I was watching a financial home on CNN Money tonight where they brought up an interesting concept. Years ago in real estate there was a term called "redlining" which meant that some minority areas were marked off as a bad area to make loans, and that made it difficult if next to impossible to obtain financing. These are referred to as "Sub-Prime Loans!" In the early part of this new century the push came on to make homeownership more affordable for minorities. The request from Washington Dc was to increase home ownership for those that were left behind and increase their portion of home ownership up over 5% by 2010! It sounds like a great idea, but in reality it changed the American Dream into a night mare by providing risky loans to persons that did not even understand what they were signing! No Money? No Job? No Problem! Reverse redlining making homeownership where not available before. But was this not taking advantage of minorities that did not understand the complexities of the documents they were signing? It is a concept that took advantage of persons that could normally not buy a home before. It took advantage of the minorities that with in a short while could not afford to repay! Predatory lending! Countrywide mortgage even boasted on its own website #1 minority lender! What is sad is this was known on the front side of the mortgages that this was an inevitability that the loans would fail! These knowingly bad loans were then sold off as securities and sold around the world as Collateralized Mortgage Obligations CMO, Securitized Mortgage Obligations SMO which have now place the banks of the world at risk! It was a suckers rally and an addiction to money that would never materialize and created a global PONZI scheme built on greed and an increasing need for more appreciation of property values. City governments, schools, pension funds invested heavily into the instruments. The entire scheme was predicated on ever increasing home values and another buyer to bail you out of the home. The problem is the buyers started to disappear as folks started to question the insanity of the times. Then the foreclosures began to pull down the curtain and allow us all to view the reality of the current market. Too little regulation and too much money was lent to prevent the train wreck. We are now just seeing the begining of the damage.
So my thoughts how come there has been no outcry of taking advantage of the minorities? This may have been one of the biggest injustices to the poor and minority citizens in this nation. Yet, there is no talk from any political candidates, no presidential candidates are speaking about the real issue, NAACP, the National Asociation of Realtors, and many other minority groups! It is a hot potato that no one wants to touch! Historically, this will be viewed as the largest perpetration of criminal fraud that started with taking advantage of minorities, and building one of the worlds largest lies that assets bubbles can only go higher, that only a fool would not buy into it, and no one can lose! It could lead to a major recession or worse - yet no one is calling it for what it really is!
24 Comments on Reverse Redlining! The Abuse of Minorities and No Outcry!
Jim, very good points. People have become devastated by taking on mortgages that were too much for them and the lenders just kept saying 'Do you want more, more, more?'. Of course, the borrowers share the responsibility, but an overzealous borrower should be curbed, not encouraged by the lender.
Lisa Friedman Central New Jersey Real Estate Thanks! It really gets me crazy but the injustice is that no Realtors are really speaking out! Is their silence that real estate is really about the money or the deal and not the families or individuals we serve? Our own silence on hte subject implicates many in our industry that they made a fortune off of these sales. Personally, I would not have anything to do with such a deal. I have a conscience and like to sleep at night!
Excellent points Jim. I understand your frustration and have had many conversations about just HOW we can 'fix' this economical mess that we're in. I do know and am related to some who make boatloads of $$ off of these types of sales and I wonder how they live with themselves. SOMEONE does need to seriously address this issue!
Debe Maxwell I agree. As individuals it starts with how I do business. I sleep at night because I make choices not on the dollars earned, but by making the right choice even if that choice is to walk away from bad business or quick money. I do not need money that bad!
In California we are making a difference. The California Association of Realtors have given their members a lot of information on how to help with all this fraud. The Feds have opened many offices in my area so the homeowners can receive first hand help. NAR has great information on their website to give to homeowners who need help in trying to keep their homes. There is a lot of information out there for those Realtors who want to help.
You got it at the end of the blog, the advertising was what roped the people in to start. Advertising needs to be more heavily regulated. If you take a look at what constitutes a violation of the law for any state on their website and then you see what companies are doing that is in violation, it is crazy. State financial and insurance regulators do not have the staff to catch those violators. So redlining via ad hooks to the poor was the start.
Really I think that if we clean up the deceptive ads that will be a good start. Laziness and uneducated loan officers contributed major to the problem. We need to require strong licensing and regulation on all loan originators, even bank employees.
Victims are always those that do not have the resources to research what is best. You and I have a computer, many people do not.
Julie Hite Thanks! But what I ask is "Where were all the minority special interests groups when all this was happening?" Why was the the most egregious of acts that was perpetrated on the minority masses given a pass?
Jean Powers CRS, PMN - Northern California Jean, but they fiddled while Rome burned! It is too late for many now. Rome has already burned! Where was the oversight? No outcry? Where was enforcement of regulations? Who reviewed the contracts? Who saw this happeing in minority neighborhoods years ago and did nothing?
