Statements versus reality of mortgage messups

First-time homebuyers have originated less than a tenth of all subprime loans since 1998, according to a 2007 Center for Responsible Lending analysis. As recently as 2006, just over half of all subprime loans were refinances of existing home loans. The expected foreclosure toll from these loans will outpace the ownership gains by nearly a million families, the center estimates.

Statement: Banks lent money to people who didn’t qualify for it
Reality: While partially true, banks also steered prime customers into subprime to make higher profits

Statement: Banks used unethical strategies like “liar loans”
Reality: Mortgage brokers provided business to lenders using this strategy, which has now been banned

Statement: Falsified loan applications, which is otherwise known as loan fraud
Reality: Loan fraud works both ways, and lenders defraud customers too

Statement: The deliberate targeting of people who weren’t in a position to understand what they were getting themselves into
Reality: Many of these same people were targeted by government initiatives to increase home ownership for this class of people

Statement: Slick sales pitches designed to hide the true cost of interest rate jumps, exorbitant fees, balloon payments and other surprises
Reality: Language seen in predatory lending suits, as predatory became subprime and totally acceptable

Statement: The subprime crisis is directly related to the skewed way we as Americans look at money
Reality: The American tax system rewards home owners by letting you keep more of your money

Statement: Subprime was caused by short-range vision and a feeling of entitlement
Reality: Subprime was caused in part by government initiatives to increase minority home ownership

Statement: Subprime lenders lend money to poor people and people who should rent an apartment
Reality: Lenders and brokers tried to sell loans to anyone and everyone and pushed for refinancing

Statement: In the American constitution you are given the right to the pursuit of happiness
Reality: Happiness may be short lived because people with money will buy their happiness first, and at your expense

Statement: Tax rebate checks will help to turn the economy around
Reality: The economy should not be in the current condition in the first place

Statement: About $70.8 billion worth of tax rebate checks were distributed through June 20, according to the Treasury Department
Reality: Checks were used for gasoline, utilities, and mortgage payments and had diluted benefits

Statement: Conditions in the energy, housing and labor markets continue to erode U.S. consumers’ confidence
Reality: When George W. Bush swindled his way into the presidency consumer confidence started to go down immediately

Statement: Record gasoline prices are causing Americans to scale back travel plans
Reality: If subprime was caused by American desire to have everything now, at any cost, we would not scale back – but we are

Statement: The belief that even if we somehow paint ourselves into a corner we will somehow escape as a winner
Reality: Bankruptcy reform in 2005 was no accident

Statement: African-Americans and Latinos are the primary victims of the debacle
Reality: If mortgages were based on risk blacks and Latinos would sink or swim on their own, as would whites

Statement: Owning a home is the first step to creating wealth
Reality: Many factors determine the practicality of home ownership. It is not for everyone

Statement: Lack of access to credit for those with low credit scores, or no credit whatsoever, is an important and growing problem
Reality: Build good credit and seek self responsibility or it is only a problem for you

Statement: Dr. Martin Luther King Jr. often said that the cause of economic justice is the cause of social justice. We must continue to work together to achieve that timeless goal
Reality: Pay your bills and all things would be financially equal based on income level and debt-to-income ratios

Statement: Our government should protect every consumer — regardless of race, religion or credit score — from fraud and fly-by-night lenders
Reality: Regardless of race, the gap between ‘have’s’ and ‘have-not’s’ continues to widen

Banks and brokers targeted vulnerable longtime homeowners and lured them into needless and rapidly recurring mortgages they clearly couldn’t afford and from which they never stood to gain.

The 1977 Community Reinvestment Act (CRA) aimed to end the lending bias in the housing market. The complex law boils down to a simple principle: anywhere a federally insured bank or thrift takes deposits, it must give out credit. The law also set up regular audits of the institutions’ lending practices to police compliance.

Today, when industry backers aren’t touting the good that subprime mortgages have done, they’re arguing that the CRA set the stage for the market’s current collapse by encouraging lending to “risky” borrowers. But subprime lending didn’t start with the demand that banks serve the community; it grew out of the removal of usury laws that governed how much banks could charge for their lending services. Having fought the CRA tooth and nail in the late ’70s, by 1980 the banks were pushing for regulatory changes that would allow them to profit from the requirement. Says the Center for Responsible Lending’s Nikitra Bailey, “It’s like once we got in the game, the rules changed.”