Is Debt Really The Problem… or is it something else?, By Bill Westrom, Truthinequity.com


Mainstream media, the Government and consumers themselves vilify debt as the root of the consumer’s financial plight and the root of a weakening country. Debt is not the problem; it’s the management of debt and the way debt is structured that is creating the problem not the debt itself. Unless you win the lottery, invent a cure for cancer or get adopted by Bill Gates or Warren Buffett, debt will be something you will have to face somewhere along the course of your adult life; it’s a natural component of our society.

In today’s economic environment hard working American’s are experiencing a level of fear and financial uncertainty they have never been faced with. This is keeping them up at night wondering how they are going to sustain a life they have worked so hard to build. Americans are also wondering why those we have trusted for all these years; the banks, money managers and politicians, are thriving financially, but don’t seem to be contributing anything of real value to the public? Today, the predominant questions being asked by the American public as it relates to their financial future are; what am I going to do, what can I do, how am I going to do it? We all work way too hard to be faced with these questions. The answers to these frightening questions are right in front of us. The answers lie in the use of the financial resources we use every day. You just need to know how to use them to your advantage.

The crux of the problem for consumers and the country alike lie with misaligned, improper or a shear lack of education on the use of the banking tools we use every day. The three banking tools that we use every day; checking accounts, credit cards and loans are simply being used improperly. The solution lies in educating consumers and institutions to use these tools in the proper sequence and function to manage debt properly, regain control of income and possess the authority to control the repayment of debt. It’s as simple as that. By exposing the failed business model of conventional banking and borrowing practices, realigning them into a model that actually helps consumers get more out of what they own and what they earn, we can once again grow individually, as a society and a nation.

The Truth Is In The Proof.
TruthInEquity.com

How Ruthless Banks Gutted the Black Middle Class and Got Away With It, by Devona Walker, Truth-out.org


The real estate and foreclosure crisis has stripped African-American families of more wealth than any single event in history.

The American middle class has been hammered over the last several decades. The black middle class has suffered to an even greater degree. But the single most crippling blow has been the real estate and foreclosure crisis. It has stripped black families of more wealth than any single event in U.S. history. Due entirely to subprime loans, black borrowers are expected to lose between $71 billion and $92 billion.

To fully understand why the foreclosure crisis has so disproportionately affected working- and middle-class blacks, it is important to provide a little background. Many of these American families watched on the sidelines as everyone and their dog seemed to jump into the real estate game. The communities they lived in were changing, gentrifying, and many blacks unable to purchase homes were forced out as new homeowners moved in. They were fed daily on the benefits of home ownership. Their communities, churches and social networks were inundated by smooth-talking but shady fly-by-night brokers. With a home, they believed, came stability, wealth and good schools for their children. Home ownership, which accounts for upwards of 80 percent of the average American family’s wealth, was the basis of permanent membership into the American middle class. They were primed to fall for the American Dream con job.

Black and Latino minorities have been disproportionately targeted and affected by subprime loans. In California, one-eighth of all residences, or 702,000 homes, are in foreclosure. Black and Latino families make up more than half that number. Latino and African-American borrowers in California, according to figures from the Center for Responsible Lending, have foreclosure rates 2.3 and 1.9 times that of non-Hispanic white families.

There is little indication that things will get much better any time soon.

The Ripple Effect

If anything, the foreclosure crisis is likely to produce a ripple effect that will continue to decimate communities of color. Think about the long-term impact of vacant homes on the value of neighborhoods, and about the corresponding increase in crime, vandalism and shrinking tax bases for municipal budgets.

“The American dream for individuals has now become the nightmare for cities,” said James Mitchell, a councilman in Charlotte, NC who heads the National Black Caucus of Local Elected Officials. In the nearby community of Peachtree Hills, he says roughly 115 out of 123 homes are in foreclosure. In that environment, it’s impossible for the remaining homeowners to sell, as their property values have been severely depressed. Their quality of life, due to increases in vandalism and crime, diminished. The cities then feel the strap of a receding tax base at the same time there is a huge surge in the demand for public services.

Charlotte, N.C. Baltimore, Detroit, Washington D.C. Memphis, Atlanta, New Orleans, Chicago and Philadelphia have historically been bastions for the black middle class. In 2008, roughly 10 percent of the nation’s 40 million blacks made upwards of $75,000 per year. But now, just two years later, many experts say the foreclosure crisis has virtually erased decades of those slow, hard-fought, economic gains.

Memphis, where the majority of residents are black, remains a symbol of black prosperity in the new South. There, the median income for black homeowners rose steadily for two decades. In the last five years, income levels for black households have receded to below what they were in 1990, according to analysis by Queens College.

As of December 2009, median white wealth had dipped 34 percent while median black wealth had dropped 77 percent, according to the Economic Policy Institute’s “State of Working America” report.

“Emerging” Markets Scam v. Black Credit Crunch

While the subprime loans were flowing, communities of color had access to a seemingly endless amount of funding. In 1990, one million refinance loans were issued. It was the same for home improvement and refinance loans. By 2003, 15 million refinance loans were issued. That directly contributed to billions in loss equity, especially among minority and elderly homeowners. Also at the same time, banks developed “emerging markets” divisions that specifically targeted under-served communities of color. In 2003, subprime loans were more prevalent among blacks in 98.5 percent of metropolitan areas, according to the National Community Reinvestment Coalition.

