The Atlantic - Latest Comments in The NAACP Subprime Suit

Re: The NAACP Subprime Suit

John — Thu, 19 Mar 2009 09:31:26 -0000

I guess with the slow economy, race-guilt hustling is the best growth industry around.

Re: The NAACP Subprime Suit

albatross — Tue, 17 Mar 2009 12:14:16 -0000

If you're looking for self-defeating beliefs, you can't do better than believing that blacks are getting worse deals than whites because of racism or racial solidarity among mortgage brokers and realtors. (Or among car salesmen, for a parallel case.) If you are black, and you buy the worldview that this implies, you're setting yourself up to be screwed over.

My wife and I bought a house fairly recently. We're white, as was the mortgage broker, the realtor, the other mortgage guy we checked with at the credit union, and still another mortgage person we'd checked with earlier at the same credit union. I obviously have no idea what kind of terms they'd have offered us, had we been black. But I do know what they offered us as white first-time home buyers. Several times, we had option-ARMs, insanely high payments, and interest-only mortgages with baloon payments in five years offered to us with a certain amount of hard-sell. If we'd accepted any of the first several things we had suggested/offered, we'd be on the road to losing our home and everything else we owned; at best we'd certainly be paying a lot more.

Why didn't we fall for this? I'd like to say it's because of our inherent intelligence and financial acumen, but that would be BS. We had probably a dozen stories from family and friends of ways people we knew had been screwed, or seen people get screwed, buying houses. We'd both lived through lean times as our parents bought houses growing up, and had seen family members get hurt badly when their houses lost value. We knew people who'd gone bankrupt largely because of stupid real-estate speculation. We had a friend who was a realtor in another state, who pretty much went over everything we were offered to make sure we weren't getting screwed over.

My guess is that whites have more family members who've bought houses, and so they've heard more horror stories, and have more trusted people to talk to about what they're doing. Realtors can be really good at building up urgency for you to commit right now to a deal that isn't good for you. Mortgage brokers can and will offer you terms so complex that your head spins, with reassuring words that let you believe they wouldn't screw you over. Having that background of stories and experiences is a useful counterweight. (Though I'm sure we still got screwed in some subtle ways a more informed person wouldn't have.)

If you assume we didn't get screwed because the white realtor and mortgage broker liked our skin color, you're setting yourself up for a screwing-over. Because I can pretty-much promise you that a black realtor and mortgage broker are going to offer you terms that work a lot better for them than for you, if you'll accept them.

The best way to keep yourself from being screwed over, I think, is to become informed. Talk to friends and family that have bought houses--you'll probably have to do more looking than we did, if not too many people in your family have bought houses before. Research the hell out of the market. Go talk to mortgage people at multiple banks, or multiple mortgage brokers. And for God's sake, don't go into a huge financial transaction thinking the other guy is offering you terms based on what he thinks of your skin tone, rather than based on his financial interests. That's like painting a bulls eye on your chest.

Re: The NAACP Subprime Suit

zacksback — Tue, 17 Mar 2009 01:05:06 -0000

@AMT:

You want "basic" legal acumen? Here you go: Does the guy down the street know that the Supreme Court is not expressly granted judicial review? Of course not. Does the guy down the street know that if he's arrested, he's gotta be Mirandized? Damn right he does. Does he know that if some guy totals his car and sends him to the hospital, he can sue? Damn right he does.

What is that knowledge if not THE most basic legal acumen? It's knowing what you can use the law (and an attorney) for, not the law itself. How come Americans know they should get a lawyer to defend a suit or represent them in court, but not to buy a house?

As far as your friend goes: the vast majority of Harvard MBAs don't know they need a lawyer because of "common sense." They know because they grew up around middle-class professionals, almost all of whom had college or advanced degrees, some of whom might have been executives and doctors and lawyers themselves, in neighborhoods where people actually had wills and divorce decrees...and mortgages. In that environment, you don't know you need a lawyer because of common sense, you know it through cultural and class osmosis. I watched my dad write a mortgage check every month. Does an inner city kid see that?

And if someone doesn't have the luck to grow up in some middle-class community straight out of The Ice Storm, AMT, the education system is the ONLY place that's going to provide that learning for them.

Oh, and FWIW, I work for a large international firm where a corporate law attorney (who graduated from a top school) once used the terms 'revenue' and 'profit' interchangeably when discussing an M&A deal. And when he was asked which one he meant, replied: "Why? They're the same thing."

How's that for a nice combination of legal and financial acumen?

