Oh, No, Subprime Mortgage Brokers are Coming Back

 

 

 

 

 

 

 

 

New Orleans   Please, just move the soapbox over here a little closer, because I’m going to jump and shout yet again, and sadly, not for the last time about the little named co-conspirator and enabler of the Great Recession real estate meltdown: mortgage brokers. They are under regulated, lightly trained, totally unsupervised, largely sales people too often paid little more than commissions on mortgage closings achieved often by hook or crook. They beat the bushes to create the paper stream of deals that are then packaged and picked up by banks and, increasingly, nonbanks, who have even more of the mortgage action than they did a decade ago.

A thinly disguised job announcement in the “B” section of The Wall Street Journal headlined “Subprime Brokers Back in Demand” is a warning to the rest of us that big trouble is on the way, especially in lower income communities. The reporter wrote that Southern California was once again on the “cusp of efforts to bring back an army of salespeople who once powered the mortgage industry and, some say, contributed to the housing crisis.” Call me, “some,” because that’s exactly what I’m saying. Further she notes, that “some brokers faked loan applications and steered people into debt they couldn’t afford.” Oh, yes, many, many of them did, and subprime companies ate these loans like candy.

Here’s what’s really scary. The demand for brokers is coming largely from nonbank lenders and smaller lenders, both of which are lightly or hardly regulated, by states not the feds, and in the case of nonbank lenders, they are not even required to follow the Community Reinvestment Act or provide their data through the Home Mortgage Disclosure Act. The market includes families with lower credit scores, and, god knows, there is a huge market, especially now in the wake of the recession, and these families want and need loans, and many of them deserve mortgages, especially as the Home Savers Campaign has found, since too many are finding no alternative outside of land installment contracts and various rent-to-own schemes. Additionally, workers and families with difficult to verify income sources from cash payments in the gig economy or tipped employment, need so-called stated income loans, where their money is verified without company provided W-2s. We absolutely believe there needs to be a set of subprime products and stated income loans. Where we separate is over the issue of who and what is going to protect families from abuse. One of the reforms of the last decade has been an increasing reliance on affordability, meaning a family’s ability to pay the loan. Who and what is going to assure that that benchmark remains prominent?

Brokers are just in sales-and-promotion. They push the responsibility to financial institutions, and since they are the middle-men, they can venue shop until they find some place willing to take paper and issue the loan. They then get paid. Period. The consequences downstream mean nothing to them.

Meanwhile nonbank lenders have almost half of the total mortgage market now. In the increased scrutiny since the recession, only $6 billion nonprime loans have been issued in the first quarter of this year and only $22 billion in all of 2016, compared to $1 trillion in such loans in 2005 according to Inside Mortgage Finance, cited by the Journal.

If regulators don’t make the effort to separate the baby from the bathwater this time around, millions of families and thousands of neighborhoods will drown in it again.

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Sessions and Republicans’ ACORN Obsession Blocks DOJ Settlement Funds to Nonprofits

New Orleans   The clock may be ticking on Jeff Sessions, the former Alabama Senator, as Attorney General. Reportedly he offered his resignation to the President in recent days as Trump tweeted his displeasure at the Justice Department’s modifications of his travel ban. Nonetheless, an order from his office seemed to come out of nowhere last week barring nonprofits and third-party groups from participating in any implementation and remediation ordered as part of financial and other settlements approved by lawyers with the Justice Department. Who saw this coming?

Well, anyone who has followed the obsessions that Sessions and his old Republican colleagues continue to have with all things ACORN and nonprofits as a whole, that’s who.

What is Sessions talking about? Frequently settlements with big companies include provisions for remediation that can only be appropriately implemented by nonprofits. The Volkswagen emissions cheating scandal included a requirement that the company invest $2 billion to fund zero-emission technology and the related support to achieve zero-emission cars in the future. Settlements from the banking catastrophes that triggered the Great Recession also routinely included remediation by nonprofits involved in financial education or housing counseling involving groups as disparate as the American Bankruptcy Institute, La Raza, NeighborWorks, and the Urban League, all of whom have long standing programs in these areas. Republicans see this as unrelated and a siphoning off of money to create slush funds to support the nonprofits.

And, here’s where the ACORN obsession comes in. The Nonprofit Quarterly quoted one of its late columnists, saying….