One former Wells Fargo loan officer testifying in a lawsuit filed by the city of Baltimore against the bank says fellow employers routinely referred to subprime loans as “ghetto loans” and black people as “mud people.” He says he was reprimanded for not pushing higher priced loans to black borrowers who qualified for prime or cheaper loans. Another loan officer, Beth Jacobson, says the black community was seen “as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.”

“We just went right after them,” Jacobson said, according to the New York Times, adding that the black church was frequently targeted as the bank believed church leaders could convince their congregations to take out loans. There are numerous reports throughout the nation of black church leaders being paid incentives for drumming up business.

Due in part to these aggressive marketing techniques and ballooning emerging market divisions, subprime mortgage activity grew an average of 25 percent per year from 1994 to 2003, drastically outpacing the growth for prime mortgages. In 2003, subprime loans made up 9 percent of all U.S. mortgages, about a $330 billion business; up from $35 billion a decade earlier.

Now that the subprime market has imploded, banks have all but abandoned those communities. Prime lending in communities of color has decreased 60 percent while prime lending in white areas has fallen 28.4 percent.

The banks are also denying credit to small-business owners, who account for a huge swath of ethnic minorities. In California ethnic minorities account for 16 percent of all small-business loans. In the mid-2000s roughly 90 percent of businesses reported they received the loans they needed. Only half of small businesses that tried to borrow received all or most of what they needed last year, according to a survey by the National Federation of Independent Business.

In addition, minority business owners often have less capital, smaller payrolls and shorter histories with traditional lending institutions.

Further complicating matters is the fact that minority small-business owners often serve minority communities and base their business decisions on things that traditional lenders don’t fully understand. Think about the black barber shop or boutique owner, who knows there is no other “black” barber shop or boutique specializing in urban fashions within a 30-minute drive. While that lender may understand there is such a niche market as “urban fashions,” they likely won’t understand the significance of being “black-owned” in the market as opposed to corporate-owned. Or think of the Hispanic grocer with significant import ties to Mexico who knows he can bring in produce, spices and inventory specific to that community’s needs, things people cannot get at chain grocery stores. That lender might only understand there is a plethora of Wal-Marts in the community where he wants to grow his business.

Minority business owners are often more dependent upon minority communities for survival, which of course are disproportionately depressed due to subprime lending. Consequently, minority business owners have a lower chance of success. Banks, understanding that, are even less likely to lend. It’s like a self-fulfilling prophecy, and it’s beginning to resemble the traditional “redlining” of the 1980s and 1990s.

“After inflicting harm on neighborhoods of color through years of problematic subprime and option ARM loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment,” said Geoff Smith, senior vice president of the Woodstock Institute.

Believe it or not, no one in a position of power to stop all this from unfolding was blindsided. Ben Bernanke was warned years ago about the long-term implications of the real estate bubble and subprime lending. Still, he set idly by. He told the advocates who warned him that the market would work it all out. Perhaps they thought the fallout would be limited to minority communities, or perhaps they just didn’t care.

Devona Walker has worked for the Associated Press and the New York Times company. Currently she is the senior political and finance reporter for theloop21.com. 

 

Rescue from foreclosure? Frustration, anger grow, By Sanjay Bhatt, Seattletimes.com


When he tried to change the terms of his home loan, Michael Guzman was rejected because the bank didn’t consider his joblessness a long-term hardship.

Kamie Kahlo’s bank offered her a modified mortgage on her Queen Anne home but later told her the lower payments weren’t permanent.

And Leslie Oldham was stunned her bank moved to foreclose on her Kent home before it gave her a decision on a loan modification.

“I tried everything I could to work it out with the bank,” said Oldham, 58, “because the last thing I wanted to do was file a bankruptcy.”

More than a year since President Obama announced an unprecedented national foreclosure-prevention program, many homeowners’ experiences with the program have left them feeling frustrated and angry at mortgage servicers.

The program gives servicers financial incentives to permanently lower the monthly payments of homeowners who qualify for and successfully complete a three-month trial period. Servicers can modify a mortgage by lowering the interest rate, extending the loan’s terms or deferring payment of principal.

Federal auditors say the Treasury Department has failed to hold banks and other servicers accountable for following the loan-modification program’s guidelines, and state regulators say there’s little they can do.

Some examples from the Government Accountability Office:

• Delayed decisions: After three months of accepting payments on a modified trial loan, banks are supposed to decide whether to make the new terms permanent. But some banks have a backlog of thousands of homeowners who have been making trial payments for six months or longer.

• Inconsistent treatment: Fifteen of the 20 largest servicers in the program didn’t follow federal guidelines for evaluating borrowers’ loans and may have treated similarly situated borrowers differently.

• No meaningful appeals: The Treasury does not independently review borrowers’ application or loan files, nor does it have clear penalties for servicers who violate the program’s rules.

The program was intended to keep 3 million homeowners from foreclosure, but it had produced only about 435,000 permanent modifications through July.

