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Chicago Gets Googled
In a report published Monday, the Chicago Reporter found that Chicago is the the nation's capital for "high-cost" home loans. The study, looking at three years' worth of federal home-loan data, showed that in 2006, "the Chicago-Naperville-Joliet metropolitan statistical area, which includes Cook, DeKalb, DuPage, Grundy, Kane, Kendall, McHenry and Will counties" led the nation, with 88,315 “high-cost” mortgages. "High-cost" mortgages are defined as first-lien home loans that are at least three percentage points above the US Treasury standard. Making the report even more shocking is that these loans affect African-American and Latino homeowners disproportionately compared to white home owners; three of every five loans to African-Americans and two of every five mortgages to Latinos were high-cost loans.
While the study seemed to indicate that African-American and Latino home buyers were being steered into high-cost loans by subprime lenders, it isn't entirely clear that any laws were broken. Nevertheless, Illinois Attorney General Lisa Madigan told the Reporter that she would look into the date presented to see if questionable lending practices might have violated fair-lending or civil rights laws.
Our source at the Illinois Department of Revenue tells us that inventory in the housing market is up significantly from a similar period two years ago, and that the numbers are expected to climb. And the shakeout isn't over yet; among states in the region, Michigan and Ohio haven't yet hit their peak in housing inventories. As fears of a recession grow and the mortgage slowdown continues to decrease housing sales in Chicago, government is getting involved. The Department of Housing and Urban Development is announcing a plan aimed at helping home buyers that are at risk of going into default on their loans, and avoiding foreclosure. Congress is also considering an overhaul of the Federal Housing Authority's requirements for backing loans. And the Federal Reserve Bank is expected to cut the federal funds rate. Besides institutional reactions to market jitters, the issue is becoming politicized with national elections on the horizon. In a speech to the NASDAQ yesterday, Barack Obama criticized Wall Street for putting business priorities ahead of the national interest, citing the subprime lending market in particular as an example of business values that have threatened the well being of the economy.
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The Market will take care of it!
Ugh.
Blacks and latinos were absolutely preyed upon by the mortgage industry. I worked in an insurance office for years up until 2006 and saw borrowers with shockingly bad credit get pushed through by greedy brokers.
We in insurance had different standards to adhere to and were repeatedly pressured to fudge numbers in order to put the deal through as no home would close without proof of insurance.
Brokers would also constantly try to put deals through (with the help of the agency owner) where the home insurance was not even halfway sufficient to cover a loss on the property - but because of the low property value of the areas they were targeting the coverage we'd offer to replace the house would be much higher than the loan.
I don't know if I'm making this sound as unethical as it was, but it's very bad all around. To brokers that lost there jobs - good riddance.
Is it almost as if black and latino customers are poor or something. Or that poor people are bad with money. Who knew?
As is typical in American media today, this uses flimsy evidence to turn a socio-economic issue into a race war while simultaneously removing any sense of responsibility from the American people.
Yes, a disproportionate number of blacks and Latinos got sub-prime loans, but these people weren't targeted by subprime companies because they were black and Latino, but because they were poor. (An argument could be made, that racism was the root cause of these people being poor, but that's a much broader argument without anyone easy to blame.) Mortgage companies offered people who could not otherwise buy a home a route to home ownership ... and at the time, they were hailed as paragons of opportunity by a media and public that refuses to look ten feet down the road and see the inevitable.
Meanwhile, nobody forced these people into these loans. They willingly chose the risk. They chose to take on more debt than they could afford. Why do we act like these people are blameless victims?
A few years ago, the complaint was that blacks and latinos were being discriminated against by being denied home loans. Now it's the banks, who were being pressured into lending (through various pieces of federal legislation), who are to blame when these borrowers can't pay?
How about this: Don't buy something if you can't afford it.
Shouldn't the same application of your logic that "nobody forced these people into loans" be used against the mortgage lenders themselves? No one forced the lenders to lower their standards. Let them eat their losses, they knew the risks probably even more so than those who applied and got these risky loans.
Um, the mortgage companies are the ones who were bad with the money, guest3.
Willing choice? Yes. Informed choice? Probably not. That's what lenders look for--people who don't realize what they're getting themselves into. Don't call them dumb. They frequently are misled to believe they can afford a high mortgage. We're not all financial experts, you know.
Guest 4 here,
#6 -- Yes, you are exactly right. Mortgage lenders should be held accountable for their decisions just as homeowners should. I'm very much against any kind of bailout, and I hate this finagling with interest rates for the sake of a few investors. Everybody made dumb decisions here, and everybody should have to live with the consequences of these decisions.
