The Subprime Swindle

[babylonsister]

The Subprime Swindle
By Kai Wright

This article appeared in the July 14, 2008 edition of The Nation.
June 26, 2008

Research support was provided by the Investigative Fund of The Nation Institute.

snip//

Nearly 18,000 homes faced foreclosure in the Atlanta area during the first quarter of 2008, an almost 40 percent jump from the first quarter of 2007. In Fulton County, which encompasses most of the city's core and is heavily African-American, one in 122 homes was in foreclosure in the first week of April. A digest of Atlanta's March 2008 "foreclosure starts" was as thick as the phone book, and the Mitchells' 30310 ZIP code topped the list.

The area boasts an old stock of quaint, midcentury houses painted in bright yellows and crisp blues, accented with quirky touches that now feel more haunting than homey. On block after block, as many homes sit vacant or bank-owned as not. Boarded-up windows lurk behind white-columned front porches, and the yards are slowly going to weeds and trash. On one block, eleven boarded-up houses line the street, making the area look like it's been hit by a natural disaster.

But the disaster is depressingly man-made. And this neighborhood reveals a deeply troubling dimension of it, one that will echo long past the recovery everyone hopes will soon come: for black America, the "mortgage meltdown" looks less like a market hiccup than a massive strip mining of hard-won wealth, a devastating loss that will betray the promise of class mobility for tens of thousands of black families.

As the mortgage crisis unfolded, observers of all political stripes repeated a boilerplate line: the "affordability products" that have flooded the lending market in recent years--from subprime to interest-only loans--have done more good than bad by fueling a surge in black and Latino homeownership. But while minority homeownership may have grown in the short term, the long-term outlook promises quite the opposite, as southwest Atlanta painfully illustrates.

First-time homebuyers have originated less than a tenth of all subprime loans since 1998, according to a 2007 Center for Responsible Lending analysis. As recently as 2006, just over half of all subprime loans were refinances of existing home loans. The expected foreclosure toll from these loans will outpace the ownership gains by nearly a million families, the center estimates.

That's particularly true in established black neighborhoods like Westwood, where banks and brokers targeted vulnerable longtime homeowners and lured them into needless and rapidly recurring mortgages they clearly couldn't afford and from which they never stood to gain. More than half of all refinance loans made to African-Americans in 2006 were subprime, according to an analysis by the advocacy group ACORN. That's nearly twice the rate among white borrowers. Among low-income black borrowers, 62 percent of refinance loans were subprime, more than twice the rate among low-income whites.


more...

http://www.thenation.com/doc/20080714/wright

[Gormy Cuss]

1. Yup. The subprime meltdown is different from the overall mortgage meltdown.

Not only did it disproportionately affect African-American and other minority households, it's largely a crisis that could have been averted if those same households had just been offered better loan products --ones that they were qualified to get based on their credit histories.

[XRubicon]

2. Subprime Primer

Not sure if this has been posted before- I found it very funny and educational...



Subprime Primer

[Demeter]

4. That Was Precious. Thanks!

[ben_meyers]

3. If the banks and other financial institutions had been regulated

as they were in the past, a lot of this pain could have been avoided. Rules and oversite put into place after the "Great Depression" were lifted by the stroke of the pen repealing the Glass-Segal bill.

Investigations after the 1929 stock market crash led to the Glass-Stegal Act which further separated commercial banks from brokerage business, and banks involved in loans from banks involved with investment banking.

However, as the economy and stock markets powered into high gear in the 1990s, envy between the separated areas of the financial industry began to grow. Banks and insurance companies wanted to be brokerage firms and mutual fund companies. Brokerage firms wanted to be banks and mutual fund companies. They all wanted to be insurance companies.

The financial industry is one of the largest contributors to congressional lobbying efforts. So, just as the stock market was powering into the most dangerous bubble since that of 1929, but also the most profitable period ever for Wall Street, Congress repealed the Glass-Segal Act. They left it in effect for 60 years, and then repealed it just as the next investment bubble was forming. Great timing?

So now we have one big fat and happy financial industry. Banks, credit-card companies, insurance companies, brokerage firms, mutual funds, and mortgage companies, have engaged in a frenzy of mergers to get into each others businesses.

http://www.streetsmartreport.com/school/Commentaries/My%202006%20Wish%20for%20the%20U.S.%20Financial%20System.html