Re: The NAACP Subprime Suit

Jive Turkey — Mon, 16 Mar 2009 20:42:06 -0000

And, since I'm being all quantitative tonight, here are some data on student loan default rates, which were raised earlier. It doesn't control for credit scores, which was an assertion made earlier, but the data are striking nonetheless.

http://www.educationsector.org/analysis/analysis_show.htm?doc_id=559757

Re: The NAACP Subprime Suit

Jive Turkey — Mon, 16 Mar 2009 20:36:33 -0000

This study from the Boston Federal reserve looked at Massachussetts subprime real estate markets. See Table 3 on p. 30. This would seem to run counter to the plaintiff's allegations.

http://www.bos.frb.org/economic/ppdp/2008/ppdp0806.pdf

Re: The NAACP Subprime Suit

Jive Turkey — Mon, 16 Mar 2009 20:27:37 -0000

One useful metric to have would be black vs. nonblack subprime default rates. If the banks have been behaving as the lawsuit alleges, then black subprime default rates should be lower than nonblack default rates.

Re: The NAACP Subprime Suit

Stacy — Mon, 16 Mar 2009 19:40:35 -0000

Not to excuse racism as a cause, but I'm 100% confident that brokers are attemptiing to make as much money as possible off every customer they encounter. Is it possible that, due to the way that wealth and homeownership has gone in this country, that whites have larger network of relatives, friends, etc., that have experience in buying a home? They might have had the advantage that their parents have owned a home and told them what to expect? Just thinking out loud here...

Re: The NAACP Subprime Suit

AMT — Mon, 16 Mar 2009 19:39:16 -0000

Basic financial acumen and legal acumen are both areas of knowledge that need to be taught in our schools, and sadly aren't.

I'm a lawyer so I'm going to nitpick for a second. While I agree with what I'm assuming is the spirit of the above comment, i.e. that people need a level of basic education so they won't be completely a fish out of water in certain important real life scenarios, the fact is no school will be able to teach a basic level of legal acumen. You could argue that law schools can't even do that. The law is a vast and intricate beast. Besides what's a basic level of legal acumen? Does it mean you should have an idea of the criminal code, the constitution and evidence law only or do you also need to know some basic corporate, tax, commodities and/or securities law? I'll throw out an example of what I'm trying to say. What percentage of educated Americans do you think are aware that the Supreme Court is not expressly granted the power of judicial review (the right to judge the constitutionality of laws) by the constitution? My good friend didn't, he's a Harvard MBA, a smart guy and knew when to find a lawyer when trying to buy an apartment. Common sense will get you far. Our schools have problems, but I think what you're demanding they provide is a bit unfair.

Re: The NAACP Subprime Suit

jimmy — Mon, 16 Mar 2009 18:19:37 -0000

People don't they are prejudiced. I can easily imagine a honest broker with good intentions steering Blacks and Asians and whathaveyou into subprime credits because he thought he was honestly perceiving poor character.

We dont know how to see others as well as we think we do. We all overestimate the character of the tall and the handsome, and everyone finds the ugly suspicious. Cultural differences only make it worse.

The only solution is to keep track and keep asking why black or gays or women or whathaveyou dont have the same numbers as everyone else.

Re: The NAACP Subprime Suit

Justin — Mon, 16 Mar 2009 18:12:04 -0000

gwangung-- I bought my first home without ever meeting my mortgage broker (until the closing). If you are incapable of usng the internet to check mortgage rates you shouldn't be borrowing tens of thousands of dollars. Seriously, after about 15 mins with google I knew exactly what rate I should be getting and what closing costs I should be paying. But I certainly do agree that we need to do a much better job at providing people with a basic financial education so they do feel comfortable knowing when they are getting a bad deal.

Re: The NAACP Subprime Suit

gex — Mon, 16 Mar 2009 16:56:51 -0000

According to the NYT a former (now deceased) Governor on the Fed expresses this same concern in urging for regulating subprime. That will bolster the plaintiffs claims.

Re: The NAACP Subprime Suit

SeanH — Mon, 16 Mar 2009 16:46:57 -0000

Totally agree with others above that we have a terrible problem with basic home and macro economic education in this country. Aside from the basics on contracts, housing markets, and the like everyone should have a really basic understanding of macroeconomics, including how the Fed uses rate setting as a monetary control, and how that affects the availability of credit.

