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Where Did the Water Come In?

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Katrina Vanden Heuvel, The Nation, February 20, 2008


In 2005 and 2006, over 50% of all loans made to African-Americans, and over 40% to Latinos, were subprime — compared to only 19% of white borrowers. Martin Gruenberg, vice chairman of the Federal Deposit Insurance Corporation (FDIC), said at the Rainbow PUSH Coalition’s Wall Street Economic Summit in January, “Only one-sixth of this differential could be accounted for by the ability of the borrower.” Analysis of Home Mortgage Disclosure Act (HMDA) data shows that African-Americans and Latinos in New York City, Boston, Washington, Philadelphia and other cities were two to three times more likely to have subprime, high-cost loans than white borrowers with similar incomes and loan amounts.

The New York Times has reported on two neighborhoods in the Detroit area — one 97 percent white with a median income of $51,000, another 97 percent African-American with a median income of $49,000. In 2006, 17 percent of the loans made in the white neighborhood were subprime, compared to 70 percent of the loans in the predominately African-American neighborhood. Illinois Attorney General Lisa Madigan recently pointed out on National Public Radio, “. . . An African-American earning more than $100,000 was more likely than a white person who earned less than $35,000 to be put in a high-cost, [subprime] loan. .&nbs;.&bnsp;. Clearly there is discrimination going on.” The Times also reported that “. . . around 90 percent of subprime loans originated between 2004 and 2006 carried exploding adjustable rates. Some 70 percent of subprime loans have prepayment penalties, versus 2 percent of prime loans. . . .” Those pre-payment penalties made refinancing impossible for hundreds of thousands of people. “Yield-spread premiums” also paid kick-backs to brokers for steering borrowers into high-priced loans.

Officials at the Department of Housing and Urban Development (HUD) point out that there is no uniformity in how loan documents spell out the terms of loans, and some are woefully inadequate. The Times also reported that “many lenders peddled the most abusive and costly loans to unsophisticated, first-time home buyers. Known as ‘affordability products,’ the mortgages generated big commissions up front and were designed to require refinancing later on — which included yet another round of luscious fees for lenders. With refinancing no longer an option, it is becoming obvious that these loans were designed to fail.” Madigan told NPR, “I have had hundreds of people come to our office once they realized that they were in one of these high-cost subprime loans… telling us that they did, in fact, ask ‘Is this a fixed-rate loan?’ They were told yes, only to find out two or three years later it was an adjustable rate loan. I’ve had people tell us, you know, ‘we told them that our income was only $2,000 a month. . . .’ [But] we find when we look at the documents it was written down [by the lender] as $7,000, $9,000 a month. So people were being put into loans in spite of the fact that they were . . . giving the correct information. And it is all because of the fact that the brokers and the lenders were receiving incentives, in large part because there was just this demand on Wall Street for these mortgage-backed securities.”

“Nobody seemed to care because of who was profiting, on the one hand, and who was being exploited on the other,” Jackson said. “But now the water is — like the Titanic — the water is up around the deck where the big people hang out. But where did the water come in? The water came in at the bottom of the ship. The poor always pay more for less — for cars, goods and services, insurance, food, banking money. This time, however, it’s affecting the whole economy, that’s what is different about this. Again, if the government had not allowed the rich to get richer at the expense of the vulnerable you wouldn’t have this crisis.”


A Democratic Congress hasn’t turned a blind eye to these accounts of predatory lending and the lack of regulation that invited it. In the House, both the Subcommittee on Financial Institutions and Credit and the Domestic Policy Subcommittee (chaired by Congressman Dennis Kucinich) have held hearings on predatory lending in the past year. Both Sandra Braunstein, Director of Consumer and Community Affairs at the Federal Reserve, and Chairman Sheila Bair of the FDIC, said on the record that their institutions have used HMDA data to discover patterns of discrimination and passed it along to the Department of Justice for prosecution.


