In the aftermath of the financial crisis back in 2008, a number of conservative commentators—including Mike Huckabee and Neil Cavuto—blamed minorities and low income people for the subprime mortgage mess. According to some of these conservatives, the responsibility for the mortgage mess lay at the feet of the Community Reinvestment Act and the poor/minorities among us who took out subprime mortgages. There didn’t seem to be any mention of banks and their predatory lending practices being at fault in any way.
Well, James Theckson, a former banker who was a regional vice president for Chase Home Finance in southern Florida, claims that banks are mostly culpable for the subprime mortgage fiasco. He told Nicholas Kristof of the New York Times that his team wrote $2 billion in mortgages in 2007—and that some of them were “no documentation” mortgages. Theckson said, “On the application, you don’t put down a job; you don’t show income; you don’t show assets. But you still got a nod.” He continued, “If you had some old bag lady walking down the street and she had a decent credit score, she got a loan.”
From Kristof’s article, A Banker Speaks, With Regret, which appeared in the New York Times on November 30, 2011:
“You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”
Especially when mortgages were securitized and sold off to investors, he said, senior bankers turned a blind eye to shortcuts.
“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”
Theckson also said that some account executives would earn commissions seven times higher for subprime loans than they would receive for prime loans.
The unethical lenders often targeted “less savvy borrowers”—people with less education, people who had never taken out a mortgage before, or people who weren’t fluent in English. As you may have already deduced, a great proportion of those “less savvy borrowers” were blacks and Latinos.
Kristof isn’t the first person to write about the discriminatory practices that bankers/lenders were involved in perpetrating on minority borrowers. In 2009, Michael Powell wrote an article for the New York Times titled Bank Accused of Pushing Mortgage Deals on Blacks. In the article, Powell explained why the city of Baltimore was suing Wells Fargo “over its mortgage lending practices in black neighborhoods.”
From Powell’s article:
As she describes it, Beth Jacobson and her fellow loan officers at Wells Fargo Bank “rode the stagecoach from hell” for a decade, systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages.
These loans, Baltimore officials have claimed in a federal lawsuit against Wells Fargo, tipped hundreds of homeowners into foreclosure and cost the city tens of millions of dollars in taxes and city services.
Wells Fargo, Ms. Jacobson said in an interview, saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages. Another loan officer stated in an affidavit filed last week that employees had referred to blacks as “mud people” and to subprime lending as “ghetto loans.”
Ms. Jacobson, who is white, said, “We just went right after them.” She added, “Wells Fargo mortgage had an emerging-markets unit that specifically targeted black churches, because it figured church leaders had a lot of influence and could convince congregants to take out subprime loans.”
It has been reported that a subprime loan on a $165,000 mortgage would add more than “$100,000 in interest payments.” I think one of the most tragic things about this sordid tale of discriminatory lending practices is that many of the minority individuals who were foreclosed upon or who are currently being threatened with foreclosure actually qualified for prime loans.
Isn’t it nice to know that we taxpayers bailed out Wells Fargo to the tune of $25 billion so it could remain “adequately capitalized despite holding ‘troubled assets,’ particularly subprime loans.”
A Banker Speaks, With Regret (New York Times)
Bank Accused of Pushing Mortgage Deals on Blacks (New York Times)
Tracking the $700 Billion Bailout (New York Times)
American Enterprise Institute Has The Mortgage Mess Backward (ThinkProgress)
Wells Fargo Accused of Pushing African Americans Into Subprime Loans (Legum’s New Line)
Scandal: Market Crisis (ProPublica)
Predatory Lending: A Decade of Warnings as Congress and the Fed Fiddled (Center for Public Integrity/Cutting Edge News)