#7 -- If you take on debt you can't afford, then you are bad with money.
Ferdy -- Buyer beware. We all have a responsibility to educate ourselves in the real world. We should not expect anybody to take care of us, certainly not anybody trying to sell us something. You don't have to be a financial expert to make an informed decision. You just have to do a little reading from information widely available and easy to find.
Julene: The loan originators in most cases will not eat any losses, as they often packaged their loans up in residential mortgage-backed securities and sold them off to various financial institutions - banks, hedge funds, etc.
Ferdy: caveat emptor. You don't need to be a financial expert to understand a mortgage. And if your are borrowing money, it is your responsibility to understand the terms. If you can't understand the terms, then it is just stupid to sign the deal.
If you take on debt you can't afford, then you are bad with money.
Most everyone who takes on debt to buy a house can't afford to repay it—that's why mortgages exist. What most people—even non-poor people—have a hard time calculating is how their future earnings, spending patterns and other financial intangibles (unanticipated health care costs, for example) will affect their ability to adjust their family budgets to cover the changing interest rates on an ARM.
I've shopped for a mortgage. Believe me, the charts the lenders bring out can be pretty persuasive. A lot of people believe that is their education. I liken this to the whole 401(k) movement. Gee, we're getting rid of our pension plan, but you can invest your own money your own way! Except the vast majority of people don't know the first thing about investing and companies don't provide them with any kind of education, although the companies are "sponsoring" the program. It's bullshit to believe that people who want a home and get advice only from their lender, realtor, and their cousin whose a CPA (and that's exactly how a lot of people do it) are going to be educated enough to understand the risks. A lot of people in college think credit cards are money!
As much as it hurt the poor people it also made a lot of rich people richer.
It was good for the economy.
"a lot of people believe that is their education"
"people who want a home and get advice only from their lender, realtor and their cousin"
"a lot of people in college think credit cards are money"
This is a real problem, I agree, but it's not the lender's fault. People need to better educate themselves. It's not rocket science to understand how a credit card works. People have to take responsibility for their own decisions.
You know what? In a perfect world, people would take responsibility for their own decisions. Guess what? They don't or can't because of language barriers, fear, laziness, whatever. We do need to protect people from themselves sometimes, especially when their ignorance can completely ruin their lives.
Guest14, you're basically wishing for a better reality than the one we live in. The fact is that not everyone gets a good education, and even those who do are not necessarily good at math or understanding the relative complexities of interest rates. Sure, it would be great if predatory lending—by virtue of an informed, financially savvy citizenry—didn't exist. But it does. We know it does. Lenders should have known better, because it's ostensibly their job to know better.
Ferdy -- I say again, it is everybody's responsibility to educate themselves. It was the responsibility of employees in the '90s to take a look at the 401K situation and not trust the person trying to sell it to them. It is the responsibility of homebuyers to go to a library rather than take the word of their realtor or lender. I know what the charts look like ... I bought a house. The charts don't absolve me from taking responsibility for my own interests.
Nobody gets a pass for ignorance.
This is a real problem, I agree, but it's not the lender's fault. People need to better educate themselves. It's not rocket science to understand how a credit card works. People have to take responsibility for their own decisions.
At one time I'd agree but credit card companies have all but bought out Washington and have made the terms changeable on a whim. There was a great Frontline special on the credit industry and its deceptive practices, at one point a Harvard law professor says that the fine print on your average credit card is almost *impossible* to *fully* understand.
So Ferdy, I was thinking of making myself some coffee. Where do I file my application to have you second guess my decision? Later on, I might have lunch. Is it the same form?
Don't you think it is just a teeny bit patronizing to suggest that people should be protected from making decisions, especially if those people are brown?
Guest 13: wtf? What's your logic? Is judgement of the quality of the economy tied only to the condition of the rich?
20, I think that commenter means it hurt a couple of people, but made a lot of people better off.
Nobody can look at rates of home ownership and argue that there was no upside to easy credit. Literally millions of people became homeowners earlier than their parents had (if at all).
I never said anything about color. Language barriers happen in all colors (the buyer for my home was Ukrainian and didn't speak English). Is evrything we do to protect people patronizing? We NEED things like predatory lending laws. We NEED EMPLOYERS to take responsibility for their employees' future in retirement--not raid their pension plans and then tell them they're on their own with their money and calling that "freedom". You want to dismiss the idea that losing your home and your life savings is serious--equate it with making coffee. THAT'S patronizing cavalier, nonsense.
Nobody can look at rates of home ownership and argue that there was no upside to easy credit.
Coffee just came out of my nose.
