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Subprime in Seattle, Spin on Capitol Hill and Bailouts on Wall Street Leave Consumers Sleepless

Byline: Matthew Russell Lee of Inner City Press in the Pacific Northwest

SEATTLE, June 25 -- As the subprime crisis worsens, the spin from all sides accelerates. Mortgage Bankers of America economist Jay Brinkmann last week laid the blame not on mortgage bankers but rather, not surprisingly, on the economy. "The problem is the greatest in Michigan, Ohio and Indiana. We've seen very large job losses, particularly in the manufacturing sector in those three states," he said. The "situation in Ohio right now is worst than what we saw in Texas in the oil bust of the 1980s."

            So according to the Mortgage Bankers, the problem is the Rust Belt and secondarily, the blame is on the victims, for succumbing to illusions that "you can pay off the car loan and you can take care of the credit card bills, that is too good to be true." The dysfunction, according to the lending industry, is not with them, but is either personal or regional.

            Here in Seattle, however, the Rust Belt argument does not hold. There were 832 foreclosure filings in May in King and Snohomish counties - up 9.5 percent from April and 76.6 percent from May 2006.  Across the United States, May's foreclosure filings were up 19 percent from April and up nearly 90 percent from May 2006.  The nation's largest savings bank, Washington Mutual, is headquartered in a 42 story tower here, with views of Puget Sound. WaMu, as it's known, with its logo disturbingly (or appropriately) like a pitchfork, intends in the future to merge the data of it subprime unit Long Beach in with its savings bank. Even so, it has had to set aside $2 billion to refinance borrowers whose re-setting adjustable rate mortgages will become unaffordable this year or next. WaMu, it seems, bit off more than it could chew.

The view from WaMu's tower in Seattle

            Back in the Rust Belt at the Federal Reserve Bank of Cleveland, last week President Sandra Pianalto acknowledged that in "the fourth quarter of 2006, Ohio had the highest foreclosure rate of any state in the nation. We know that Cuyahoga County itself has been particularly hard hit. It is unfortunate that at a time when many people are rediscovering the hidden potential of our urban neighborhoods, the current trend in foreclosures might compromise some of the real progress that has been made." Then she said -- "Please understand that the Federal Reserve Banks are not rule-makers; that authority rests with the Board of Governors."

            In the Fed's stately white marble headquarters, Chairman Bernanke made a point of sitting down last week with flown-in activists, but committing to nothing. "It's very politically savvy on the part of the Fed" to hold such a meeting, even mortgage industry analyst Howard Glaser questioned. "Whether it translates into action remains to be seen."

            Recently the biggest action taken had been Bear Stearns' $3.2 billion bailout... of other Wall Street firms, and so of itself and a subprime hedge fund it began.  JPMorgan Chase and Citigroup took the money. Both banks loudly signed on to the voluntary "best practices" principles promoted, as an alternative to actual consumer protection legislation, by Senator Chris Dodd (D-Con). But Inner City Press has been told by well-placed sources in each bank that at neither institution would these "best practices" in any way cover the best of subprime investment exposed in the meltdown of the Bear Stearns funds.

Subprime disparities singe Seattle too. And see,

"Banks Prone to Sell Minorities Pricy Loans," Reuters

            In fact, as simply two (large) examples, both Citigroup and JPMorgan Chase are disparate in their own subprime lending. In what is still the first study of the 2006 mortgage lending data, watchdog and technical assistance organization Fair Finance Watch identified worsening disparities by race and ethnicity in the higher-cost lending of these two and some others of the nation's largest banks. 2006 is the third year in which the data distinguishes which loans are higher cost, over the federally-defined rate spread of three percent over the yield on Treasury securities of comparable duration on first lien loans, five percent on subordinate liens.

            Citigroup in 2006, in its headquarters Metropolitan Statistical Area of New York City, confined African Americans to higher-cost loans above this rate spread 4.41 times more frequently than whites, according to Fair Finance Watch. Citi's disparity to Latinos was 2.38. Meanwhile Citigroup has propped up and taken an option to buy Argent Mortgage, 91.65% of whose loans in 2006 were subprime.

         JP Morgan Chase, 19.28% of whose 2006 mortgage were subprime, was particularly disparate in the New Orleans MSA, where Chase confined African Americans to higher-cost loans 2.74 times more frequently than whites.   

       Nationwide and Citigroup in 2006, 59.24% of African American borrowers were confined to higher cost loans over the rate spread, versus only 31.62% of whites. At HSBC, half of white borrowers were confined to rate spread loans, versus 68.97% of African Americans and 63.27% of Latinos.

        HSBC, which bought Household International in 2002 just after its predatory lending settlement with state attorneys general for $484 million, in 2005 made some five thousand super high-cost loans subject to HOEPA. This rose to 6295 HOEPA loans by HSBC in 2006, even as HSBC gave earnings warnings.

           The Fair Finance Watch report has found that nationwide at Royal Bank of Scotland's Charter One Bank unit, African Americans were confined to higher cost loans over the rate spread 1.49 times more frequently than whites. And at Countrywide and its higher-cost Full Spectrum, upper income African Americans were confined to higher cost loans over the rate spread 1.92 times more frequently than whites. In 2006, 24.70% of Countrywide's total mortgages were subprime. Combining General Electric's two mortgage units, GE Money Bank and WMC Mortgage, fully 86.89% of 2006 GE mortgages were subprime.

            Bank of America, which thus far like just-bankrupt New Century has refused to provide its 2006 data despite a requirement that it be available on March 31, also assists other subprime lenders in 2006, the report says, by securitizing loans for Ameriquest, which last year settled predatory lending charges with state attorneys general for $325 million. The settlement only required reforms at Ameriquest Mortgage and two affiliates, but not its largest affiliate, Argent Mortgage, which Citigroup now has an option to buy. The 2006 data show that Argent made 117,328 mortgages, of which 107,530 or 91.65% were higher cost loans over the rate spread.

            In other acquisition news, now Bank of America and Royal Bank of Scotland are competing to buy the Chicago-based LaSalle Bank, from or along with Europe's ABN Amro. Bank of America has applied to the Federal Reserve Board for approval, even while its proposal has been sued and stayed in Dutch courts.  The Fair Finance Watch study concluded, "Where the rubber will meet the road will be in how the Federal Reserve and other agencies act on specific disparities at specific lenders, including as these are formally raised to them in timely comments on merger applications."

            Returning full circle to the Pacific Northwest and the industry's spin, economist Jay Brinkmann's own Mortgage Bankers Association has reported that 2.31 percent of Washington State mortgage payments were at least 30 days late during the first three months of this year, up from a year earlier. According to the MBA, six percent of Washington mortgages are subprime adjustable-rate loans, and 8.75 percent of those in the state were delinquent in the first quarter. The recent spin on Capitol Hill, like the self-bailout on Wall Street, do nothing to help these consumers. While the industry and its enablers play for time, the search for a solution must continue.

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