The “Latino Debit” Explained Part IIa: How We Got Here
Put forth on March 3, 2009 by XicanoPwr
Posted in Immigration
This is the second part of the two part series on the home foreclosure crises affecting the Latino community. Although this crisis plagues every ethnic/racial community, I am only focusing one group.
Subprime loans are at the center of the debate because they are the central cause of the recent foreclosure crisis. It is fair to say the Latino community was not the only community affected by the tide of foreclosures; it extended beyond subprime borrowers to people at all levels of investment in the housing market.
Make no mistake, the subprime crisis was purely a Wall Street invention. While it is easy to blame the current culture of corporate corruption for the subprime crisis, there is plenty of blame to go around. Part of the story on how we got here is also partly those organizations that got caught up in pushing homeownership during so-called “easy credit” years of 2000-2006.
My criticism with the civil right organizations that assisted families achieve that proverbial American dream should not be confused with the right to homeownership. The truth is, for some, homeownership is the most rudimentary element of financial independence and the beginning of the wealth creation process. For others, it is an opportunity for a better life. For whatever reason a person wants to own a home, nobody has a right to deny them that right. While I support any organization wanting to help any family achieve this dream, they have the responsibility to make sure every issue is addressed and not turn a blind eye to the warning signs; mediocrity should not suffice.
Setting the stage
Enticed by the temptation of easy credit, the United States economy experienced a robust economic expansion between 2001–2006. If there was a significant event that contributed Americans to shop more was after the terrorist attacks of September 11, 2001 when former President George W. Bush Jr. asked Americans to go shopping, claiming that if Americans didn’t feel free to shop, the terrorists had already won. “Get on board. Do your business around the country. Fly and enjoy America’s great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed.”
As a result of the easy credit, this gave rise to super consumerism in the United States and served as a major plank of Bush’s “ownership society” – the conservative solution to our country’s domestic policy.
As consequence, we had entered a new era of marketing.
“All our instincts as clients, agencies and media owners are to encourage people to consume more – super consumption,” [Sir Martin Sorrell, founder and CEO of WPP, the world's No 2 advertising group,] told one conference. People have become used to: “the aspiration that you should consume more; the aspiration that you should have a bigger car; the aspiration that you should have a number of holidays, bigger houses and multiple houses.”
Saving up to buy something became a thing of the past. Supporting this conclusion, according to data from the US Census Bureau, the number of people holding a credit card grew from 159 million in 2000 to 173 million in 2006. In 2004, more than 1 billion credit cards were issued in the US.
After decades of redlining practices that starved poor minority communities for credit, through the use of cause marketing campaigns, a growing number of financial institutions (Countrywide, PMI Group, Bank of America, CompuCredit, Freddie Mac and Fannie Mae) suddenly flooded these communities with high-interest credit and predatory loans. Cause-related marketing (CRM) is defined as the public association of a for-profit company with a nonprofit organization to increase purchases and brand loyalty. Studies have shown that these campaigns have helped to increase a company’s profits.
Reeling Them In
The subprime crisis is more complicated than simply pointing the finger at irresponsible borrowers. The crisis can be attributed to a number of factors which emerged over a number of years. However, there is one simple fact; the push for homeownership can be found in both political parties because American history is the apotheosis of private property. It should not be a surprise that former President George W. Bush extended the principle of property to homeownership.
This wasn’t a new idea for Bush; he often spoke of homeownership as far back as 2002, when he proposed the American Dream Downpayment Initiative, – also known as the Blueprint for the American Dream – to help close the minority homeownership gap by 5.5 million families by the end of this decade. At the same time, Bush issued “America’s Homeownership Challenge” to the real estate and mortgage finance industries to increase minority homeowners by helping to educate homebuyers, increase the supply of affordable housing, offer down-payment assistance and provide flexible financing options that help people realize the American Dream.
George Orwell introduced the concept of “newspeak,” what we now call “doublespeak,” to describe one kind of propaganda practiced by the state in his classic novel Nineteen Eighty-Four. The term “newspeak” describes how words are “deliberately constructed for political purposes: words that is to say, which not only had in every case a political implication, but were intended to impose a desirable mental attitude upon the person using them.” Doublespeak is language that pretends to communicate but really doesn’t. By corrupting the language, the people who wield power are able to fool the others about their activities and evade responsibility and accountability.
