Sub Prime Exploitation

Subprime mortgages impact disproportionately on the working class in particular the ethnic working class in the United State. Foreclosures will result in increased homelessness in the U.S. Even those who could afford better loans were subject to denial of access to better loan rates due to systemic racism.

This is what class war looks like under modern casino capitalism. It is the Enron moment for the mortgage industry.

The White House announcement of a Mortgage forgiveness program, after the Fed bailed out the financial markets, is too little too late.

Latinos and African-Americans who bought homes or refinanced mortgages in the San Jose metropolitan area last year were much more likely than white borrowers to get subprime loans, according to a study scheduled for release today.

In its annual survey based on federally collected data, this year titled "Foreclosure Exposure," community activism group ACORN said 47 percent of Latinos who got mortgages to buy homes in Santa Clara and San Benito counties in 2006 received "high cost" loans that the group considers to be synonymous with "subprime." Nearly 32 percent of African-American borrowers buying homes got high-cost loans, while only 8.5 percent of white borrowers did.

The trend is the same for those who refinanced loans - Latinos and African-Americans got subprime loans 23.5 percent and 22.8 percent of the time, respectively, compared with 9.4 percent among white borrowers.

"The racial disparity persists even among borrowers of the same income level," the report's authors wrote. Upper-income Latinos and African-Americans were more than five times as likely to get high-cost loans than upper-income whites, the study said. Upper-income borrowers were those with income of at least 120 percent of their area's median income.

Vallejo is the Bay Area's version of ground zero for the subprime loan crisis.

A significant number of residents of the largely blue-collar city of 120,000 have taken out subprime loans -- expensive mortgages issued to people with poor credit.

In 2005, almost one-quarter of mortgages in the Vallejo-Fairfield metropolitan area were subprime loans, according to the Center for Responsible Lending's analysis of Home Mortgage Disclosure Act data.

Vallejo home prices fell 8.5 percent from November to March, according to DataQuick Information Services. For people who bought in recent months without putting any money down, that means they may owe more on their mortgage than the house is worth.

In a report called "Losing Ground," the center spotlights the Vallejo-Fairfield metropolitan area (which comprises all of Solano County) as a potential trouble spot, with one of the highest projected foreclosure rates in the country. The report predicted "that 23.8 percent of subprimes there will end in foreclosure," said Paul Leonard, director of the center's office in Oakland.

Areas with high foreclosure rates tend to share some characteristics. One is sinking home prices. Many "tend to be on the perimeter of major metropolitan areas rather than at the heart," said Leonard. "The housing prices in those areas are most subject to change. Often they tend to have a high concentration of minorities."

The people seeking help have almost identical stories, Hardy said. They bought homes using subprime loans. After a low initial rate, their monthly payments skyrocketed. Meanwhile, home prices in their neighborhoods went down, so they cannot easily sell or refinance. The result is that the homeowners owe more on their homes than the houses are worth.

Hardy said her clients tend to be blue-collar workers who earn close to the median income for Solano County, which is $75,400 for a family of four. Some of them used what are called stated-income loans, meaning a loan officer allowed them to claim that their earnings were higher than they are.

They bought homes about two years ago, using a type of mortgage loan in which they made low, interest-only payments for two years, followed by 28 years of adjustable-rate payments. Usually they did not make down payments. Once the initial two years were up, their monthly mortgage payments shot up.

"Nobody sat down with them and said if your interest rate goes up just 2 percent, here's what your house payments will be," she said. "These people all of a sudden are getting notices that in 60 days their house payments will go up $600 or $800 a month, and they say 'I can't do that.' "

"Until six months ago, we could almost always save the person's investment, either by helping them to refinance or explaining that they needed to sell and get their equity out before foreclosure," said Martin Eichner, director of dispute resolution at Project Sentinel, a nonprofit HUD counseling agency in Sunnyvale.

"But more and more, the calls we're getting are from people who bought on a shoestring and have few, if any, options to avoid the foreclosure. They haven't built up any equity and they put themselves in loans that were essentially doomed to fail with 100 percent financing and/or negative amortization."

But a series of interviews with subprime borrowers, mortgage lenders, appraisers, current and former regulators, and the inspector general of the Department of Housing and Urban Development paints a different picture — of a widespread pattern of questionable lending practices and outright fraud that has already sparked a wave of criminal and civil actions against various players in the $10 trillion market for residential mortgages.

Questionable mortgage practices can take on many forms, but the fall into two broad categories:

• Predatory lending. In this case, complex mortgage terms and interest rate risks were not fully explained as required by federal law. The borrower is usually the victim.
• Mortgage fraud. In these cases, often carried out by sophisticated swindlers, the lender is typically the victim.

As the housing market boomed in the early part of this decade, lenders proliferated with deals that often seemed too good to be true. To be sure, some borrowers - eager to "cash out" their rising home equity generated by the housing boom - were too quick to refinance at below-market interest rates and artificially low monthly payments.

