in earlier commentaries, (1) the concern the speculators have that this will spread to the wider housing market which is an $8 trillion monster, much of it, like US society in general, held up through debt. The consequences of this are dire as better-paid workers, the middle class and small business will be hit.
The subrime market is mostly poor people, senior citizens, and the disabled; people with weak credit histories. But a major section of this market is African American and other people of color. The effect of this crisis will be devastating for them. In these communities, “…something very nasty is going down.” writes John Gapper in the Financial Times. (2) We should remember that these comments come from a leading commentator of one of the world’s leading journals of big business.
Gapper continues, “Some 52 percent of loans made to black people in 2005 were subprime and 80 percent of these subprime loans were exploding Arms.” (Adjustable Rate Mortgage) Martin Eakes, a credit union CEO claims estimates that 2.2 million families could lose their homes to foreclosure. This catastrophe, claims Eakes, could become “the largest loss of African-American wealth in American history.” (3)
We should shed no tears for the moneylenders and speculators. They earned their fees, took their interest. And in the end they’ll own the asset, someone’s former home. I am compelled to remind folks of how this frenzy was received by Gertrude Johnson, an 89-year-old still working as a health aide. Her mortgage, at more than $3000 was more than she could handle:
"I just wanted to be able to eat and sleep in my house and have a roof over my head", says 89 year old Gertrude Robertson, "Every day at midnight when I go to sleep, I think maybe when I wake in the morning they'll tell me to get out." (4)
The victims of this speculative frenzy are victims because they are poor and unorganized. Most of the poor people in the US are white women and children. This is because they are more numerous, a higher percentage of the population. But due to the legacy of racism in society, a staggering number of poor people are people of color when taken as a percentage of their population. Racism is used to divide us, prevent us from uniting against those who are responsible for this economic crisis. They send their kids to Harvard while they send ours to Iraq.
A social commentator said some time ago that if the conditions that existed in the black community existed in US society as a whole, we would consider ourselves to be in a major social crisis. The same applies today except more and more Americans are being driven in to poverty as wages, pensions, benefits and other protections are being stripped away with the open support of the trade Union Leaders at the highest levels.
If Eakes is anywhere near correct, and over two million black families lose their homes, the effect of this will hit the family hard, especially the aged and the young; possibly as many as 5 million people.
But the market will sort it out say the economists. And indeed it will. The market already provides housing for a huge percentage of the US black population; the prison system. The US has over two million people in prisons, bested only by China.
“…in a world awash with liquidity it has been difficult to make reasonable returns buying anything mainstream.” writes Gillian Tett of the Financial Times (5) As they flee the lending business with the money they sucked out of the likes of Gertrude Robinson and low waged workers, the money men may well invest in something “mainstream” cell space for the likes of her grandchildren and those workers without homes who just couldn’t take any more.
(1) I’ll bet you lose you’re your home: http://laborsmilitantvoice.org/index.php?option=com_content&task=view&id=47&Itemid=1
They never put this on reality TV
http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=75664163&blogID=241533343&MyToken=e160e194-6e51-41d9-8550-041031d53d5e
(2) Financial Times 3-19-07
(3) ibid
(4) WSJ 3-12-07
(5) Gillian Tett: Financial Times, 3-2-07
AFSCME Local 444 retired
3-19-07
For any attentive observer, the crisis in the subrime mortgage market must be well understood by now. I pointed out in earlier commentaries, (1) the concern the speculators have that this will spread to the wider housing market which is an $8 trillion monster, much of it, like US society in general, held up through debt. The consequences of this are dire as better-paid workers, the middle class and small business will be hit.
The subrime market is mostly poor people, senior citizens, and the disabled; people with weak credit histories. But a major section of this market is African American and other people of color. The effect of this crisis will be devastating for them. In these communities, “…something very nasty is going down.” writes John Gapper in the Financial Times. (2) We should remember that these comments come from a leading commentator of one of the world’s leading journals of big business.
Gapper continues, “Some 52 percent of loans made to black people in 2005 were subprime and 80 percent of these subprime loans were exploding Arms.” (Adjustable Rate Mortgage) Martin Eakes, a credit union CEO claims estimates that 2.2 million families could lose their homes to foreclosure. This catastrophe, claims Eakes, could become “the largest loss of African-American wealth in American history.” (3)
We should shed no tears for the moneylenders and speculators. They earned their fees, took their interest. And in the end they’ll own the asset, someone’s former home. I am compelled to remind folks of how this frenzy was received by Gertrude Johnson, an 89-year-old still working as a health aide. Her mortgage, at more than $3000 was more than she could handle:
"I just wanted to be able to eat and sleep in my house and have a roof over my head", says 89 year old Gertrude Robertson, "Every day at midnight when I go to sleep, I think maybe when I wake in the morning they'll tell me to get out." (4)
The victims of this speculative frenzy are victims because they are poor and unorganized. Most of the poor people in the US are white women and children. This is because they are more numerous, a higher percentage of the population. But due to the legacy of racism in society, a staggering number of poor people are people of color when taken as a percentage of their population. Racism is used to divide us, prevent us from uniting against those who are responsible for this economic crisis. They send their kids to Harvard while they send ours to Iraq.