Subcommittee chairman Tom Marino (R-PA) grilled a Justice Department witness over whether anyone from the White House or some unknown outside group had guided Justice and the banks on the selection of the third-party implementers—again, the specter of the hand of ACORN all but flowing from Marino’s lips. Rep. David Trott (R-MI) concluded that the settlement agreement process “looks and smells a little bit like a slush fund” and raised suspicions about how the banks got access to the list of HUD-approved nonprofit counseling agencies (apparently unaware that they are on the HUD website). Marino then observed that the Justice Department’s prosecution of the banks on mortgage lending issues amounted to “using extortion to make banks appropriate funds to left-leaning organizations.”

Or as reported by the Huffington Post…

.as part of Bank of America’s $16.65 billion settlement with the Department of Justice in 2014 (a former subsidiary of the company, Countrywide Financial, was one of the most toxic subprime mortgage lenders), the bank could donate $100 million to community and legal groups. Such donations to approved groups would then count toward the settlement’s total value. Conservative groups portrayed the Obama administration as a shadowy slush fund for leftist organizations, hyping connections of the groups that received funding to ACORN, the Republican boogieman that was defunded after false accusations of wrongdoing.

You get it now?

No matter the fact that ACORN and other groups working in lower income communities saw their neighborhoods, families, and work thwarted by these nefarious corporate practices, the key issue for the Republicans is making sure that these communities remain impoverished and continue to be feeding grounds for corporate vultures.

Thank Jeff Sessions for keeping hate and harm alive and well.

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Bad Boy Banks Running Wild While Creating Credit Desert

New Orleans  Rather than learning something about proper corporate behavior in the banking meltdown they triggered with their housing securitization schemes and unwillingness to supervise mortgage brokers, the gazillion dollar bailout seems to have taught the banking establishment that they could act in all ways with impunity. As we move towards the ten year mark of this national and community disaster, there are too many examples that come readily to mind.

One of the most disturbing is the way banks are now flaunting the Community Reinvestment Act of 1975 by creating a credit desert in lower income and minority neighborhoods. We are now reading regularly about complaints being filed against banks for outright racial discrimination.

The giant Wells Fargo was finally called to account in a rare exercise by the Office of the Controller of the Currency of its authority in reviewing the annual CRA records of all regulated lending institutions. Wells Fargo was given a “needs to improve,” and given the watered down nature of the CRA now, a bank really has to mess up to get such a negative rating by the OCC. The CEO said he was disappointed, but to quote one banking newsletter:

10 government inquiries over the past decade prompted the OCC to lower its overall score of the company’s compliance with community banking laws to “needs to improve.” Enforcement cases cited by the OCC faulted the bank’s treatment of minority neighborhoods, military personnel and women who had recently given birth. “Bank management instituted policies, procedures and performance standards that contributed to the violations for which evidence has been identified,” the OCC wrote in a report. Abuses occurred in “multiple lines of business,” the regulator said.

This will hurt Wells Fargo because it is a critique of the pervasive and arrogant culture of the bank. Whether it will get them to modify their behavior is uncertain.

Another case in point with another giant based North Carolina this time rather than based in California, found a bankruptcy judge administering a beat down to the Bank of America for its thuggish handling of a foreclosure in California.

A bankruptcy judge in California fined Bank of America $45 million over the bank’s mistaken foreclosure on a family’s home and mishandling of the loan modification process on their mortgage calling it “brazen” and “heartless.”

In this case Bank of America’s standard trick of losing the loan mod paperwork was exposed for the duplicity that has been infamous in their handling of modifications and ruthless, and sometimes, incorrect foreclosures.

If this is the way the big letter, top of the list banks are handling loans to lower income and imperiled families across the country, is it any wonder that hedge funds and other financial vultures are swooping into our neighborhoods with one predatory lending instrument after another, feeling confident that they can rob and steal without any consequences, preferring to pay the fines, rather than do right?

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Has Community Reinvestment Become the Ghetto of the Banking Industry?

12.12.12-HousesNew Orleans   Since the financial crisis many of us who believe in decent and affordable housing have spent time making sure the Community Reinvestment Act (CRA) didn’t become the goat for the financial meltdown and banking scandals. And, don’t get me wrong, that’s important!