This was evident with several bills that Bush was able get through Congress, such as the “Healthy Forest Initiative”, the “Clear Skies Initiative”, the Greater Access To Affordable Pharmaceuticals Act and the No Child Left Behind Program. While Bush’s rhetoric about increasing the number of minority homeownership is a noble goal, the details of his plan was not so noble. There is nothing wrong with this goal or requesting banks lend to unqualified buyers in neighborhoods formerly “redlined.”
Umberto Eco argued that authoritarianism coincides with the rise of an Orwellian version of newspeak, or what he calls the language of “eternal fascism,” which produces an “impoverished vocabulary,” and an “elementary syntax” whose purpose is “to limit the instruments for complex and critical reasoning.” Under such circumstances, language becomes the mechanism for promoting political powerlessness in that it is used by the state to misrepresent the truth.
So, was Bush’s “Homeownership Challenge” a coded message to the lending industry to open the sub-prime floodgates?
Follow the Homeownership Money
On December 16, 2003, Former President signed into law the American Dream Downpayment Act of 2003. Bush’s aggressive housing agenda to dismantle the barriers to homeownership included $200 million to low-income families who are first-time home buyers through the American Dream Downpayment Fund and urged Congress pass a $2.4 billion tax credit to low-income first-time buyers.
The year Bush announced his initiative, according to a real estate news site, Realty Times, flying below the radar that day was how Freddie Mac and Fannie Mae would play a major role in Bush’s plan. The two mortgage market banks agreed to increase their commitment to minority markets by more than $440 billion. Fannie Mae agreed to increase its already substantial lending efforts to minority families by targeting another $260 billion of mortgage purchases to them during the next nine years. Freddie Mac agreed to buy an additional $180 billion in minority-household home loans during the same period.
Both Fannie and Freddie announced specific plans to increase home purchases by African-Americans, Hispanics and immigrants. Fannie Mae announced an entirely new mortgage product designed to meet the unique needs of “New Americans.” The new loan concept would include underwriting changes that remove some of the common barriers immigrants encounter – denial of credit because of inadequate credit histories and language and cultural issues. Fannie also promised to establish partnerships with faith-based institutions to fund mortgages for their congregations.
Squeaky wheel gets the grease
While Congress debating the bill, both the Congressional Hispanic Caucus Institute (CHCI) and the Congressional Black Caucus Foundation, Inc. were creating incentives – HOGAR (Hispanic Ownership, a Growing American Reality) and WOW (With Ownership, Wealth) – aimed at increasing homeownership in minority communities.
As mentioned in Part I of this series, the WSJ article revealed if a top lending institution was willing to donate $150,000 a year, they had the liberty to name a research fellow in HOGAR’s fellowship program. The fellow would also be allowed to conduct HOGAR’s studies, which could be used later by industry lobbyists.
As previously mentioned, in 2005, CHCI released a study that found Latino homeownership increased to 49.7% because “new flexible mortgage loan products” were adopted by the lending industry. The study also recommended that mortgage loan interest rates remain low, further easing underwriting standards to help further increase Hispanic homeownership nationwide.
Once bank balance sheets grew, fueled by the national appetite for debt and by the supply of relatively easy credit, many big financial firms had an unquenchable thirst for subprime loans. The calamity in subprime mortgages has exposed how human nature, greed and misaligned incentives lead to innovative financial engineering.
The push for increased mortgage lending is more complicated than simply pointing the finger. There is plenty of blame to go around in our home mortgage lending system. The allure to get rich quick is hard for people to ignore because people don’t base their decisions on reason when they see a quick way to make money.
One attraction of subprime loan market was the allure to get rich. With a lack of regulatory controls, it was too easy for people – realtors, brokers, even lenders, who often securitize and sell their loan portfolios – to make a quick buck. Therefore, they too are part of the problem.
Ignoring the Alarms
Some like to believe of the sub-prime crisis that began in August 2007 was unexpected. However, there were people who were brave enough to sound the alarm about the dangers of subprime lending as early as 2002. In February 2002, the Texas Observer had reported that predatory lending was already “skyrocketed … in minority communities.”
More alarming was the warnings Freddie Mac had received while they participated in HOGAR’s study. Documents uncovered by Congress show one Freddie Mac was not only warned they were running unknown risks, but they were treading on thin ice by targeting Hispanics, which could be “associated with predatory lending.”
In a memo to former Freddie chief executive Richard F. Syron and other top executives, former Freddie chief enterprise risk officer David Andrukonis wrote that the company was buying mortgages that appear “to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed.”
The proportion of Hispanic borrowers among the [No Income/No Asset] NINA loans is over 3 times as high as the proportion among non-NINA loans. Also, the proportion of African-American borrowers among the NINA loans is over twice as high as it is among non-NINA loans.
