Mark Winston Griffith
The Return of the Mortgage Sub-Primates
You would think that the high foreclosure rates and the self-emulation now occurring in the sub-prime and exotic mortgage industry would make even the most shameless there-is-no-such-thing-as-an-over-priced-and-abusive-loan-when-it's-made-to-low-income-folks-and-people-of-color acolyte gain some new religion. Now that sub prime market disintegrations have shaken Wall Street you would expect some of the free marketeer cowboys to cool their heels.
You would be wrong.
In what could only be described as a sort of devolved, sub-prime-ate way of thinking, the Manhattan Institute's Vice President Howard Husock concluded in a New York Sun editorial that to put a leash on sub-prime lenders would be a mistake. The problem - and the solutions - lie not with the sub prime brokers and lenders, or Wall Street investors in sub-prime and exotic loans, or the regulators who sat idly by while thousands of destructive loans were made, but with us poor suckers who are struggling to pay these mortgages off.
Husock's logic is so breathtakingly faulty, offensive and historically dishonest that it's hard to know where to begin in critiquing it. For example, Husock writes "..[O]ur credit markets today are far better than a generation ago -- when mortgage lending was confined to savings-and-loan institutions limited in the interest rates they could charge. These institutions avoided risks and were said to deny credit to poorer neighborhoods. Congress responded with the Community Reinvestment Act, requiring banks to extend at least some credit to low-income consumers and neighborhoods on the same terms as to other borrowers. But that did not teach bad credit risks how to become good credit risks."
Did he say "were said to deny credit"?! It's as if the long, tortured history of bank redlining is an unsubstantiated rumour! In Husock's world, low-income areas and neighborhoods of color are virtually synonymous with bad credit risk. Accordingly, the 1977 Community Reinvestment Act was not designed to fight discrimination or compel banks to stop ignoring neighborhoods of color, but was simply a mandate for banks to take "risks" on people who are inherently and genetically underserving of fair lending practices and a level economic playing field.
It is this logic that stunts the thinking of conservative pundits who ignore studies showing that neighborhoods of color are being targeted with high-cost loans, often times regardless of their credit histories and scores. It's the same kind of thinking that refuses to hold the sub prime industry and its regulatory enablers responsible for poorly and irresponsibly underwritten loans that have triggered foreclosures at epidemic rates.
The idea that sub prime lenders assume more risk is unadulterated bull. In fact, it's the exact opposite. Sub-prime loans are ultimately abusive, because unlike in the case of traditional "prime" loans - which in the past were more likely to be originated and held by a single institution which assumed all the risk - sub prime brokers, servicers, lenders and secondary market investors have all hatched a system in which risk - and ethical accountability - is passed on like a reckless game of hot potato. At each turn, disgustingly high profits are made, damn the consequences.
Ultimately, the real lesson that should be gleaned by sub prime companies going out of business and Wall Street sub prime investors losing their shirts, is profound, almost biblical, in its simplicity: God don't like ugly; what goes around, comes around.