Homewreckers

The mortgage industry is stealing black wealth--one foreclosure at a time.
July 14, 2008--You gotta admire, on some cynical level, a crook who can steal your money and make you believe it's your own fault for getting jacked. That's perhaps the most galling part about the con-job banks and lenders are still running on America. They spent a decade creating the "mortgage meltdown"—knocking down prescient state-level safeguards, dreaming up dangerously exotic products, relentlessly pursuing borrowers whose trust they could exploit—and yet they want everyone to believe that homeowners were the ones making bad decisions.

black folks are at the center of the storm. More than half of all black borrowers who got refinance mortgages in 2006 were sold subprime products. According to a recent study, black and Latino borrowers will collectively lose an estimated $164 billion to $213 billion in the wave of foreclosures following that lending; we'll have absorbed about half the nation's overall foreclosure loss.

Congress has vowed to finally deal with the mortgage crisis this summer. But to arrive at a meaningful solution, we must acknowledge some cold realities about the problem.

The first reality is that no good came from this. An oft-repeated trope is that subprime lending fueled a surge in homeownership in black and brown communities. But as the Wall Street Journal reported, most borrowers would have qualified for prime loans had they not been steered to more expensive subprime ones. Moreover, once the foreclosure dust settles, black America will have suffered a net loss in homeownership, according to a Center for Responsible Lending analysis, because less than a tenth of all subprime loans made since 1998 went to first-time homeowners. More than half were refinances.

Another truth is that subprime lenders were willful—and that makes them predatory. They didn't just use exploding interest rates. Lenders employed a host of tools to trick people into believing clearly bad deals were good ones—undocumented income claims, interest-only payments, inflated appraisals and more.

Why would lenders deliberately give out bad loans? Because banks and investors alike were taking a giant and decidedly "risky" gamble in the securities market, posting a let-it-ride bet that depended upon high-volume lending. Banks needed a steady supply of loans in order to bundle them and sell them to investors, and as one veteran lawyer in the fight against predatory lending put it, "They ran out of legitimately eligible borrowers a long time ago."