Treasury officials say the program’s impact can’t be measured by a single statistic. Many homeowners who were deemed ineligible for the federal program have been offered private loan modifications by their servicer.

Still, six of every 10 seriously delinquent borrowers are not getting help, according to a new study by the State Foreclosure Prevention Working Group. Struggling homeowners are alienated by the mixed messages and long delays, the group said, and almost three-quarters of modified mortgages leave borrowers owing more, not less.

“That is not a sustainable solution,” said Roberto Quercia, who consulted on the study and is director of the Center for Community Capital at the University of North Carolina, Chapel Hill. “For people underwater, making the hole deeper is a recipe for disaster.”

Jumbled paperwork

In March 2009, Treasury officials launched the federal Home Affordable Modification Program (HAMP), its cornerstone effort to rescue the nation’s housing market, in which property values have fallen at a rate not seen since the Great Depression.

Homeowners must pass three tests to be considered: First, they must have an eligible hardship, such as unemployment. Second, their mortgage must exceed 31 percent of their gross monthly income.

Finally, the bank applies a “net present value” test to see if it will lose more money from foreclosing on their home than from modifying the mortgage.

Through July, homeowners in the program saw a median 36 percent, or more than $500, savings in their monthly payment after permanent modification, according to the Treasury.

But the number of homeowners making trial payments who were dropped from the program — more than 600,000 — now exceeds the number with permanent modifications.

“Paperwork has been the No. 1 reason homeowners have not been able to convert to permanent modifications,” Treasury spokeswoman Andrea Risotto said.

The second most common reason, she said, is that homeowners are unable to keep up with payments during the trial period.

Housing counselors and lawyers for homeowners say servicers misplace documents or wrongly reject eligible applicants for no good reason — even after they’ve made trial payments for six months or longer.

“The servicers are claiming that the files are a mess or are incomplete,” said Marc Cote, a housing counselor who coordinates Washington state’s foreclosure-prevention hotline. “We have confirmation the fax was received. Then you call back in two days and there’s no record of it. That’s not uncommon.”

Regulators at the state Department of Financial Institutions say they’ve been flooded with consumer complaints about mortgage issues — such as banks failing to properly credit homeowners for payments.

Department director Scott Jarvis says a series of federal court decisions since 2002 has made it nearly impossible for regulators to force national banks and thrifts to comply with state consumer-protection laws.

“It’s a massive shell game,” Jarvis said. “The pea is the consumer, and the consumer ends up getting shuffled around the shells and rarely gets anything resolved.”

For their part, big banks and other servicers say they’re helping distressed borrowers, while being fair to the majority of homeowners who pay their mortgages on time.

This year, Chase opened a loan-modification office in Tukwila that focuses on screening homeowners with Chase mortgages in Washington and Oregon.

And a coalition of big banks recently announced support for a Web portal called HOPE LoanPort that housing counselors can use to submit complete applications, verify their receipt and get status updates.

“In the end I think we all share a common goal, which is to help as many customers as possible stay in their homes,” said Rebecca Mairone, Bank of America’s national default-servicing executive.

Left in limbo

Cote, the housing counselor, recounts this story: On Aug. 6, a national bank told an elderly owner of an Issaquah house that her application for loan assistance — submitted March 3 — was still under review.

A week later, a trustee let the bank repossess the woman’s house. The bank had denied the woman’s application but never notified her in writing, as required.

“They’re violating the guidelines,” said Cote, whose agency doesn’t allow him to identify the national bank.

Some Seattle-area homeowners echo Cote.

Guzman, of Lake Stevens, has been unemployed for more than two years and was told — incorrectly — by Chase last year that his joblessness did not count as a permanent hardship.

“Servicers continue to evolve their implementation of HAMP,” Chase said in a statement.

Moreover, Chase said, it asked Guzman to reapply for loan assistance, but he has refused.

Guzman said he’s already submitted paperwork three times.

“Millions of people have gone through this wringer like I have,” he said.

Kahlo, who bought her Queen Anne home in 1999, said she did everything Bank of America asked her to do to qualify for relief under the federal program.

After the bank told her it wasn’t permanently modifying her mortgage, she sued, alleging it had violated the federal program’s rules.

Bank of America sought to dismiss the suit, saying the lower monthly payment it offered her was an alternative to the federal program.

“A participating servicer is not required to modify every HAMP-eligible loan,” the bank stated in court.

Without a permanent modification, Kahlo says, she’s in limbo. “I don’t know if I’m sleeping in their home or my home,” she said.

Declaring bankruptcy was a last resort for Oldham, a widow in Kent who manages payroll for a small construction company.

But she believed she had no recourse because Bank of America foreclosed on the manufactured home she’s lived in for 15 years.

Oldham said she got behind on her mortgage because of medical bills.

She applied for a modification last year, but the bank tacked a foreclosure notice on her door before she received an answer.

Oldham complained to the state Attorney General’s Office, which passed her on to the state Department of Financial Institutions. That department routinely forwards such complaints — about 540 so far this year — to federal regulators.

With Oldham, though, the state department lost track of her complaint, finally sending it along last month.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com