Tuesday, July 27, 2010

Down With Government, He Says

The New York Times early this month reported on a federal lawsuit against Wells Fargo. Former loan officer Beth Jacobson said in an interview that the firm

.... saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages. Another loan officer stated in an affidavit filed last week that employees had referred to blacks as “mud people” and to subprime lending as “ghetto loans....”

We just went right after them,” said Ms. Jacobson, who is white and said she was once the bank’s top-producing subprime loan officer nationally.

Another (black) former loan officer for the company

offers a sort of primer on Wells Fargo’s subprime marketing strategy by race.

In 2001, he states in his affidavit, Wells Fargo created a unit in the mid-Atlantic region to push expensive refinancing loans on black customers, particularly those living in Baltimore, southeast Washington and Prince George’s County, Md.

“They referred to subprime loans made in minority communities as ghetto loans and minority customers as ‘those people have bad credit’, ‘those people don’t pay their bills’ and ‘mud people,’ ” Mr. Paschal said in his affidavit.

He said a bank office in Silver Spring, Md., had an “affinity group marketing” section, which hired blacks to call on African-American churches.

“The company put ‘bounties’ on minority borrowers,” Mr. Paschal said. “By this I mean that loan officers received cash incentives to aggressively market subprime loans in minority communities.”

Confronted with this allegation of widespread racial discrimination, Wells Fargo Home Mortgage spokesman Kevin Waetke contended

We have worked extremely hard to make homeownership possible for more African-American borrowers. We absolutely do not tolerate team members treating our customers or others disrespectfully or unfairly, or who violate our ethics and lending practices.

Give this guy Waetke credit. At least he does not blame others for what the Court might conclude was systematic racism in pushing upon black customers subprime loans it Waetke's massive firm knew they could not afford. He did not claim "the devil made me do it," unlike the nation's most popular talk show host and GOP shill:

It is the subprime mortgage business, which was a creation of Democrats and leftists. It was based entirely on leftist ideology, and that is that life is unfair. "If somebody can afford a house, everybody should be able to be in a house. It's not fair that some can't own a home. Not in an America that's just and moral...." So we had to come up with a way because market economics doesn't work that way, because not everybody is equal. No two people can ever be equal if there is indeed genuine free will and freedom. It's not possible. But that doesn't stop the left. So it was created with, whatever, the Investment Redevelopment Act or whatever the name of the laws were. The banks were forced to make loans to people who could never pay 'em back.

Note what Waetke did not say: the government made me do it; Fannie Mae and Freddie Mac put a gun to our head; we did it because that's what all us liberals do.

It's almost a Pavlovian response- whenever anyone says "housing crisis," a conservative will say "Fannie Mae and Freddie Mac"! Ever manipulative (and lying- all these worthless mortgages?), Rush did not disappoint:

So they came up with "Mortgage-Backed Securities," and they came up with "Collateralized Debt Obligations," and who the hell knows what else, and they started selling them to each other as insurance policies. Then Fannie Mae and Freddie Mac come along and buy up all these worthless mortgages and thus guarantee them, all because a bunch of liberal Democrats were buying votes and making sure that people who had no business owning a home owned them.

Perhaps the right has seized on Fannie Mae and Freddie Mac as scapegoats because, as Paul Krugman here notes, they are "private companies with stockholders and profits(but also) 'government-sponsored enterprises' established by federal law." Or, given that conservatives don't do nuance, ambiguity, or detail, maybe the two entities simply sound like 'government' to them. Either way, Krugman explains

Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that’s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.

So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works.

It's foolish to expect Limbaugh to explain to his audience of "dittoheads" the role- accurate or otherwise- of Fannie and Freddie, conservative talk radio being a fact-free zone. Nor would Rush have mentioned that increasing home ownership was a goal of politicians across the political spectrum, no more so than President George W. Bush, who on June 15, 2002 declared

Owning a home lies at the heart of the American dream. A home is a foundation for families and a source of stability for communities. It serves as the foundation of many Americans' financial security. Yet today, while nearly three-quarters of all white Americans own their homes, less than half of all African Americans and Hispanic Americans are homeowners. We must begin to close this homeownership gap by dismantling the barriers that prevent minorities from owning a piece of the American dream.

All of this is part of the history which has been little told and even more poorly understood. Into the vacuum charges the leader of the Repub Party who, facts be damned, shouts "Liberalism! Socialism, Marxism, whatever you want to call it, that's what led to the economic crisis that we're in, not capitalism." It's a simple, even mindless, cry but if no one challenges Limbaugh's gross distortion of events, much of the electorate will believe that a financial crisis enabled by a government dominated by the corporate sector was created by a powerful, leftist state.

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