A social commentator said some time ago that if the conditions that existed in the black community existed in US society as a whole, we would consider ourselves to be in a major social crisis. The same applies today except more and more Americans are being driven in to poverty as wages, pensions, benefits and other protections are being stripped away with the open support of the trade Union Leaders at the highest levels.
If Eakes is anywhere near correct, and over two million black families lose their homes, the effect of this will hit the family hard, especially the aged and the young; possibly as many as 5 million people.
But the market will sort it out say the economists. And indeed it will. The market already provides housing for a huge percentage of the US black population; the prison system. The US has over two million people in prisons, bested only by China.
“…in a world awash with liquidity it has been difficult to make reasonable returns buying anything mainstream.” writes Gillian Tett of the Financial Times (5) As they flee the lending business with the money they sucked out of the likes of Gertrude Robinson and low waged workers, the money men may well invest in something “mainstream” cell space for the likes of her grandchildren and those workers without homes who just couldn’t take any more.
(1) I’ll bet you lose you’re your home: http://laborsmilitantvoice.org/index.php?option=com_content&task=view&id=47&Itemid=1
They never put this on reality TV
http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=75664163&blogID=241533343&MyToken=e160e194-6e51-41d9-8550-041031d53d5e
(2) Financial Times 3-19-07
(3) ibid
(4) WSJ 3-12-07
(5) Gillian Tett: Financial Times, 3-2-07
For more information:
http://www.laborsmilitantvoice.org
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It's so sad. We black folk love our victim images. We cannot control our destinies. We are mere puppets - victims at the whim of the white man.
Mr. Mellor, when stating that the lender will not bear the financial pain because they have gotten their fees, shows complete ignorance of mortgage lending. Each foreclosure costs the lender roughly 20% of the original loan. A $200,000 loan that goes into foreclosure will cost that lender $40,000 in legal fees, carrying costs, maintenance fees, realtor commissions and, ultimately, a steep loss when the property is sold.
There is no question that the mortgage industry, in its efforts to meet demand for mortgage money that was created by the flood of money in the global markets that began in 2002, loosened underwriting standards. There's also no doubt that some of the loans that were engineered set borrowers up for failure. This is true.
But, leave it to the institutionalized victims to make this a race issue. It's as though the young financial whiz kids on Wall Street sat their, wringing their hands in glee, pondering ways to lend money to black folks that would have the most detrimental effect. Any thinking person understands this is nonsense.
Ironic that the loudest voices crying out against the "predatory" lenders, were also the those who decried the lack of mortgage money to African Americans at the beginning of the decade.
Those who think that blacks having a disproportionate number of subprime loans is racist don't understand the facts. When one controls for credit and downpayment, it becomes clear that blacks don't get a subprime more often than other races. The reality that blacks have less economic resources, less development of traditional credit histories, and generally more derogatory credit than other races is indeed a societal issue that needs to be constantly addressed. However, mortgage lenders, just like any other business, isn't in a position to make social payments. If a person has poor credit, whether black or white, the lender needs to charge a higher rate to offset the risk. If more blacks have financial characteristics that evidence that risk - then more blacks will have to pay higher rates.
Also, any study done will clearly show that the front line mortgage lender, the actual individual who gave the loan to the borrower, was of the same race as the borrower. If advantage was taken, at the point of sale, it was taken by a person of the borrower's same race. This is key - because, when one digs deep on this issue - one finds that the institutions are color blind when it comes to lending. The way mortgage lending works today means that the ultimate lender and the broker are separate entities. Red lining is essentially impossible. There is no way for the institutions to know if an applicant is black, white or Hispanic. HMDA laws make it impossible for institutional lenders to shy away from specific geographies. No, if there are abuses in mortgage lending - it happens on the front line. It happens when the mortgage broker takes specific advantage of the borrower by charging exorbitant fees or by manipulating their borrower's income to get the borrower a loan they can't qualify for. The institution is complicit in that the provided mortgage loans with tremendous flexibility, which actually work well for some folks, but they are not the one manipulating the borrower. The manipulator is the broker - and that broker, when the borrower is black, is, nine times out of ten, also black.
Much political posturing will take place as foreclosures rise. Sad stories will abound. And those stories are indeed sad. However, stories of African American families, who got subprime loans back in 2000, 2001, 2002, 2003 to buy homes, and who now have substantial wealth because they benefited from the booming housing market, will not be told. Homes in California, for example, more than doubled from 2001 until today. An African American family who purchased a $200,000 home using a zero down subprime loan is now the proud owner of a $400,000 home. Maybe for the first time in that family's history - they have significant financial wealth. Had a loan that didn't require a downpayment and didn't require perfect, deep, credit, not have existed - this family wouldn't have $200,000 of equity. That will be lost as the institutional victim leaders take the podium.