In a 2015 Federal Reserve study the conclusion was clear: CRA was blameless. Only 6% of loans by banks in CRA-qualified census tracks would have qualified as high risk. The repayment rate for CRA-based loans was equal or better than other loans in banking portfolios.

Nonetheless recently I finally felt like I might have stumbled on a disturbing pattern when I started thinking about the array of CRA officers populating various banks and I then started to worry that there might be another side to the CRA story that needs attention, and that’s whether or not it has become a banking ghetto populated more by politicians and promises than real efforts to move families into housing and desperately needed resources and loans into lower income communities.

For example, the National Community Reinvestment Coalition claims that approximately $4 trillion in CRA commitments was promised between 1997 and 2005. And, that’s good news and ACORN’s experience was that much of it was delivered on our agreements, as I detailed in my 2009 book, Citizen Wealth. On the other hand the word “promised,” when it comes to minority lending and lower income communities always makes you wonder. The Federal Reserve report for example quoted testimony given by JPMorgan Chase to the Financial Crisis Inquiry Commission that “less than one-fourth of the loans pledged in the largest-ever CRA commitment ($800 billion by JPMorgan Chase) were to the lower-income borrowers and neighborhoods targeted by the CRA.” When forced to fess up, Chase essentially was admitting that their pledge was a scam. They also quoted a “Citigroup managing director… that most CRA commitments ‘would have been fulfilled in the normal course of business.’” Having dealt with Citigroup for years, that’s simply a lie. Nonetheless, it’s worrisome that these big hitters in the CRA lending world are essentially saying they were playing all of us for fools. Admittedly, they were also trying to save their skins before the Commission, but I’m afraid the truth may also have been slipping out.

And, then there’s a pattern I started to wonder about when thinking about the CRA officers we run into from bank to bank these days. There’s a high incidence of what seem to be political appointees rather than real bankers who might be able to move money rather than simply bring calm to stormy seas. On the local scene just to think about a random selection, there were several current African-American legislators still in office, a relative of a former Mayor, and a social friend of the CEO…are you starting to see the picture? Nationally, I remember dealing with an African-American former mayor of Minneapolis and the scion of a long standing black political powerhouse family from Buffalo.

Maybe we need some solid research of our own on whether or not big and little banking is really committed to CRA objectives and non-discriminatory lending in minority and lower income communities, or whether or not we’re being played by politicians in banker’s suits making promises while continuing to grip the money with an ever tightening fist?

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Banks are Building “Credit Deserts” in Birmingham and Elsewhere

182984189-465119Edinburgh   We have real deserts like Sahara, the Gobi, Mohave, or Chihuahuan in the world. We have food “deserts” in many lower income communities with little choice but mom-and-pops, corner stores, kiosks, and bodegas to serve millions. Now there’s increasing evidence that banks have been allowed to build “credit deserts” in many cities, and work in Birmingham, the second largest city in the United Kingdom, makes it clear the map of the desert is also the outline of lower income communities in the city.

It shouldn’t be a surprise. Reportedly, British banks have shut down 42% of their branches over the last 15 years, and of course a huge percentage of the closures have been in lower income areas. Fleeing from the responsibilities of community banking has long been a trend in the United States of course, but in the United Kingdom the concentration of most banking in a handful of companies exacerbates the crisis. The U.K.’s antitrust regulator, the Competition and Markets Authority, recently said that Britain’s retail banking market isn’t competitive enough, but then didn’t do much about it and made no proposals for forcing the country’s big lenders from making any radical changes to their businesses. U.K retail and business banking is dominated by four banks: Lloyds Banking Group , Royal Bank of Scotland Group , Barclays and HSBC Holdings holding approximately 70% of personal current accounts and 80% of business accounts in the U.K.

Now as data is becoming available in recent years on where small businesses, mortgage loans, and smaller consumer loans are being given by banks, the city council of Birmingham did some number crunching, and then laid out the results on a map. In general Birmingham citizens had less access to credit than virtually any other part of the UK, but more specifically when a comparison was made on where loans were NOT being made, the overlap with lower income communities was precise. There is no question that banks are discriminating against low and moderate income families as a matter of policy and as a key part of their business plan.