If you don't understand that stuff in the least how the hell would you know that no matter how bad your credit is anyone asking you for interest totally out of whack with the prime rate is trying to screw you? Or that when the prime rate's like 4.0 percent and some dude's telling you not to worry about your loan ballooning because you'll be able to refinance at a better interest rate in 5 years the proper response is to laugh in the fool's face? That kind of basic economics knowledge is a lot more important to most people's real lives than history or algebra, but every public school student in the country either has to learn it from family or on their own initiative after high school or they're stuck being ignorant of it.

Re: The NAACP Subprime Suit

gwangung — Mon, 16 Mar 2009 16:15:50 -0000

David-- re: your point about certain buyers being unable to shop around doesn't make much sense to me when the result of the lending explosion over the last few years is that borrowers are not tied to local banks anymore (eg, Wells Fargo is not a local bank). The entire reason subprime can exist is because local lenders are not the primary sources of capital anymore. So yes, anyone can (or, could) go to lending tree or some other online broker site and get numerous mortgage quotes.

Weak.

Folks comfortably with online and non-face to face business activity may see this as a viable tactic. But for novice buyers, without experience or knowing other people who've done the same thing, this take a giant leap of faith. You really think they'd want to do this without being there in person?

Re: The NAACP Subprime Suit

ems97007 — Mon, 16 Mar 2009 15:59:14 -0000

There is something that people are not considering: Blacks and other minorities in this country are used to crappy banking deals, period. I remember that when I was in Georgia for an internship in the 90s I had a heck of a time opening a stupid checking account. Oh, I could get a check cashing card and pay to cash my check, and pay this fee and that fee, but have a simple account that I was able to have in Wisconsin. No can do. All the other black interns told me "Well, that's just the way it is here."

What the other students told me about interest rates on their car and students was incredible. When I spoke to some south Asian students(In Georgia) it was close to same thing: no steady accounts, high interest rates even credit scores were good, and just overall bad deals.

Then came the rise of credit cards and pay cards- yet another way to make money. The highest interest rates were geared to minorities (Does any anybody remember Russell Sims hawking a card? Or Queen Latifah?)

This is not to say white people were not hurt by subprime banking and marketing- they certainly were, especially out here in the West. But the profits these banks enjoyed during the boom times, the obscene amounts of money, came from defacto racist discrimination. Of course, the nasty thing about it is that there were plenty of brothers and sisters who sold this crap to their communities- all he while these banks wrapped it up as being a service to 'diverse' communities.

Re: The NAACP Subprime Suit

Stacy — Mon, 16 Mar 2009 15:40:38 -0000

The goal is to keep them all seperate. Never use a broker your realtor suggests, unless you've shopped at a number of other places. Although really, the damage is done, you can't even get subprime loans anymore. Now it's all a matter of shopping for the lowest rates, and the fewest points. Nearly all mortgages are now on the up and up, because banks can't afford to be risky. The lenders that were never risky to begin with are the ones that are going to be incredibly profitable coming out of this recession.

Re: The NAACP Subprime Suit

Ta-Nehisi Coates — Mon, 16 Mar 2009 15:21:15 -0000

I wouldn't take a recommendation from anyone with anything who had something to gain from the sale. No lawyers provided by the broker.

Re: The NAACP Subprime Suit

DougEMI — Mon, 16 Mar 2009 14:54:56 -0000

Take the realtor's recommendation? The mortgage company's? I agree that having everyone represented by a lawyer would help, but not that it would alleviate the problem

I have a friend who works for a title company, he is very distrustful of just about anything that comes for a realtor. According to him, they tend to have cozy relationships with mortgage brokers, appraisers, and home inspectors and the whole idea is to pick those who help things move along.

For example, they won't want to refer you to an inspector who is going to be too tough and potentially kill the sale.

Re: The NAACP Subprime Suit

Deborah — Mon, 16 Mar 2009 14:37:32 -0000

I think using a lawyer makes sense, and would consider it next time we buy a house. But that's because of what happened recently; something has gotten seriously out of whack when the people loaning you $400,000 are uninterested in whether you can pay back the loan, or whether the house securing the loan is worth that much in a down market. "It's in their interest for me not to default on the loan, so this stuff must be okay" is not a terribly unreasonable assumption for the buyer to make. We're not talking about the lender cleaning up on a few extra hidden fees, the sort of thing that's easily hidden in deep legalese and can come up as a small add on at the closing; we're talking about the lender foreclosing on a house that's not worth the value of the loan it was securing. It's a losing proposition, or should be.