SEE:

Canadian Banks and The Great Depression

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Nortels Chickens Roost

It takes the American SEC to actually charge the folks behind Enron North. Investors got tired of waiting for the Ontario Securities Commission to do anything. Another reason for having a single national regulator.

And Nortel has been a bigger loss for more seniors and retiree investors than the Income Trusts.

SEC files charges against former Nortel execs

The securities regulator alleges the execs at the Toronto-based telecom maker repeatedly engaged in accounting fraud "to bridge gaps between Nortel's true performance, its internal targets and Wall Street expectations." "Each of the defendants betrayed Nortel's investors and their misconduct gave rise to billions of dollars in shareholder losses," said Linda Thomsen, director of the SEC's Division of Enforcement.

In the go go world of a long bull market like we have seen, the only house rule for casino capitalism is that rules are meant to be broken. The wave of criminal fraud cases that have hit the market are a result of the politics of Greed that we saw in the eighties and before that in the seventies and early sixties.

Gekko: Greed - you mark my words - will save Teldar, and that other malfunctioning corporation, the U.S.A.

During bull markets the movers and shakers of real existing capitalism, not the Von Mises /Hayek fiction, find accomplices like Accounting firms to do their bidding, which is to hide money away from the government, and also to make as much money as quickly as possible. Both of these ends then require a means, which is fraud, pure and simple.

The use of back dated shares, accounting practices to pump up market prices, accounting practices to avoid taxes, hedged bets on mutual funds after closing, these are all business as usual until they are declared fraudulent by those who are supposed to be regulating the market.

It is the political dominance of finance in the marketplace.

Nortel is not Canada's only criminal capitalist on trial in the U.S.

Establishment-watchers eagerly await Black's trial

See

Nortel Slash & Burn

NORTEL: REDUX

NORTEL: Canada's Enron

Dalai Canuck

Criminal Capitalism

We Need a Living Wage

The Phoney Debate On Net Neutrality

CEO


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Radical Capitalists Not So Radical

Louis Rosetto, the "radical capitalist" who founded Wired magazine, is not a 'libertarian" despite what the Wall Street Journal says, he is an Ayn Rand capitalist apologist as is his magazine.

Wired Magazine in the nineties predicted that high tech capitalism was booming and would do so for the next 25 years. And then the dot.com bubble burst.

And yet the article made it onto the market as a book. A self fulfilling prophecy for the pre-Enron generation in Silicon Valley.

For the most part, the book lacks historical perspective--unless you count the authors' use of ''future history.'' For much of the book, they write as if they were looking back from the 21st century, giving their arguments an undeserved aura of certainty. This conceit may confound serious readers, for it produces a bizarre blend of real and imaginary companies in the index. For example, New York Times is followed there by a listing for Nippon Nano, a fictitious Japanese nanotechnology giant supposedly operating in the middle of the next century.

And we should give credence to these dweebs who call themselves 'libertarians" when in reality they are merely apologists for the newest regime of robber baron capitalism.

Like most of the Utopian idealists of the right they believe in what Ayn Rand called; Capitalism The Unknown Ideal. And that is what it is, an unknown ideal because the historical reality of capitalism clashes with their Walt Disney notions of idealized capitalism.

There has never been a free market under capitalism, because capitalism dominates markets, it abhors freedom and demands monopoly. It was in fact capitalism that created the State, the very state these dweebs protest against. If they had their idealized free market, capitalism would again create a State to to regulate competition and allow for the powers that be to gain a monopoly, which is how real life capitalism operates.

Capitalism as a "mode of production," Marx argued, is a historically new and distinct form of human society. True, in both the ancient world and feudalism there were "capitalists." That is, there was trade and money, there were merchants profiting from buying and selling. But these, by themselves, were insufficient to establish capital as the ruling principle and regulator of society.

To understand a mode of production, Marx suggested, we must look to the very core of society, and specifically to the way that surplus is pumped out of the direct producers. In previous forms of class society, exploitation took a definite form. The characteristic dominant social relation was that between lord and peasant, with the peasant family laboring more or less under its own self-direction and compelled, by force, to hand over surplus products and surplus labor to its exploiters.

In capitalism, by contrast, the dominant class relationship is that between capitalist and worker. The worker unlike the peasant is radically "dispossessed." Where the peasant family could sustain itself on the products of its own labor, modern workers cannot, for they lack direct access to the very means to live. They cannot feed themselves from their labor on the land, nor sell the products of their own labor, for they have access to neither land nor the tools and materials required for modern production. Instead, they must hire out the one thing they own - their "labor power," their human creative capacities - to employers in return for money wages, which they can spend purchasing the means to satisfy their needs. The principles of the market, money, exchange, profit, and the like thus penetrate into the very inner fabric of capitalist society in a way that was simply not true for earlier forms of society. The key to the emergence of capitalism was something new: the creation of this radically dispossessed figure, the wage worker.

h/t to Diogenes Borealis


See:

Monopoly Capitalism in Cyberspace

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