Regardless of all these warnings, subprime lending continued to grow, with the industry accounting for $330 billion of US mortgages in 2003 and continued to grow through 2006.
The causes of the housing implosion are many: lax regulation, financial innovation gone awry, excessive debt, raw greed. The players are also varied: bankers, borrowers, developers, politicians and bureaucrats.
It’s interesting that even displays of shock and regret, together with the belated recognition of larger problems concerning class and race uncovered by the lending crisis, yet, those who took part continue to hold themselves blameless.
Last week, I was invited to a press conference sponsored by the National Council of La Raza, – Back to Basics: Restoring Latino Financial Security – where former Housing Secretary Henry Cisneros urged the importance of helping the Latino community restore financial security. It is interesting NCLR used Henry Cisneros has their spokes person to forward their message, since Cisneros served on the board of directors of Countrywide Financial Corp and KB Homes.
When asked about his role, Cisneros continues to say he remains proud of his work, while having a few misgivings over what his passion has wrought. He insists his good intentions were hijacked by “unscrupulous brokers.” But it hard to turn a blind eye to the fact he had a look of people’s housing ears.
When asked about KB Homes or Countrywide, Mr. Cisneros says he was never aware of any improprieties, but did say he wished he had “asked more questions.” I am sure the 500+ people whole complained about Countrywide on the consumer complaint website the Rip-off Report or the shareholders have filed lawsuits against current and former company officers and directors wished he did.
After writing the first part of this series, Alejandro Becerra was quick to point out that the Wall Street Journal article I used as the foundation for part one of the series was “substantially … inaccurate information” because the article placed the blame on “President Bush because he supported broadening homeownership.” What Bush did was not only support the broadening of homeownership, but he gave the green light for wolves to start preying on them.
Given the incentive system, the lack of accountability for those who profit on the front end of home mortgage transactions, and the lack of regulatory controls, it is not a surprise to see the subprime mortgage market crashing.
There are some who argue that we should move on. In short, the mantra is what’s done is done, time to move on because addressing these actions will divert precious energy from the serious challenges facing our nation. While we should identify a solution to this mess, we also should not forget the people and policies that got us here. We cannot restore trust without fully understanding how things got so distorted without documenting and correcting improper activity that have just occurred.
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This is the blog of Edmundo "XicanoPwr" Rocha, a social worker, an activist, freelance writer and founder and editor of The Sanctuary. My interests include: immigration reform, critical race theory and it's interaction with equality/inequality and freedom/oppression as they relate to the experiences of people of color in the Americas.
Para Justicia y Libertad is a Latino-centered political blog focusing on the humanistic perspective of politics, history, and society as they relate to the Latina/o community throughout Texas and the United States.
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A “robust expansion” with a double dip recession did nothing to create jobs. “Enticed by the temptation of easy credit… ” That’s an interesting way to put it. It’s my understanding that BushCo had the Fed expanding the monetary base far in excess of economic growth. It was purposeful.
Inasmuch as Fannie and Freddie were the initiators of the rapidly rising housing market, I am sure that overall they were a small part of the problem. Most of the blame belongs to private mortgage companies and Wall Street.
Funny that, huh? We did what was asked of us – we purchased products and services on credit – and yet, there were no raises keep pace with productivity increases. But that is ok, as long as we “contributed” to the economy, things will be alright. Look at us now.
There are so many actors, wrong turns, bad policy moves, etc etc that got us where we are now. I only mentioned one policy, I look at it as the starting off point. But there were other policies that were passed along the way that either had a direct and indirect affect.
But I agree, most of the blame does belong to the private mortgage companies and Wall Street.
OT: tagged you for a meme.
Great post. It is amazing how people like to blame the homeowners for having signed poor deals. Yet they were so pushed: newspapers, televisions, banks, everyone recommended it and said that “change was good” – “only their fear was holding them back” and other psychobabble like this.
I didn’t fall for it but I did fall for “investing in my career” – i.e. running up cards (at cheap interest, fortunately) to buy things that would advance me at work but that the universities wouldn’t pay for, i.e. moving expenses, research expenses, conference expenses, equipment and materials expenses. We were *constantly* told that it was an “investment” and that if we didn’t take on this risk we weren’t “serious.”
I commend you once again for the considerable effort and research undertaken by you to write this article. I leave it to other readers to fully evaluate and determine how fair, accurate, and balanced it actually is.