This metastasizing crisis, Jackson argues, needs to be seen as part of the continuing struggle for racial equality. But both journalists and economists have been slow to admit that lack of civil rights enforcement plays a major role in this financial collapse. “That’s the whole problem with the popular idea that we’re going to ‘transcend race,” he said. “You can’t transcend race, you’ve got to remedy the race…. Transcendentalism does not lend itself to racial remedy. We all want to get beyond a sore, but you must take the glass out and the inflammation out, and let it heal. Then you get beyond it. The Great Society sought not to transcend it, but to address it, through a plan to lift up the bottom. After slavery, it was Reconstruction. We seek to heal this, not to transcend it.”


Jackson sees these same dynamics at play in the subprime crisis. “We do not have the dogs — that symbolism as a war state — but we do have what we call structural inequality. We’re free but unequal, free and unequally protected by law. If freedom is the absence of barbarianism, and the absence of indecency, then equality is the presence of justice.”


Original article

(Posted on February 21, 2008)

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Nary a peep from this article about how federal diversity mandates caused this. See: Community Reinvestment Act of 1977, and amendments made to the same in the mid-1990s.

Posted by St. Louis CofCC Blogmeister at 5:44 PM on February 21

Quote from the article: But both journalists and economists have been slow to admit that lack of civil rights enforcement plays a major role in this financial collapse.

lack of civil rights enforcement” [sic!]


This sounds like a threat.

They will “enforce” the equality of outcomes, you may bet on it a horse and carraige. The days are comming when the “underprivileged” minorities will be given houses on a silver plate and mortgages with interests that are “socially just” (well below the market). That’s their “civil right”, isn’t it?

This reminds me a story that I read many years ago in an Eastern European newsapaper. When the workers there were protesting on the streets hardships and deteriorating living standards, blameing it, and justly so, on indolence of their socialist regimes, one of the communist leaders had this ansewr to them:

“Things went wrong, but not because of socialism. They went wrong because of not enough socialism.”

And then the repressions followed.

Same here.

The idiotic and ourtight dangerous interference of the government with lending criteria (in order to help the “dispossessed” exercise their “civil rights”) forced banks to lend big sums of money to very risky borrowers. Now, when half of the mortgage market collapsed, the authorities blame it on … not enough governmental interference (so called, “enforcement”).

The adjustable rates plunged more than 2% in last few months (see:
) while the fixed rates are rising, again. This way the credit worthy borrowers, most of whom happened to be white, will pay for the risk of lending money, and cheaply so, to the risky ones.

We are not that far away from bolshevism, folks.

Posted by A Reader at 6:45 PM on February 21

There were a number of themes put forward during the Bush presidency. One of them was called “ownership society”, which is a notion which was trumpeted quietly but noticeably for a half a year or so in his first term. It is evident now that what was being referred to was sub-prime loans, which were targeted at a specific race for narrow political purposes.
I notice that this article comes from The Nation magazine by one of its current owners, K Vanden Heuvel.* If your read it from its original you will see that the second paragraph begins with Jesse Jackson interpreting this to be yet another victimization of ‘black and brown people’ (his words). The man never ceases to amaze me.
As for The Nation and The Left, just wait and see. They have been slowly, quietly repositioning themselves for more than a decade now. The day is coming when a break will come from them, and the thinking edge of them will come running this way. They will bring with them the confused and terrified mob who they’ve always provided opinions for, and at that time Racial Realism or whatever name you give it will turn up red hot. I do not look forward to those days but I know they are coming.

*Interesting facts in her biography, especially those which pertain to her father and the case of the Disappearing Navasky.
Look into it if you have a spare minute or two.

Posted by Mr. Smith at 6:58 PM on February 21

From what I have read, blacks who make large salaries are much more likely than whites of similar salaries to have very high credit card debt and/or poor credit.

Everyone was jumping on the gravy train (“Real estate never goes down in value!”). Yes, some were taken advantage of by predatory lenders, but the majority got caught up in the gold rush mentality of the past six years.

