May 31, 2010

One of the most tragic consequences of the subprime mortgage crisis has been the toll minorities have paid. Republicans point to Fannie Mae, Freddie Mac and ACORN as the mortgage Satans of the 21st century, but the truth is something else entirely.

Here's one example:

For two decades, Tyrone Banks was one of many African-Americans who saw his economic prospects brightening in this Mississippi River city.

A single father, he worked for FedEx and also as a custodian, built a handsome brick home, had a retirement account and put his eldest daughter through college.

Then the Great Recession rolled in like a fog bank. He refinanced his mortgage at a rate that adjusted sharply upward, and afterward he lost one of his jobs. Now Mr. Banks faces bankruptcy and foreclosure.

“I’m going to tell you the deal, plain-spoken: I’m a black man from the projects and I clean toilets and mop up for a living,” said Mr. Banks, a trim man who looks at least a decade younger than his 50 years. “I’m proud of what I’ve accomplished. But my whole life is backfiring.”

Like so many, Mr. Banks was lured by the promises made by the big banks like Wells Fargo and others: Refinance your home, take out some money for yourself, and hey, the interest rate will be low...for awhile, anyway.

The squeeze came for him when the interest rates on that variable rate mortgage rose and his income dropped. While it's not limited to minority borrowers, the impact on minority communities has been deeper than on white communities, largely because the unemployment rate is much higher.

Black middle-class neighborhoods are hollowed out, with prices plummeting and homes standing vacant in places like Orange Mound, White Haven and Cordova. As job losses mount — black unemployment here, mirroring national trends, has risen to 16.9 percent from 9 percent two years ago; it stands at 5.3 percent for whites — many blacks speak of draining savings and retirement accounts in an effort to hold onto their homes. The overall local foreclosure rate is roughly twice the national average.

It appears that the higher foreclosure rate is no accident. In fact, it seems that Wells Fargo targeted minorities to market higher-risk loans. At least, that's the accusation causing federal authorities to take a closer look at their lending practices there.

Camille Thomas, a 40-year-old African-American, loved working for Wells Fargo. “I felt like I could help people,” she recalled over coffee.

As the subprime market heated up, she said, the bank pressure to move more loans — for autos, for furniture, for houses — edged into mania. “It was all about selling your units and getting your bonus,” she said.

What follows next is a story told across the country, but when the scam is played on a community just beginning to get a toehold on forward economic progress, the setback is one that may take more than a generation to overcome.

She described tricks of the trade, several of dubious legality. She said supervisors had told employees to white out incomes on loan applications and substitute higher numbers. Agents went “fishing” for customers, mailing live checks to leads. When a homeowner deposited the check, it became a high-interest loan, with a rate of 20 to 29 percent. Then bank agents tried to talk the customer into refinancing, using the house as collateral.

Ask a conservative and they'll tell you those people shouldn't have believed they'd get something for nothing. Well, I beg to differ. In the subprime heyday, phone calls rolled in here at record pace, promising us we could refinance our home and pull out enough cash to retire. When our middle son graduated from high school we were inundated with offers to refinance to send him to college. We had already been stung during the S&L crisis, so we knew it was a scam. But to the uninitiated, it seemed like a step up.

But then, look what happens:

Two years ago, his doorbell rang, and two men from Wells Fargo offered to consolidate his consumer loans into a low-cost mortgage.

“I thought, ‘This is great! ’ ” Mr. Banks says. “When you have four kids, college expenses, you look for any savings.”

What those men did not tell Mr. Banks, he says (and Ms. Thomas, who studied his case, confirms), is that his new mortgage had an adjustable rate. When it reset last year, his payment jumped to $1,700 from $1,200.

We've heard all of these stories before, but in Memphis the result is deep, dire and depressing.

“We’re wiping out whatever wealth blacks have accumulated — it assures racial economic inequality for the next generation,” said Thomas M. Shapiro, director of the Institute on Assets and Social Policy at Brandeis University.

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