While the banks build a “credit desert,” the vultures that sweep in to feed on the people are of course the payday lenders and cities in the UK, just like the US and Canada are seeing a feeding frenzy. ACORN organizers not only in Birmingham but in other cities in England and Scotland were quickly able to rattle off the names and addresses of payday lenders, pawn shops, and other quick money spots in our neighborhoods.

While visiting we looked up the regulations on payday lenders in the UK. Not much hope for relief there in the credit desert. Pretty much everything goes if the interest rate on the loans was less than 100% of the loan itself. Checking the popular internet money lender, Wonga, to our shock they boldly displayed an APR or annual percentage rate for their lending rate at 1509%.

The plan seems to be to discriminate in lending and then open the door wide so that the pockets of lower income families can be picked clean.

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“Payday Loan Song”by Erich Vieth

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Rewriting the Rules

Rewriting-rulesNew Orleans              The AFL-CIO has already begun the process of vetting potential Presidential candidates, offering the opportunity to any of the score that has an interest in coming by, which so far means all the Democrats and Republican ex-Arkansas Governor and current TV commentator Mike Huckabee. Interestingly, Rich Trumka has indicated that the AFL’s key benchmark flows from a new report spearheaded by Nobel laureate economist Joseph Stiglitz of Roosevelt University with the input of a host of others. The report is called “Rewriting the Rules,” so let’s take a look at its proposals.

Not surprisingly, Trumka and the house of labor are no doubt pleased to see the ringing endorsement of expanded labor rights and promotion of collective bargaining as important principles to re-establish in the economy. The clearest proposal in this area recommended that the federal government add clear conditions not only to governmental subcontracts but to development grants to protect and advance union protections and bargaining. The rest was predictable.

The point of the report is that the rules matter. No rules, which is what the long desert of deregulation in so many sectors produced, tilted the economy to the 1% and allowed Wall Street and other cowboys to herd us into the Great Recession. Remember it wasn’t just “no rules,” but “bad rules,” which is the point here, too. “Rewriting the Rules” is an argument that in order to re-balance the economy and its myriad winners-and-losers, our politicians and the government need to put new regulations in place that would allow us to prosper and to do so more equitably.

Perhaps most interesting were the recommendation for reforming the financial sector, because this is right in the wheelhouse for Stiglitz and many of his helpers:

 

Screen Shot 2015-07-30 at 10.02.33 AMEnd “too big to fail” by imposing additional capital surcharges on systemically risky financial institutions and breaking up firms that cannot produce credible living wills.

 

Screen Shot 2015-07-30 at 10.02.33 AMBetter regulate the shadow banking sector.

 

Screen Shot 2015-07-30 at 10.02.33 AMBring greater transparency to all financial markets by requiring all alternative asset managers to publicly disclose holdings, returns, and fee structures.

 

Screen Shot 2015-07-30 at 10.02.33 AMReduce credit and debit card fees through improved regulation of card providers and enhanced competition.

 

Screen Shot 2015-07-30 at 10.02.33 AMEnforce existing rules with stricter penalties for companies and corporate officials that break the law.

 

Screen Shot 2015-07-30 at 10.02.33 AMReform Federal Reserve governance to reduce conflicts of interest and institute more open and accountable elections.

 

Some of those recommendations would make a difference, particularly impacting on banking and credit access and affordability. The report also takes some clear shots at what is needed to rein in the quick buck artists of business for the protection of the economy and the public.

 

Screen Shot 2015-07-30 at 10.02.33 AMRestructure CEO pay by closing the performance-pay tax loophole and increasing transparency on the size of compensation packages relative to performance and median worker pay and on the dilution as a result of grants of stock options.

 

Screen Shot 2015-07-30 at 10.02.33 AMEnact a financial transaction tax to reduce short-term trading and encourage more productive long-term investment.

 

Screen Shot 2015-07-30 at 10.02.33 AMEmpower long-term stakeholders through the tax code, the use of so-called “loyalty shares,” and greater accountability for managers of retirement funds.

 

I wouldn’t hold my breath about any of this, but it is reassuring that labor at least is asking the right questions and pointing the way to some hard decisions and clear policies.

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Please enjoy Rickie Lee Jones’ J’ai Connais Pas (I Don’t Know).

Thanks to KABF.

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