Monday, February 04, 2008

Don’t stick taxpayers with subprime bailout

Former LA Times political reporter Ron Brownstein, now political director of Atlantic Media Group, is, according to one colleague, “blandly liberal.”

But in a recent National Journal column concerning mortgage foreclosures and who should pay for “subprime mortgages” fraudulently obtained and now in default, Brownstein was anything but “blandly liberal.” He was more like “a passionate liberal.”

With at best questionable evidence Brownstein began by claiming Blacks and Hispanics were disproportionately victimized by current mortgage market conditions. He went on to exaggerate the extent of mortgage foreclosures. He was silent regarding people who obtained mortgages fraudulently. And he wound up calling for American taxpayers to pay the huge bill for mortgage loans which should never have been made in the first place.

That's "passionate" liberalism.

What follows are excerpts from Brownstein’s column and, below the star line, an email I sent him.

Brownstein began:

The surging tide of housing foreclosures is threatening to sweep away one of the most encouraging, if little-noticed, social success stories of the past 15 years.

Starting under President Clinton and continuing under President Bush, African-Americans and Latinos made dramatic advances in homeownership from the mid-1990s through the first part of this decade. Those gains stabilized troubled neighborhoods, boosted city treasuries, and helped minority families build wealth.
But now that escalator has stopped.

From 1995 through 2004, the homeownership rate among African-Americans increased every year -- from 43 percent to just below 50 percent overall. But since then, the homeownership rate among blacks has fallen back under 48 percent, according to the Census Bureau. The Latino homeownership rate, which was just 42 percent in 1995, hit a record 50 percent in late 2005 but has stagnated since.

Whites are losing ground, too: Their homeownership rate has dipped from a peak of 76 percent in 2004 to about 75 percent now. But the trend in minority communities is more ominous because their advances were more tenuous. And the problem, for whites and minorities alike, is likely to get worse before it improves. …

"The numbers are going to be dismal, especially in the minority communities, over the next two years," says Lori Gay, president and CEO of Los Angeles Neighborhood Housing Services, a nonprofit organization focused on low-income homeownership.

Gay's group is at the front line of the foreclosure crisis. Every day, it deals with the impact of the rapid, almost unregulated, growth of the subprime lending market. Subprime loans are made by brokers and dealers of sundry ethics and common sense, often to borrowers who might not qualify to borrow as much (or any) money from conventional lenders. …

These loans, which barely existed in the early 1990s, now account for about one-fifth of new mortgages, with African-Americans and Latinos more likely to have them than whites. …

There's plenty of blame to share. Many borrowers were misled, but others were complicit in the carnage. Bruce Solomon, a bracingly clear-eyed loan officer at the L.A. housing group, recently worked with an African-American man who inherited a home from his parents and then lost it to foreclosure after he misrepresented his income and obtained a $570,000 refinancing loan.

The lender gave the man a wildly inappropriate loan and winked at his financial forms (because the lender planned to quickly sell the loan to someone else). But the man knowingly borrowed a sum that he could not possibly repay on his real income: $1,000 a month in Social Security benefits. "People got to the point where ... the only thing they wanted to hear was yes," Solomon said.

In the near term, Gay says, the most pressing need is money for cities to help keep struggling borrowers in their homes -- and to help nonprofit groups committed to community development obtain more of the homes that are lost to foreclosure.

Longer term, Washington needs to explore tougher oversight of subprime lenders and the creation of a federally backed corporation that would convert troubled adjustable loans into stable 30-year fixed mortgages.

Sen. Christopher Dodd, D-Conn., is sensibly pressing Senate leaders to include help for cities and homeowners in the stimulus plan heading toward Bush's desk. …
Dear Mr. Brownstein:

Do you remember there used to be another name for “subprime” mortgages? They were called “high risk” until about 15 years ago.

Why aren’t you and others in the MSM calling mortgages made to less credit-worthy borrowers and/or for the full or near full market value of the property “high risk mortgages?” Overwhelming data show those are the mortgages most apt to fall to foreclosure.

Why do you speak of a “surging tide of housing foreclosures?”

In most areas, foreclosure rates are well below 1%? In the worst areas, they’re below 2%?

Your “surging tide” language left me wondering whether you were trying to gin up support for a government sponsored bailout.

You say “Bruce Solomon, a bracingly clear-eyed loan officer at the L.A. housing group, recently worked with an African-American man who inherited a home from his parents and then lost it to foreclosure after he misrepresented his income and obtained a $570,000 refinancing loan.”

Assuming what you say is correct, why is Soloman working with a man who committed loan fraud? Why isn’t the man being investigated and/or prosecuted?

And if the lender knowingly winked at fraudulent mortgage application documents, why isn’t that lender also being investigated and/or prosecuted?

Who will pick up the costs associated with the fraudulent $570,000 mortgage loan?

Is that where Sen. Dodd’s plan kicks in and the taxpayers get hit with the bill?

And by the way, do you know whether the African-American who obtained the re-fi did so after the Clinton administration made clear to lenders they should be making more loans to African-Americans?

What Dodd’s proposing is a taxpayer-funded bailout of people who should be held to account for their own actions.

You see the current mortgage market as particularly tough for African-Americans and Hispanics. Actually for them, as for all other Americans who are credit-worthy and financially sensible, now is a very good time as far as home mortgages go.

According to Mortgage Bank News’ latest report, home mortgage rates are at their lowest level in four years.

What an opportunity for tens of millions of people to refinance and lower their interest costs; and for millions of others seeking to begin homeownership to do so with their interest costs the lowest in years.

But you didn't you mention any of that wonderful news. Why not?

And will you now do something to help get that wonderful news out to people of every race and nationality?

I’m posting this at my blog. Should you care to respond, I‘ll publish your response in full.


John in Carolina


porkupyne said...

Wonderful letter with wonderful questions that should be answered. You will, of course, receive no response.