Sunday, October 19, 2008

The AP Reports GOP Firm Got $2 M from Freddie Mac to Stop Regulation

The following quote is from an AP headline:
WASHINGTON - Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse. (Click here to read the full story.)
I dare not quote more because the AP doesn't take kindly to bloggers linking to and quoting from its stories. But I had to share this because I'm sick of Republicans spinning the tale that minorities are to blame for the current economic crisis. GOP supporters continue to claim that America's mortgage companies and banks are failing because they were forced to give home loans to minorities who weren't qualified, and so, by extension, conservatives blame minorities for the economic crisis.

These right-wing claims are such a gross distortion of the the facts that I've had smoke blowing from my ears, too pissed off to comment, but I first heard this spin on a cable news show, something on Fox Business last December. The guy sounded loony, but since then the slander's spread.

Yes, legislation was enacted to prevent discrimination against minorities in approving home loans, but none of that legislation required banks to lend money to the insolvent nor did the legislation demand banks lend money at rates it knew a home buyer could not afford.

Mortgage lenders, of their own volition, created new types of loans, subprime loans and tricky ARMs, and marketed those to people who needed 30-year fixed mortgages at reasonable rates. They took advantage of people who hoped in the American dream of home ownership, dangled the carrot before them with teeny fine print etched at the tip, and trapped them into mortgages that they would not likely be able to afford in a few years. And now we learn that giant Freddie Mac lobbied to stop much-needed regulation of the banking industry.
Last year, blacks were 2.3 times more likely, and Hispanics twice as likely, to get high-cost loans as whites after adjusting for loan amounts and the income of the borrowers, according to an analysis of loans reported under the federal Home Mortgage Disclosure Act. (Asians are somewhat less likely than whites to take out high-cost loans.)

Researchers and industry officials agree that there is probably no single explanation for the lending patterns, though the history of banks’ avoiding minority neighborhoods, the practice known as “redlining,” is a good place to start. (Experts have to resort to guesswork because the government does not require lenders to report information about borrowers’ credit scores, down payments and other details used in pricing loans.) (2007 NY Times)
Supporters of these types of loans declare people should read the fine print or "let the buyer beware," but some intelligent people have faced foreclosure, people who read the fine print, thought they understood but didn't. People have been put out of their homes because they had home mortgages that they were able to pay on time for years, but then could no longer pay when their ARM rates, for instance, jumped, sometimes doubling their mortgage payments.

If there's a hell below then plenty of mortgage lenders will surely go, taking some members of Congress with them.


Megan said...

You are so right. The problem was predatory lending. Banks and lending institutions were giving loans to people they knew couldn't afford them.

Should people know what they are signing? Absolutely. And part of me resents having to help people out with their mortgages when I've always paid mine.

But the reality is, people will accept "free money"---which is what these loans were---if they're trying to give their families a better life.

I'd also love to see the statistics on how many of the loan defaulters really are minorities. My guess is it wasn't the majority of them.


Suzanne said...

This deliberate spread of lies enrages me as well. The NY Times had a fabulous op-ed on Friday or Saturday about how great CRA has been. In fact, loans made by banks under the 30 year old legislation are less likely than the average loan to default.

I often wonder what moral chip is missing from people who make predatory loans. I don't understand how they sleep at night knowing that they are stealing from people. And not only stealing, but stealing from people who have fought the hardest for every scrap they earned in life. It makes me sick.