At the same time, I do urge you to more seriously consider heeding the suggestion I made to you before, namely that “Empowering Latinos to make informed decisions, however, requires that we do our utmost to make sure that Latinos are provided with full and accurate information regarding critical issues impacting their lives.”
As an example of this, in your follow-up article you indicate that “After writing the first part of this series, Alejandro Becerra was quick to point out that the Wall Street Journal article I used as the foundation for part one of the series was “substantially … inaccurate information” because the article placed the blame on “President Bush because he supported broadening homeownership.”
That is unfortunately not accurate as you neither quote me correctly or carefully read what I actually wrote, which is that your first article “relies substantially on inaccurate information published by the Wall Street Journal. According to Karl Rove (Wall Street op-ed, Jan
[that actually refers to an op-ed article by Karl Rove not to the Wall Street article you used as the foundation for your first article], some critics continue to blame President Bush because he supported broadening homeownership. However, Rove points out that the President’s goal “was for people to own homes they could afford, not ones made accessible by reckless lenders.” It is then hard to reconcile how the Wall Street Journal justified publishing a front-page article three days earlier that unfairly chastised advocates of Hispanic homeownership for seeking to achieve the same goal.
If your readers doubt that is what I wrote, I invite them to read my comments regarding your first article directly from your website. Again, it is fair enough for you to try to blame anyone for luring and even encouraging Latino borrowers to obtain bad loans made accessible by reckless lenders. But you have to substantiate that argument, and not simply chastise anyone who simply advocates that those who can afford to buy a home should be able to do so, if they at a minimum are well prepared for the responsibilities of homeownership and are well informed about obtaining the best possible and affordable loan for which they qualify and is provided under sound underwriting criteria.
Z- thanks for letting me. I will get to it. I think we all have fallen under the credit spell at one point or another. What is sad, become slaves to that ominous FICO score.
Alejandro – I did not misinterpret what you said, now I will admit I unfairly included the Bush part of your comment in my statement. However, the argument you made and continue to make to defend and excuse Baca, CHCI, et al’s action rest on the premise on Bush’s decision and initiative to increase minority homeownership. If its ok for him, then it should be ok for us.
The argument you are using, is the same argument that was being used during Alberto Gonzales’ AG confirmation hearing. What sort of Latino opposes an initiative that is meant to advance our interest?
I didn’t buy it then and refuse be force-fed the usual claptrap about how it was suppose to be for the good of the people.
As Cornell West puts it brilliantly; “racial reasoning is seductive, but fundamentally flawed.”
I am well aware of the plight of the Latino community and how many Latinos face numerous barriers that prevent them from buying a home. Since this initiative came from Bush, his initiative became a rallying call fair housing advocates to make a difference. Yet at the same time, the corporate sector, who have been keen to exploit any opportunity to integrate itself into a $900 billion untapped market, embraced the concept with equal enthusiasm.
It is easier to be a cheerleader when times are good, but at the end of the day, Latinos were one of the most affected by the subprime crises and all it has done now is fan and fuel the channeling of rage toward the most vulnerable and degraded members of the community, especially the undocumented.
So yes, some in the Hispanic leadership must share some of the blame. If they prefer to deflect their role so they can sleep better at night, while people continue to lose their home and continue to be demonized by nativist, so be it. I guess we will have to agree to disagree when it comes to this issue. As you said, we leave it up to the people to decide.
Para Justicia y Libertad. I am certainly for justice and liberty. But now really, just because President Bush kept saying he was for freedom and liberty all the time, does that make your own advocacy of liberty is flawed or wrong.
You know very well why you advocate for justice and liberty just as I know very well why I advocate homeownership — and it is not because Presidents Bush, Reagan, or Clinton also did so.
The opposite of being against homeownership is to be for rental housing, which is perfectly all right. Not everyone wants to be a homeowner or can be a homeowner. But suggesting that all Latinos should rent because homeownership is wrong makes no more sense than to be against Latinos owning their own businesses because so many of them are destined to fail anyway. Don’t you think that
all of us, including Latinos, deserve the right to think for ourselves and to decide for ourselves what is best for us?
I invite you to visit my website and read why I feel so fervently about this. More than thirty years ago, I bought a home for my Mother through a HUD program. The transformation that my Mother underwent as a result of becoming a homeowner made me a very happy and proud person. She cherished and took care of her home and enjoyed it until the very last days of her life. For her homeownership meant having a place of her own, a place she could call home, decorate to her liking, and walk proudly among her neighbors. The home also became the foundation for my sister’s future as she is now doing quite well on her own in San Antonio.