Thank God we have people like Ferdy, Navin, and pantagrapher to protect the poor little black and brown savages from their own ignorance. Of course, if the poor little black and brown savages had the intellectual capacity of the Great White Hunter then maybe they could take care of themselves and stand on equal ground. But that's just not the case, so we should hold their little black and brown hands and guide them through the big bad world.
You people would have made great colonialists.
(God, I'm starting to feel like spook. I should misspell something.)
In the same perfect world where people take an interest in their own well-being, we'll have employers whole take an interest in the well-being of their employees.
And Ferdy, the main gist of the article was race. Therefore, this entire conversation is about race. You can't discount it.
Guest #24: I hardly think that paternalistic white liberals are arguing that ethnic minorities need their hands held so they can stand on equal ground.
The study by the Chicago Reporter demonstrated, pretty clearly, that lenders have a market incentive to try to steer people into high-cost mortgages. Guest #4 is right that this is an issue of class far more than race, and it's obvious that predatory lending is far more rampant in economically underserved communities.
What I think Ferdy, Navin, and pantagrapher are sayin is that it's a generally accepted principal in modern economics that when market failure cannot be corrected through the marketplace, government needs to step to correct the failure. That's what HUD is doing, and what the FHA overhaul in Congress is about.
Arguing caveat emptor is convenient, but there are serious concerns that the economy is headed to a recession (again) and that the subprime market played a significant role in it.
Pantagrapher - Did you read your instructions for keeping coffee from coming out of your nose. I think you should wipe it off yourself. That's not anyone's responsibility but yours, you patronizing empire builder.
So Ferdy, its called treating people like grownups.
Nice rant about how the Man keeps us down.
You must be the Man if you have no complaints.
Ferdy, I can't read the instructions because the Nanny State sent me to a public school where the Teachers Union forced me to accept mediocrity.
No, Ferdy, in the real world pantagrapher would have taken steps to prevent coffee from coming out of his nose, but you can't expect that everyone will have the education to make those steps. It's bullshit to believe that people who want to read a web site and drink coffee will get the advice of doctors not to inhale while sipping. We need POSTERS and COMMENTERS to take responsibility for pantagrapher's nostrils
Thank God we have people like Ferdy, Navin, and pantagrapher to protect the poor little black and brown savages from their own ignorance.
I don't recall saying anything about race in my post. I'm arguing that credit card terms are complicated for anyone to understand and even if you do understand them they can be changed on a whim now, thus it doesn't even matter. I understand my rate but my credit company can change it at *any* time.
How about you try again with a real argument, there troll #24.
Wait a sec, Panta. I thought Da Mare was managing the schools. You should be able to read Greek standing on your head! No excuse!!!! Responsibility! No prisoners! No prisoners!
(slash, splat, scream...)
"Buyer Beware". If you are not smart, don't sign legal documents. This is not rocket science.
Oh, Lordy. Guest 31 is still trying to tell me how to post. The Man is on my back again!!!!
Timocity - Oh, that explains my my marriage failed. I should NEVER have signed that license!
It IS interesting, however, that while we may lead the nation in high-cost loans, we aren't anywhere near the lead for defaults. The Midwest work ethic is alive and well, which speaks highly of our poorer peers. Extremely highly. Demand that your legislators look to assist not only those in default, but also those meeting their obligations under poor terms.
As for the conservatives who claim that no assistance should be provided, many of these are the same getting rich duping applicants. These con artists should be imprisoned. Why not run stings?
I'm not telling you how to post, Ferdy. I'm just replying in kind.
Not really. YOu obviously didn't read what I, Kevin, Pantagrapher, and Navin wrote and understand it. I advise you not to sign any legal documents.
It's just like the tech boom everything in a free economy goes boom and bust. There are highs and lows. Interest rates were low so housing prices were inflated.
There will be a huge fall out but there will also be a number of buyers who were able to buy houses that counldn't have a few years ago.
The people that affected the market in the worst way are the flippers. Those that bought houses and put a few thousand in them and sold them for 100 of thousands more.
Guest 24!
Yup you are so sooo right!
Its clear as mud that folks like Ferdy,Navin,Pantagrapher,and Kevin,cyber prance around Chicagoist, acting as if rich people/corporations have a long history of taking advantage of minorities who lack access to basic education,- let alone higher education- and who’s only source of learning “middle class options” for wealth creation, is the TV.
I’m also sure that the above folks blame Currency Exchanges and Pay Day Loan Shops for brining so much opportunity to poor minority communities only to be abused by the numerous minorities that decide to stay poor and not to get ahead in America with its paved with gold streets.