It was all greed, pure and simple. People were betting on housing prices continuing to rise and being able to refinance or sell before the rate adjusted. Then the bubble burst. They gambled and lost. Now they are crying that they were “victimized” so they don’t have to take responsibility for their actions.

Certain people love to play the “poor ignorant me” card when it is convenient.

What a shocker.

Posted by Violet at 8:15 PM on February 21

A few random thoughts here:

1. Somehow, I can’t picture white loan salesmen going into 97% black neighborhoods.

2. I’m also surprised that there were no accusations in this article about the “predatory” lenders promising that after 4-years of payments that borrowers would get 40 acres and a mule.

3. Wouldn’t it be nore appropriate to label the borrowers as “ignorant” as opposed to “unsophisticated”? I’m not sophisticated either and that is why I don’t trade stocks. I don’t know what I am doing, so I assume I will lose money.

4. I come from a low-income background. My father was not educated or sophisticated. But he knew that when he couldn’t afford soemthing, he wouldn’t buy it. He also taught me to be wary of salesman and “Don’t believe anything you hear and only half of what you see” and “Read before you sign”.

5. And the obvious random thought that will be repeated here many times: What would have happen if the minorites were not allowed these loans?

Damned if you do and damned if you don’t.

Posted by Lucas M at 8:22 PM on February 21

The point here is a moot one. It doesn’t matter whether the non-whites had ARM’s or regular mortgages at a preferred interest rate, because in both cases the result would have been just exactly as it is now: They would have defaulted in either instance. They couldn’t afford even low interest loans, because they borrowed WAY over their heads.

Posted by ice at 8:55 PM on February 21

The research missing here is the statistical data that correlates (a) the loan default rates for borrowers in the same annualized income range to (b) race.

We need to see something like:

- Non-Hispanic White borrowers with annualized incomes of P defaulted in X% of the cases

- Black borrowers with annualized incomes of P defaulted in X% of the cases

We need to know what the variables P and X are to make a meaningful comparison. Can anyone produce this information from a credible source?

Posted by at 9:01 PM on February 21

Loan worthiness takes into account more than just income, e.g., assets, liabilities, credit history, etc.

All things being equal, blacks, Hispanics, and whites should pay the same rates, but I’m betting that the net worth and credit rating of non-whites is abysmal, hence the higher rates.

Posted by PhreeThot at 9:08 PM on February 21

ice wrote:

hey couldn’t afford even low interest loans, because they borrowed WAY over their heads.

But that’s why banks have loan officers and accountants — to analyze the personal finances and credit ratings of potential borrowers, then approve or deny a mortgage application of an existing amount, or pre-approve them up to a certain amount (assuming they are). I get a feeling that a lot of these standards were pushed out of the way due to financial affirmative action.

Posted by St. Louis CofCC Blogmeister at 9:18 PM on February 21

When you take out a home loan from a bank, you are paying interest to the bank so the bank will take the risk you will default on the loan. It is just like insurance; you are paying someone to take a financial risk for you.

Whiners, please look to thine own credit.

Posted by Michael C. Scott at 9:27 PM on February 21

My husband and I went through h@ll to get a one of these sort of loans. We had poorer credit due to a business failure on his part and a divorce on mine and we lost money 2 times trying to get a house. When we finally were able to get it together enough to get a house we had almost no furnature and furnished our house a little at a time at yard sales and thrift stores so that we would not have to go into debt. When we decided to have a child we sold our only car so that my husband could go to truck driving school so that we could survive on one income. We refinanced in August, a month before our baby was born and now we have a fixed rate loan at a lower interest rate. We worked our butts off and ate at food banks a time or two so that our mortgage payment would never be late so that we could qualify when we knew our loan would start adjusting.

Posted by Spartan24 at 9:42 PM on February 21

They assume racism because they can’t imagine that income isn’t the only factor that looks into credit-worthiness. Credit rating, savings, and a dozen other factors also matter. Blacks making the same income could easily be less credit-worthy and therefore get higher interest loans.

