Subprime Double Standards

by Will Tew on July 28, 2011 · 2 comments

in Economy, Politics as Usual, Sanctimony

The Huffington Post reports that the Department of Justice is fixing to slap a lawsuit on Wells-Fargo for “allegedly preying upon African American borrowers during the housing bubble and steering them into high-cost subprime loans,” which seems a little strange, considering that this was the goal of certain government policies leading up to the subprime crisis.

In the 1990s, the Clinton administration pushed for increased homeownership among traditionally under-represented groups. The Department of Housing and Urban Development released the “National Homeownership Strategy” in 1994. The plan for increasing homeownership includes this ominous statement:

For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.

The government recognized that these borrowers lacked the qualities to purchase more stable loans, and, in order to achieve a political end, encouraged lenders to reduce their standards. The Clinton White House even pressured Frannie Mae to extend mortgage loans to subprime borrowers. These policies met their political goals, at least in the short term — helping “poor and moderate income” home-buyers access credit was a celebrated accomplishment of Slick Willy’s regime. In the longer term, however, the same policies contributed to the recent crisis.

There’s no debating that selling bad loans to poor folk is wrong. If Wells-Fargo did con poor black home-buyers, they should be prosecuted, but it should be recognized that their huckstering was an integral part of the “successes” of Clinton-era housing policy. They were incentivized to offer these loans by federal policy; the federal government is just as guilty of enticing poor African Americans to buy bad loans.

Marcy July 29, 2011 at 1:27 pm

You left out a very important part that changes the whole narrative here: African-American borrowers WHO QUALIFIED FOR PRIME MORTGAGES were steered into predatory sub-primes by Wells Fargo. The Government did not tell them or ask them to do this; that was the bank’s decision, because sub-primes yielded higher bonuses. So, yes – Wells Fargo, if proven to have intentionally done this, is the culprit, not Clinton or the government. The lawsuit is ultimately about fraudulent practices and lying to borrowers.

Susan Minerly July 31, 2011 at 12:26 am

Lets’ call it what it is, the problem is negative equity. African Americans and every other group was not complaining when they were able to purchase a home and within 2 years make a profit of 10-100%, no matter what kind of mortgage they received.
It’s called capitalism.

What the Department of Justice should be doing is suing every investor to provide the equal right to a negative equity modification with a consistent and similar financial advantage to every negative equity homeowner based on existing laws, the industry wide change, the principles of capitalism and the precedent set when the financial industry modified 3.6 million negative equity homeowners or instead of waiting for the law suits to come, investors should be enforcing the Unitedinprosperity modification system. saving themselves money.

Comments on this entry are closed.

Previous post:

Next post: