What a moral tragedy against poverty. I’d consider framing the discussion in economic terms, rather than in terms of race, because a predatory lender affects a poor, inner-city white family exactly the same way it does an African-American family in the same situation. Still, it’s a reality that most of these poor inner-city families are African American and Hispanic.
With the gap between rich and poor widening so rapidly in the past 20 years, it’s tragic that predatory lenders have attacked head-on the primary vehicle for narrowing this gap.
It sounds like you are doing laudable work, Mr. Eakes. However, here you toss around selective statistics without context. Firstly, can we remove the topic of race from the conversation and inject the topics of irresponsibility paired with unsupportable lifestyles? Second, by definition, a sub-prime loan is intended for those who could not qualify for a ‘prime’ loan and, thus, the higher interest rate reflects, among other things, the expected higher default rate. And finally, with all due respect to your work, when did we conclude that every low income individual should even own a house? He might wish to, but if he lacks the cashflow to support the transaction, well, we call those folks renters. Bring all this together and mix with a federal policy that was pushing financial institutions to make home loans available to marginally qualified people or else be sued and what a recipe for financial disaster you have! Foreclosures are not the problem. They are a sign that a sick market is trying to get itself well. The resetting will mostly be painful to those who were imprudent or irresponsible. As it should be. There are consequences to poorly thought out decisions. Meanwhile, let the market seek its level. Qualified buyers, well off and not so well off, are waiting to become responsible homeowners.
This is a very helpful perspective, and clearly, the greatest negative impact of predatory subprime lending is on low- and moderate-income households, and people of color are unfortunately the majority in this economic group.
I have a couple of issues with the description of the abusive mortgage process. First, in most cases, the mortgage was originated by an unsupervised or unregulated Mortgage Broker. Second, the industry had evolved to the point where the more abusive the Mortgage Broker was, the more he or she earned on the transaction. So, we had unemployed aluminum siding sales people moonlighting as mortgage brokers, selling whatever program generated the largest commission possible.
Finally, the state and federal regulators were completely absent as the mortgage industry (not banks) developed more and more exotic products that allowed virtually anyone to buy and finance a home. Option ARMs. No peek loans. 100 percent (or more) financing.
Option ARMs were (are) the most dangerous. In some cases, loans were originated with payment rates as low as one percent fixed for five years. The actual “fully indexed accrual rate” might have been pegged to LIBOR, with a five percent, eight percent or greater margin, and adjusted monthly. While the customer was given various options each month when the payment coupon came, the real damage was happening behind the scenes.
Property values soared because it wasn’t the purchase price that mattered—we all knew prices would continue to appreciate at 15 percent to 25 percent annually—- it was the monthly payment that really mattered.
Mr. Eakes is fully correct that the impact is felt most heavily in communities of color. Meanwhile, a number of bad actors left town some time ago, with bags of ill-gotten gains. They are the culprits, and someone needs to focus on them, bring them in and allow them to repay the hard earned equity they stole from their former neighbors, former friends, and former congregants.
Martin,
Thank you for the work you are doing to help families caught in the mortgage crisis.
Could you let me know how individuals can help these families?
I am particularly interested in families in California.
Are there banks or non- profits that have programs that individuals can contribute to?
Please contact me by email or phone:
Dr. Stephanie Evans, 415 331-3388 or .(JavaScript must be enabled to view this email address).
Thank you,
Stephanie
I am interested in starting a micro-micro loan program for severely economically persons in the area of our church (Yonkers, NY) . What advise/suggestions might you have for me? Thanks. Jay
COMMENTS
BY Varden Hadfield
ON June 27, 2008 12:23 PM
Great work, Mr. Eakes!
What a moral tragedy against poverty. I’d consider framing the discussion in economic terms, rather than in terms of race, because a predatory lender affects a poor, inner-city white family exactly the same way it does an African-American family in the same situation. Still, it’s a reality that most of these poor inner-city families are African American and Hispanic.
With the gap between rich and poor widening so rapidly in the past 20 years, it’s tragic that predatory lenders have attacked head-on the primary vehicle for narrowing this gap.
Here’s an outstanding Newsweek article about this issue that brought it home to reality for me: http://www.newsweek.com/id/138503
Thanks!
BY Doug
ON July 10, 2008 04:41 PM
It sounds like you are doing laudable work, Mr. Eakes. However, here you toss around selective statistics without context. Firstly, can we remove the topic of race from the conversation and inject the topics of irresponsibility paired with unsupportable lifestyles? Second, by definition, a sub-prime loan is intended for those who could not qualify for a ‘prime’ loan and, thus, the higher interest rate reflects, among other things, the expected higher default rate. And finally, with all due respect to your work, when did we conclude that every low income individual should even own a house? He might wish to, but if he lacks the cashflow to support the transaction, well, we call those folks renters. Bring all this together and mix with a federal policy that was pushing financial institutions to make home loans available to marginally qualified people or else be sued and what a recipe for financial disaster you have! Foreclosures are not the problem. They are a sign that a sick market is trying to get itself well. The resetting will mostly be painful to those who were imprudent or irresponsible. As it should be. There are consequences to poorly thought out decisions. Meanwhile, let the market seek its level. Qualified buyers, well off and not so well off, are waiting to become responsible homeowners.
BY Dennis McDermott
ON July 10, 2008 05:10 PM
This is a very helpful perspective, and clearly, the greatest negative impact of predatory subprime lending is on low- and moderate-income households, and people of color are unfortunately the majority in this economic group.
I have a couple of issues with the description of the abusive mortgage process. First, in most cases, the mortgage was originated by an unsupervised or unregulated Mortgage Broker. Second, the industry had evolved to the point where the more abusive the Mortgage Broker was, the more he or she earned on the transaction. So, we had unemployed aluminum siding sales people moonlighting as mortgage brokers, selling whatever program generated the largest commission possible.
Finally, the state and federal regulators were completely absent as the mortgage industry (not banks) developed more and more exotic products that allowed virtually anyone to buy and finance a home. Option ARMs. No peek loans. 100 percent (or more) financing.
Option ARMs were (are) the most dangerous. In some cases, loans were originated with payment rates as low as one percent fixed for five years. The actual “fully indexed accrual rate” might have been pegged to LIBOR, with a five percent, eight percent or greater margin, and adjusted monthly. While the customer was given various options each month when the payment coupon came, the real damage was happening behind the scenes.
Property values soared because it wasn’t the purchase price that mattered—we all knew prices would continue to appreciate at 15 percent to 25 percent annually—- it was the monthly payment that really mattered.
Mr. Eakes is fully correct that the impact is felt most heavily in communities of color. Meanwhile, a number of bad actors left town some time ago, with bags of ill-gotten gains. They are the culprits, and someone needs to focus on them, bring them in and allow them to repay the hard earned equity they stole from their former neighbors, former friends, and former congregants.
BY Stephanie Evans
ON July 12, 2008 12:48 PM
Martin,
Thank you for the work you are doing to help families caught in the mortgage crisis.
Could you let me know how individuals can help these families?
I am particularly interested in families in California.
Are there banks or non- profits that have programs that individuals can contribute to?
Please contact me by email or phone:
Dr. Stephanie Evans, 415 331-3388 or .(JavaScript must be enabled to view this email address).
Thank you,
Stephanie
BY Jay Cider
ON December 26, 2008 05:04 PM
I am interested in starting a micro-micro loan program for severely economically persons in the area of our church (Yonkers, NY) . What advise/suggestions might you have for me? Thanks. Jay