‘If freedom is the absence of barbarianism, and the absence of indecency, then equality is the presence of justice’

Marxism strikes back. Now I’m just waiting for ‘return of the whites’

Posted by Diamed at 10:06 PM on February 21

Just as long as the Arabs, Chinese and Teachers Pensions Funds buy these Affirmative Action loans, then it’s okay with me.

Posted by LOGIC at 10:39 PM on February 21

I hada friend who use to do personal loans at the bank we used to work at. She did loans long before I started at a branch that was located in the black area of town. Lucky her. She hated it.
Anyway, two black ladies were turned down for loans for whatever reasons. These women played the race card, threatened lawsuits, etc. My friend, along with other bank workers had to go back however many years & look at everyone loan ever applied for to see how many blacks were approved or turned down.
Can you believe that?? I couldn’t!! After that, our bank had a “black loan quota” to meet. Most loans that were in default that I came across were mostly blacks. Even one of the black workers who I got stuck working with, her & her mother always had past due loans!! You think if you worked at a bank, you would want to keep you loans, etc in good standing.
Black people are just a pain in the butt. I think they enjoy playing the race card & being contrary.

Posted by Dixie Land Doll at 10:59 PM on February 21

What kind of job did these blacks have at $100K+ per year that rendered them so financially stupid as to be tracked (hoo-dooed) into a sub-prime mortgage loan “designed to fail”? Where can I get a job like that and be that stupid?

Posted by Flaxen-headed Strumpet at 11:15 PM on February 21

For decades we’ve heard how minorities can’t get loans, and that that is discrimination. Now they get loans they can’t repay, and that is discrimination.

Remember, the non-whites with those sub-prime loans aren’t the losers in this. Sellers of homes got their money and non-whites got a home to live in for a while. The lenders are the ones getting nailed. So non-whites (eventually) have to move out of homes they have next to nothing invested in — big deal!

Posted by at 11:51 PM on February 21

I am a white guy working as a loan processor for a mortgage broker. The majority of our loan originators are non white. I have to enter all the loans onto a spread sheet for record keeping. One of the columns asks for race of borrower.

Its very interesting that the majority of black loan originators have black borrowers, the majority of hispanic loan originators have hispanic borrowers, the majority of asian loan originators have asian borrowers but whites have the biggest mix of borrowers, mostly white but lots of blacks, asian, hispanic, etc.

What is even more interesting is that the vast majority of black loan originators charge the highest fees to their black borrowers. In fact most of them as me to ask the lender what the highest amount of points that can be charged before a loan is consider predatory. Then those black LO’s will say “charge them up to a dollar below that ceiling. And the black borrowers take them.

Stupid is as stupid does.

You never hear about this though

Posted by ShermanStreet at 12:25 AM on February 22

As mentioned above, repayment history and debt to income ratios factor into credit scores in addition to income. I’m waiting to read a “news” story that points out that a white guy earning 50K is more likely to pay his bills than a black guy earning the same 50K.

Posted by Jamie at 12:46 AM on February 22

Nobody “put me” into any mortgage I didn’t want. All these po po borrowers unable to understand the terms of their mortgage that they willingly agreed to. Boo hoo! It’s not the governments place to protect people from their own stupidity.

Posted by Robert at 7:22 AM on February 22

I was moved by this story. Let’s just have the federal government pay back all the loans. I mean they were poor, unsophisticated, unknowing, minorities.

Posted by S & GS at 9:42 AM on February 22

I get a feeling that a lot of these standards were pushed out of the way due to financial affirmative action.

Posted by St. Louis CofCC Blogmeister at 9:18 PM on February 21

You are right.

Some black activists have been pushing for a ban on grading of applicants on a scale, be it for loans, for jobs, or for college admissions. Their position has been that someone is either “qualified” or “not qualified”, and among the “qualified” there are no “more qualified” and “less qualified”. And then, the affirmative action rules should apply accordingly, that is, that among “equally qualified”, the “underrepresented” minorities should be given a preference.