Renting for Latinos is often not the best of experiences — they often pay more than non-Latinos and get inferior quality shelter; they are often restricted from playing the radio, inviting others, having the kids play outside, and have to put up with so many restrictions and even unfair treatment. Is that what we want? Just as we advocate for justice and liberty should we not advocate for safe, decent, and appealing housing for Latinos, regardless if it is rental or homeownership housing?
I enjoy and value your passion, drive, and intelligence. Let’s join hands in working together for Latino justice and liberty by finding common ground, rather than letting those who will impede our progress succeed in dividing us.
To give you more insights into what I advocate because of my own life experiences and quest for justice for Latinos here is a sample of what I have written and posted in my website.
Homeownership and Its Relationship to National Housing Policy
Posted on 08/15/2009
Professor Thomas J. Sugrue has written an stimulating article advocating that renting should be the new American Dream ['The New American Dream: Renting,' The Wall Street Journal, August 15].
Since its inception, national housing policy has recognized Sugrue’s premise that homeownership is not a realistic goal for many people. It omits any reference to rental or homeownership housing and succinctly states that “The objective of national housing policy shall be to reaffirm the long-established commitment to decent, safe, and sanitary housing for every American.” However, Sugrue’s in-depth research can equally be used to support the view that homeownership can well remain an American dream and that government programs not only fueled this ambition but also resulted in unprecedented prosperity for the housing industry and the entire economy.
For example, Professor Sugrue indicates that countries such as Spain and Italy have higher rates of homeownership than the U.S. but only because homes there are often purchased with the support of extended families and are places to settle for the long term. Professor Sugrue fails to point out that one of the government programs he wishes to curtail, insuring the basic 30-year fixed prime mortgage loan, was instituted at a time in American history when settling for the long term — having a place called home and cherishing it — was precisely a national objective. What needs to be curtailed or better regulated is the purchasing and financing of homes strictly for speculative and short-term profit gains.
Professor Sugrue correctly points out that in the last boom year, 2006, nearly 53% of Blacks and more than 47% of Hispanics assumed subprime mortgages, loans that were costly and inferior to prime mortgage loans. The Wall Street Journal itself has previously reported that in 2006 and 2007, as many as 50 to 60 percent of borrowers who received subprime loans could have qualified for less-expensive conventional loans that would have provided the basis for successful homeownership.
In fact, the subprime crisis was caused primarily by the massive provision of highly unregulated mortgage loans to millions of Americans, regardless of income, race, or ethnic origin. These inappropriate loans often required little or no income verification, lacked clarity, and contained hidden fees and costs. Last year, when Federal Reserve Chairman Ben Bernanke announced the approval of new rules that prohibit predatory lending practices, he emphasized that unfair or deceptive acts and practices by lenders [not government] had resulted in the extension of many high-cost loans that were inappropriate for, or which misled, thousands of borrowers.
Professor Sugrue accurately states that mortgage securitization and subprime lending made it possible for more Americans than ever to live the American dream. In fact, these lending tools can continue to create viable homeownership opportunities but only if they are well regulated and used properly and ethically. Sustainable homeownership — the real American dream — can once again be achieved by making mortgage loans the right way, especially through home buyer education and counseling, appropriate loan terms and conditions, affordable down-payments, and government assistance for first-time homebuyers.
Fixing National Housing Policies
Posted on 08/08/2009
The Washington Post [“Fixing Fannie Mae,” editorial, Aug. 7] persists in suggesting that the homeownership gains in recent years primarily reflect the extension of credit to people who couldn’t afford it. In fact, the Wall Street Journal and other newspapers have reported, as many as 50 to 60 percent of borrowers who received subprime loans could have qualified for less-expensive conventional loans.
In addition, highly unregulated mortgage loans were made to millions of Americans, regardless of income, race, or ethnic origin. Often, these inappropriate and costly loans required little or no income verification, lacked clarity, and contained hidden fees and costs.
The Post also complacently implies that it would be okay for the national rate of homeownership to recede to 1985 levels “when American society was pretty stable”. In 1985, the rate of Hispanic homeownership was only 41.1% and that of African-Americans was 44.4%. Is this the level of national stability and progress that the Post wishes to promote?
The unsubstantiated claims that recent homeownership gains are largely the result of extending credit to people who could not pay for it and that making mortgage loans to low-income minorities caused the housing crisis continue to hamper a concerted national effort to resolve it.
Gracias por tu atencion.
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