Be very careful for what you wish for. Legislative efforts to curb mortgage finance will undoubtedly squash lending to many folks. While much is made of the 15% delinquency rates on subprime loans, less is made of the reality that 85% of those folks are paying on time. Undoubtedly, the victim lobby will look again to government to be the savior. As always, government will screw it up.
But I guess this will just be another issue where black folks will again show their perceived lack of control of their lives. The victim lobby will look to further chomp down on the governmental teet, and in doing, further enslave themselves to the faceless bureaucracy. In a world where racism is very real and very detrimental - it's truly sad to listen to people cry racism because a group of people was lent billions of dollars... If lending to black folks, at a lesser rate, on less exotic mortgage programs is good business - where is the black led group raising money to lend to these folks? Answer - nowhere. But, even though they won't put their money where there mouth is - they will certainly yell loudly for the savior, Uncle Sam, to do so.
Mr. Mellor, when stating that the lender will not bear the financial pain because they have gotten their fees, shows complete ignorance of mortgage lending. Each foreclosure costs the lender roughly 20% of the original loan. A $200,000 loan that goes into foreclosure will cost that lender $40,000 in legal fees, carrying costs, maintenance fees, realtor commissions and, ultimately, a steep loss when the property is sold.
There is no question that the mortgage industry, in its efforts to meet demand for mortgage money that was created by the flood of money in the global markets that began in 2002, loosened underwriting standards. There's also no doubt that some of the loans that were engineered set borrowers up for failure. This is true.
But, leave it to the institutionalized victims to make this a race issue. It's as though the young financial whiz kids on Wall Street sat their, wringing their hands in glee, pondering ways to lend money to black folks that would have the most detrimental effect. Any thinking person understands this is nonsense.
Ironic that the loudest voices crying out against the "predatory" lenders, were also the those who decried the lack of mortgage money to African Americans at the beginning of the decade.
Those who think that blacks having a disproportionate number of subprime loans is racist don't understand the facts. When one controls for credit and downpayment, it becomes clear that blacks don't get a subprime more often than other races. The reality that blacks have less economic resources, less development of traditional credit histories, and generally more derogatory credit than other races is indeed a societal issue that needs to be constantly addressed. However, mortgage lenders, just like any other business, isn't in a position to make social payments. If a person has poor credit, whether black or white, the lender needs to charge a higher rate to offset the risk. If more blacks have financial characteristics that evidence that risk - then more blacks will have to pay higher rates.
Also, any study done will clearly show that the front line mortgage lender, the actual individual who gave the loan to the borrower, was of the same race as the borrower. If advantage was taken, at the point of sale, it was taken by a person of the borrower's same race. This is key - because, when one digs deep on this issue - one finds that the institutions are color blind when it comes to lending. The way mortgage lending works today means that the ultimate lender and the broker are separate entities. Red lining is essentially impossible. There is no way for the institutions to know if an applicant is black, white or Hispanic. HMDA laws make it impossible for institutional lenders to shy away from specific geographies. No, if there are abuses in mortgage lending - it happens on the front line. It happens when the mortgage broker takes specific advantage of the borrower by charging exorbitant fees or by manipulating their borrower's income to get the borrower a loan they can't qualify for. The institution is complicit in that the provided mortgage loans with tremendous flexibility, which actually work well for some folks, but they are not the one manipulating the borrower. The manipulator is the broker - and that broker, when the borrower is black, is, nine times out of ten, also black.
Much political posturing will take place as foreclosures rise. Sad stories will abound. And those stories are indeed sad. However, stories of African American families, who got subprime loans back in 2000, 2001, 2002, 2003 to buy homes, and who now have substantial wealth because they benefited from the booming housing market, will not be told. Homes in California, for example, more than doubled from 2001 until today. An African American family who purchased a $200,000 home using a zero down subprime loan is now the proud owner of a $400,000 home. Maybe for the first time in that family's history - they have significant financial wealth. Had a loan that didn't require a downpayment and didn't require perfect, deep, credit, not have existed - this family wouldn't have $200,000 of equity. That will be lost as the institutional victim leaders take the podium.
Be very careful for what you wish for. Legislative efforts to curb mortgage finance will undoubtedly squash lending to many folks. While much is made of the 15% delinquency rates on subprime loans, less is made of the reality that 85% of those folks are paying on time. Undoubtedly, the victim lobby will look again to government to be the savior. As always, government will screw it up.
But I guess this will just be another issue where black folks will again show their perceived lack of control of their lives. The victim lobby will look to further chomp down on the governmental teet, and in doing, further enslave themselves to the faceless bureaucracy. In a world where racism is very real and very detrimental - it's truly sad to listen to people cry racism because a group of people was lent billions of dollars... If lending to black folks, at a lesser rate, on less exotic mortgage programs is good business - where is the black led group raising money to lend to these folks? Answer - nowhere. But, even though they won't put their money where there mouth is - they will certainly yell loudly for the savior, Uncle Sam, to do so.
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