Long time ago, I used to receive letters from my utility company saying that my timely payments of all bills weren’t unnoticed, and this fact was being recorded for the purpose of future credit references. Not anymore. I was interested to know why did they stop that and got an answer that such practice was banned by the law because it was deemed discriminatory.

Now, they claim that the morgage crisis should be blamed on “lack of civil rights enforcement”. What a deceitful propaganda.

Posted by A Reader at 10:36 AM on February 22

Prince George’s County is the most affluent black-majority jurisdiction in the world. You ever wonder why the people there have so many subprime home loans? You ever wonder why you see so many foreclosure help signs along Martin Luther King Highway? You ever wonder why Prince George’s County is almost barren of high-scale restaurants and the best the county has to offer are chain restaurants in the few whiter sections of the county? You ever wonder why there’s no upscale shopping centers or stores? You ever wonder why there is so much violent crime in afluent Prince George’s County? You ever wonder why the white establishment would do this to these affluent people?

Posted by Andy Rooney at 12:53 PM on February 22

We knew going into our loan that we would have adjustments starting in 2 years so we knew we would have to work hard to get refinanced to a loan that would not adjust. We were also told that if we had been a “minority” we would have been financed at a much lower credit score.

Posted by Spartan24 at 6:02 PM on February 22

It’s time for the world to know that this bank fraud has been in place long enough to jeopardize the global economy. It is time for the world to know how much 15% of a total population can de-stabilize the richest country in the world and is the cause of most internal problems of this nation.

Posted by Lars at 10:54 PM on February 22

Blacks have the highest foreclosure rates and sub-prime loan rates. Oh, wait, that makes sense! You offset the foreclosure risk by increasing the rate!

Too many foreclosures kind of says the adverse rating was justified in the first place. Moronic nation!

Posted by at 12:16 AM on February 23

What abot credit history, and credit reports? Bantus, who tend to have lower credit scores, and more adverse negative credit history, will pay more for credit. They deserve to. Amount of income has nothing to do with it.

Here’s an actual flesh-and-blood situation, I’d like to share with my Amrem brethern:

In the early 1990’s, I was a shylock for a finance company (since gone out of business), handling accounts for a well-known carpeting retailer. One of our account-holders was ex-baseball player Gary Matthews. When we ordered his credit report, it showed a tax-lien judgment of $ 600,000 agianst him in a San Diego CA County court. Here was a guy earning millions of dollars playing baseball, who didn’t pay his taxes and so had a negative credit report.

Incidentally, the finance company was one of those who gave credit to customers who couldn’t get it in the regular market. Thee APR ran anywhere from 39% to 44%, BTW.

Posted by Soprano Fan at 12:41 PM on February 24

Since so few youths are graduating from even junior high school, how is it possible to house people who can’t add, subtract, and can only divide other people. Who would like to live in a hood where the most distinguished person can barely read warrants and subpoenas. I would rather live in a warsaw tenement with nazi patrols than try to live with Under Schooled thugs and a subprime lifestyle.

Posted by Lars at 11:24 PM on February 24

*An African-American earning more than $100,000 was more likely than a white person who earned less than $35,000 to be put in a high-cost, [subprime] loan. .&nbs;.&bnsp;. Clearly there is discrimination going on.”*

First, they need to remember that nobody forced them to sign up for subprime loans over a fixed rate loan. You would also expect someone earning 100K a year to be educated enough to understand that there would be a serious rise in mortage fees, especially with a shift in interest rates.

In reality, most of the minorities who signed up for subprime loans did not earn anywhere close to 100 thousand a year. Most also had poor credit ratings, which is why subprime loans were the only options available to them. They instead, willingly took a gamble on a house they could not begin to afford, lured by the initial low payments, thinking they could stay ahead of the game by refinancing later. The gamble didn’t pay-off, and their equity dropped. So instead of taking responsiblity for their own actions, they blame the banks. Houses are not mean’t to be given away to families who can’t afford them, and who carry a history of bad credit ratings. It’s high-time, they quit expecting everything to be handed to them.

Posted by at 12:01 AM on February 25

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