They should learn from your great great great Grand Pappy who years ago brought opportunity to cold and starving Indians by selling them wool blankets! Only to get blamed for it later by liberals and progressives as if he was at fault because the Indians were too lazy to wash the small pox out before they used them!
But fear not, he will one day get full credit for his humanity including later buying the land from the few who remained with generous boxes filled with whisky, rotten cheese and shiny beads, that he knew they wanted more than the money in the contract.
Spook can't resist kicking ole Ma in the trust fund every chance he gets. Go back to Kenilworth, poseur!
Oops, my bad.
I just find it highly unlikely that lack of educating oneself about a loan is the root cause of the doubling of foreclosures this year.
Ahhhhh Ferdy, news flash!
Actually its not Kenilworth, its Wilmette! And I can’t go back! Not until I find the bloody minorities who stole my
parents beloved 35-year-old Gulf Coast Box Turtle
named Ruth! Its about honor!
Julene, the lack of people educating oneself about the loans they went into is just part of it. Another segment of the whole thing is that people just assumed that a.)their purchase would go up in value and they could refinance at a lower rate versus an increase in value b.)that their income would increase when their arms readjusted.
This is not a racial issue by any stretch of the imagination. Watch what is starting to happen on white areas of the north side (and elsewhere) because of young "professionals" buying two-bedroom two-bathroom cinder-boxes all over. They are going to face foreclosures too, particularly with the way this economy is heading (don't let today's reactionary surge in the stockmarket fool you, in part to Ben's rate cut).
And lastly, it has to do with unscrupulous lenders going after people (regardless of race) because of the commissions. In theory, the arms and other exotic loan products were to make investors more money, warranting a higher payout to the scumbag brokers. The only color involved in any of this is green. So shove it up your ass, Spookie.
I agree with most of what 46 says. But it wasn't just the buyers who assumed their purchase would increase in value. Plenty of institutions were willing to look the other way while mortgage-backed securities got higher ratings than they should have. I admit I'm getting in over my head here, but plenty of people at every level thought the free money would keep flowing. Meanwhile, anytime someone said the words "housing" and "bubble" in the same sentence, they were quick to be called hysterical.
Guest 46, oh how you make me blush!
But did any one read about how in some cases "lenders" lowered people's income on the loan applications,(of course with out telling them) so that they would be considered more "at-risk"? This increased their interest rate on the loan, earned the "lenders" more money and caused more foreclosures on people that would not have foreclosed at a lower interest rate.
I wonder will they start bringing fraud charges against these lenders? Probably not.
Gee I wonder what Venezuelan President Hugo Chavez would say?
Spook, Guest 46 here. I'm glad you're blushing. But really, did you know that there was an alarmingly high level of fraud going on in the inner-city as well, wherein people such as those with ties to the BGDs (I know, sigh), were involved in fraud? They would (I know, sigh), go after little old ladies to get them to sign over their houses and (sigh) take out a loan and (sigh) dissappear...I mean, you ever see those signs attached to phone polls in the GET-TEA-O that say "we'll save you from foreclosure"??? Sure, there are a lot of slimeball whites involved in some of these schemes, but a lot of them are (sigh) blacks...COMMITTING FRAUD. And lastly, there was also this thing called a "no-doc" loan. You can figure out what that is, right? Yes, a whole lot of fraud committed by a whole lot of people of a heck of a lot of different colors (the offenders were, too!)
This thing is bigger than you can imagine Spook and it's all about green. I don't doubt one bit that what you described happened, I just don't believe it was directed at any one group, as you so allege.
Signed,
Kill Whitey
It seems to me that class, much more than race, plays a significant role in who gets what types of loans, for what purpose, and from whom.
Of course I've always believed that race and class are inextricably linked in the US.
Don't go hate’n on the All Mighty Black Gangsta Disciple Nation!
Yea I know about the mortgage fraud and then some! They also get crack heads with good credit to take out bank loans too! But again who gives them the loans?
But honestly, what do you expect from poor people with lots of brains but no real access? I mean what do you expect form these people to do? Or in the case of the Disciples “Folks” to do?
As kids they see Gangsta from the top to bottom . Ganstas in the White House, Senate, Congress, Corporate Board Rooms, etc, and guess what? They want to be Ganstas too. I’m just being honest
I mean wasn’t it Dick Cheny who sang
"Damn it feels good to be a gangsta
Gettin voted into the White House
But every now and then I owe a favor gettin' down
so I let a big drug shipment go through,
Then we bust’n you know who,
but voters of the world keep supportin' me
And I promise to take you very far
Other leaders better not upset me
Or I'll send a million troops to die at war!"
or maybe it was Bushwick Bill from the Ghetto Boys. Don't matter what's the difference?