September 25, 2008

Minority Mortgages Brought Financial Market to Its Knees

By Jeff Davis EURO

The financial commentators and analysts of Wall Street aren’t unaware of what has caused the present economic crisis. The crash started with the collapse of the subprime mortgage market, which is effectively a code word for Blacks and non-White Hispanics. They’re just scared to say it out loud. Fox News recently ran a story more or less admitting this was the case, a long article that spent paragraph after paragraph dancing around the truth.

Subprime loans originally were higher interest loans for people with poor credit. Gradually government pressure was applied to increase the number of minority loans for the sake of political correctness. To make this happen, the quality controls on subprime loans were thrown out one by one. Eventually, people with bad credit histories and who couldn’t make down payments and who verbally stated what their income was (without any proof) were allowed to get home loans. For the first few years these insane procedures went unnoticed because housing prices kept going up. What made it all come crashing down, was the current housing slump. As soon as housing prices dropped millions of Black and Latino subprime lenders walked away from their mortgages. They had nothing to lose because they had made no down payment. They weren’t worried about destroying their credit rating because they already had bad credit ratings.

A recent Fox News article reports “Obviously some sectors of the economy have been doing well, while others, such as housing, have been in a real mess. With the government takeover of Freddie Mac and Fannie Mae as well as other bankruptcies in the financial sector, there are a lot of questions. The strangest fact is that the housing sector is having such problems when the economy otherwise has been doing well. Why have there been so many defaults when the economy has not been in a recession? Defaults have been at historically high rates despite reasonable economic growth and a relatively low unemployment rate of 6.1 percent. Some, such as James H. Carr, the CEO of the National Community Reinvestment Coalition, argue that the high default rates are a result of ‘unfair and deceptive practices, steering customers to high price loans… Surprisingly, research done by economists a decade ago in 1998, particularly by Professors Ted Day and Stan Liebowitz at the University of Texas at Dallas, predicted the current problems and tried to warn people of a different cause. Starting during the early 1990s, mortgage-underwriting standards have been consistently weakened…”

Do you see which way the wind is beginning to blow in this first paragraph?)

Let’s watch Fox inch carefully closer to the real point: “The changes in underwriting standards were pushed to accomplish what many called a noble goal-an increase in home ownership among poor and minority Americans — but the changes created a time bomb that was set off as soon as property values began to decline. The new rules involved eliminating verification of income or assets, little assurance of the ability to pay the mortgage, and virtually eliminating down payments.”

Eliminating verification of income and assets? On a major financial commitment lasting around 30 years on average? What in God’s name were these people thinking?

The article continues “Making it possible for otherwise unqualified people to buy homes increased demand and increased the price of houses. As long as housing prices rose, the problems inherent in not requiring down payments or relaxing other standards were hidden. While prices rose, no one had to default. Instead, if someone was unable to pay the mortgage, the obvious option was to sell the house at a profit. As long as prices continued to rise, people could accurately claim that the new standards did not have an appreciably different default rate than the old standards.”

Why does the word “fraud” keep popping up in my mind?

I think everyone can see the desire to give more mortgages to minorities loosened standards and caused the subprime crisis. Banks and mortgage companies were giving home loans to every Tyrone, Jose and Roberto in order to get a commission and generate worthless paper for the lender to use as collateral on loans from the bigger fish.

It used to be, back in the day when some faint remnants of sanity still prevailed. Buying a home was the biggest lifetime commitment of an American family. In most cases, people only did it once. They bought in their late 20s or early 30s. Some worked hard and paid off the house early. Others paid off the house about the time they were eligible for Social Security, sometimes with a formal mortgage-burning party in their back yard. They also bought houses for their families to live in, not as an investment or a form of speculation. But that was back in the days when White people were in charge of things and society wasn’t raving mad.

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