And how do you find a good and honest real estate lawyer, especially if you're moving into the area from away? I suspect that in an up market, all real estate lawyers are going to look like they know their stuff. We had a local person do our wills, which were very straightforward*, and they screwed up. Seriously screwed up. Eventually they got it all correct to my satisfaction--of a one page document! with no obscure regulations for me to consider, just naming the correct guardians!--but how do I double check the lawyer? Take the realtor's recommendation? The mortgage company's? I agree that having everyone represented by a lawyer would help, but not that it would alleviate the problem--just as we had shady lenders, we'd have shady lawyers who "knew how to get this thing through."

*Will, which they managed to seriously screw up twice:

1) I leave everything to my spouse.

2) If (s)he predeceases me, we leave everything to our children. Guardian is A, if A is unable then guardian is B.

3) If we all die, property left to C.

4) Executor is spouse, then A, then B.

Re: The NAACP Subprime Suit

CParis — Mon, 16 Mar 2009 14:11:38 -0000

Lawyer is also required for both parties in home purchase in NJ. All loan (and mountain of other) docs had to be available well before closing for legal review.

Re: The NAACP Subprime Suit

DougEMI — Mon, 16 Mar 2009 14:02:57 -0000

At closing, there are a whole bunch of documents you have to sign, but the actual mortgage isn't all that many pages (at least in the states that I have read mortgages from). There are also now a lot of standardized reporting( I think government mandated) that spell out the terms more clearly than 15 years ago. Shit head brokers can still commit outright fraud and do sneaking things, but it is much harder to pull doublecrosses.

Re: The NAACP Subprime Suit

storm — Mon, 16 Mar 2009 14:02:16 -0000

I have a mortgage and have sold a home that was left to me by a grandparent. In both cases -- as the buyer and the seller -- the presence of a lawyer was required by law. I live in NYC. It is my understanding that in NYC, to conduct a mortgage transaction the representation of a lawyer is required. That said, I have heard of situations where buyers have been represented by lawyers (who were either incompentent or fradulent, ie the lawyer was in cahoots with the broker or lender) who did not protect their interests, resulting in their being saddled with high interest rates, etc.

Re: The NAACP Subprime Suit

Ta-Nehisi Coates — Mon, 16 Mar 2009 13:32:28 -0000

"TNC, do you have a mortgage? My mortgages have always been about 2 inches thick, and while I look at what I'm signing I do not attempt to read and perfectly comprehend all 200 pages. If there's a subclause on page 287 which translates out of legalese to "bank may seize family pet, barbecue," I don't know it. There is usually a top page that spells out the basic facts, and everyone should read and understand that."

Nope, I don't. But I wouldn't sign a contract that made me liable for thousands of dollars, without some impartial translator (lawyer?). Your broker is no more impartial than any other salesperson.

I've written many times that I'm opposed to this "poor people caused the financial crisis" argument. But I also think that people should learn from their mistakes. Simply screaming "We wuz robbed" does strike me as particularly reflective.

@Joa

If you're next post doesn't provide a link substantiating your charge. Don't bother posting at all. It will be deleted.

Re: The NAACP Subprime Suit

Justin — Mon, 16 Mar 2009 13:22:57 -0000

Deborah-- I think that, to me anyway, the point is that someone shouldn't sign mortgage doc that he/she (or that person's lawyer) doesn't understand. If you are borrowing that much money, spend $500-1000 to have a lawyer read the contract. If you don't have the money to pay the lawyer, you probably shouldn't be buyng a house.

Re: The NAACP Subprime Suit

Mocha Dem — Mon, 16 Mar 2009 13:10:51 -0000

I handled my entire mortgage transaction over the web and phone, and I always decline to state my race. This was preceded by about two years of research on mortgages, home buying and the finer points of financing. Same thing for purchasing a car, I always secure the financing outside of the dealer before I begin negotiations. Essentially I build an assumption of discrimination into the process and work all my angles to mitigate the risk. Five years later I am still pleased with my interest rates.

That said I still find myself pulling out my mortgage papers on a regular basis as I learn about some of the gotchas built into the contracts and making sure I didn't get taken.

Re: The NAACP Subprime Suit

Justin — Mon, 16 Mar 2009 13:08:46 -0000

David-- re: your point about certain buyers being unable to shop around doesn't make much sense to me when the result of the lending explosion over the last few years is that borrowers are not tied to local banks anymore (eg, Wells Fargo is not a local bank). The entire reason subprime can exist is because local lenders are not the primary sources of capital anymore. So yes, anyone can (or, could) go to lending tree or some other online broker site and get numerous mortgage quotes.