Jim, I must say that we can only learn from the past and work to improve. Fortunately, I have seen very many mortgage companies that were bottom feeders close! The Used Car Salesman type Presidents of these Smartt Loans and Bad Credit is Okay Guys are gone. We need to pursue education on a higher ad level. If only the big lenders would take would the lead, the local companies would follow.
I am a very small mortgage company, but would never compromise my true intentions to what I could offer someone. I always lead clients down a path of credit education, personal budgeting skills and the value of savings for challenging days that can occur. Collectively, our industry can take this disaster and move forward with honesty and real solutions for people, especially minorities and the poor.
Jim, I've read this a couple of times and I checked out a couple of your other articles. I think that you are trying to make a good point, but in doing so you seem to be saying that only minorities were desperate enough and uninformed enough to get themselves into this mess. I can't speak for the Atlanta area, but I assure you that in Louisville, plenty of white Americans are going through foreclosure because they took loans that they couldn't afford or with terms that they didn't understand. In many cases, this is a simply case of people who knew better (agents, appraisers, loan officers) facilitating self-gratification for a buyer (regardless of race, class, etc) whose illusions should have been shattered not encouraged.
Julie Hite The smart process in the future of mortgage is to be a Mortgage Planner- an advocate of the consumer. A person that works with a client to show them the best long term fit for them and the future. It isn't about the monthly payment it is about the right terms. No prepayment penalties, no suprise adustments - just fit their needs!
Erik Hitzelberger --REALTOR®, RE/MAX Alliance The poor, the elderly, and the uneducated are all victims of this crime! The problem is that proportionally it has hit certain minorities harder. While driving through the Carolinas last year there was a public service message ad on the radio as we drove. It was on predatory lending perpetrated by members of their own minority group that took advantage because their victims felt secure and trusted the advice. This crime is truly heinous.
You are right and I am constantly keeping up with lending guideline changes that offer programs and effect borrowers. Long term relationships is how I have built my small business and is why I am still open while so many have closed. I thank you for your compassion, it truly is necessary and appreciated. I am confident that you only care the most about your client and who you trust for your mortgage partners. Keep up the good work!!
Gene Allen Realtor® Virginia Beach That is why they are in the situation there are in. It is about responsibility, but social responsibility is a very big picture! Still no outcrys from the communities bothers me!
Jim - great insight - you really hit the nail on the head. I am proud to say that the lenders I deal with and I have an understanding - if the potential buyer can not afford to buy a house then we start coaching them on how to position themselves for a future purchase. And I always tell my clients go to the Lender give them your info, let them tell you what you are "qualified for," then you tell them what house payment you want and let them back into the loan you qualify for. I am proud to say the none of my clients are in foreclosure and I have a very large 1st Time Home Buyer base. I think that my job as a REALTOR is one of educating my clients and that is what I do. Thanks for your blog.
Posted by Kathy Carson, RE/MAX 1st Olympic, Lynchburg, VA
Kathy Carson That is how we did it also! If not now, lets position you for a future purchase. We deal wiht other professional lenders that looked out for the buyers interests.
It sounds like PennyMac may actually bring some sanity back into the mortgage market.
It remains to be seen - a large portion of it is licensing; and I would think in the next year we would see a huge move to have mandatory national licensing, CE, etc. for ALL mortgage brokers.
I think this analysis is well intentioned, but far too simplistic and leads to a summation that "the sub-prime crisis was caused by CRA and the government saying banks should lend to underserved communities". Redlining was far more pervasive than "some minority areas were marked off as bad areas to make loans". It goes back to the origination of the FHA, which encouraged homeownership after the depression, but specifically excluded black or even mixed areas as "risky". That designation took decades to overturn. In many cases, the housing stock in these communities increasingly needed reinvestment and owners (many of whom got their mortgages through purchase contracts) could not get "real mortgages". It is no wonder then that after loans became available, people took them.
One of the issues with the sub-prime mess, is that 30-50% of the minorities that have these actually had good enough credit for traditional loans but were steered into these loans.
And if you think minority organizations and community organizations were not protesting this, you just were not near enough to be listening. They have been alarmed about this for nearly a decade, but their concerns fell on deaf ears.
Now the effects of the "sub-prime crisis" will impact most of the country and impact minorities most. As values drop, minorities will lose even more value. The difference between neighborhoods will be diminished as too micro for the industry to be concerned with and "all boats will sink". And since minorities have one tenth the asset base of the majority, these are becoming areas where only those not reliant on a mortgage will be able to acquire property.
Jim Crawford ~ Atlanta Real Estate-ABR E-PRO
Atlanta, GA
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Jim, very good points. People have become devastated by taking on mortgages that were too much for them and the lenders just kept saying 'Do you want more, more, more?'. Of course, the borrowers share the responsibility, but an overzealous borrower should be curbed, not encouraged by the lender.