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November 24, 2007
Op-Ed Columnist
Lost in a Flood of Debt
By BOB HERBERT
CHICAGO
I've been visiting some of the people who have been most affected by the
subprime mortgage debacle. It's a largely bewildered, frightened group that
includes people like Dorothy Levey, a 79-year-old widow who sits alone
inside the small house she has lived in for 41 years, afraid to answer the
telephone or the door.
She has every reason to be worried. The monthly note on her house in the
city of Markham, just outside Chicago, is approximately 100 percent of her
meager monthly income. Broke and behind in her payments, Ms. Levey expects a
foreclosure notice to show up any day, followed by a visit from "the
sheriff, or whoever they send to tell you to get out of your own home."
While the media coverage has focused on the high rollers who created the
subprime frenzy ("If you can breathe, we'll give you a loan"), the hapless
victims have remained in the shadows, condemned to economic ruin.
After faithfully making mortgage payments for decades, Ms. Levey and her
husband, Dan, were persuaded to take out a new loan, ostensibly for debt
consolidation, in 2002. It was like plunging into quicksand. Dan was
seriously ill at the time and he died two years later.
To this day Ms. Levey does not understand what she and her husband of more
than half a century had agreed to. The terms might as well have been written
in Sanskrit.
But she kept trying to meet her obligation. She exhausted her savings. She
lost her car. She stopped buying clothes and cut back on food. But there was
no way to keep up with the payments.
"I had to go to the state and tell them I was hungry," she said.
I heard the same story again and again - decent people enticed, sometimes
fraudulently, into loans they never understood and couldn't afford.
For years redlining and other discriminatory practices served as roadblocks
to homeownership in neighborhoods with significant numbers of poor and
working-class residents, many of them black and brown. Making affordable
loans available to such residents was important.
But we have since moved to the opposite extreme. Over the past several years
mortgage lenders recognized that there were big bucks to be made in those
neighborhoods, and they pounced.
They weren't satisfied to offer reasonable loans at reasonable rates to
customers who could handle them. They went far beyond that. They took
advantage of a poorly regulated landscape to exploit unsophisticated home
buyers and homeowners with mortgages and refinancing schemes that were all
but guaranteed to result in a tragic explosion of foreclosures.
Thousands of poor people like Dorothy Levey, who worked for years to build
modest amounts of equity in their homes, have been hammered - wiped out. The
most unscrupulous of the mortgage lenders, and there were many of them,
swooped in and sweet-talked their targets into signing contracts designed to
squeeze them for everything they had in the world.
The fact that this is often legal doesn't make it right. As insane as it
sounds, Ms. Levey is still getting offers to refinance her mortgage.
There is some truth to the assertion that a lot of buyers signed up for
deals they should have known they couldn't afford. But it won't do for the
fat cats to fall back on empty phrases like "buyer beware."
The subprime mortgage frenzy was a shameful, highly-charged phenomenon,
motivated by greed and played out on a field of rampant exploitation. The
victims deserved more protection than they got. As Paul Leonard, director of
the California office of the Center for Responsible Lending, told me this
week: "You shouldn't have a marketplace that's a 'buyer beware' marketplace
for the most important financial transaction of most people's lives."
It's not too much to ask that when Americans of modest means put their
economic futures on the line, we have regulations in place to see that they
are not ripped off.
If you think this is a small matter, consider that the center reported a
year ago that subprime loans represented roughly a quarter of all home loans
in the U.S., and that an estimated 2.2 million households in the subprime
market would ultimately face foreclosure.
We ignored the subprime frenzy and its predictable consequences until it was
too late. Now we are ignoring the plight of families caught in the tidal
wave of foreclosures, and the long-term consequences that will flow from
that.
There is a desperate need for government and corporate leaders to step in
with a broad plan to modify existing loans and stave off foreclosure
wherever possible. It is both the humane and the economically responsible
thing to do.
Don't hold your breath.
Op-Ed Columnist
Lost in a Flood of Debt
By BOB HERBERT
CHICAGO
I've been visiting some of the people who have been most affected by the
subprime mortgage debacle. It's a largely bewildered, frightened group that
includes people like Dorothy Levey, a 79-year-old widow who sits alone
inside the small house she has lived in for 41 years, afraid to answer the
telephone or the door.
She has every reason to be worried. The monthly note on her house in the
city of Markham, just outside Chicago, is approximately 100 percent of her
meager monthly income. Broke and behind in her payments, Ms. Levey expects a
foreclosure notice to show up any day, followed by a visit from "the
sheriff, or whoever they send to tell you to get out of your own home."
While the media coverage has focused on the high rollers who created the
subprime frenzy ("If you can breathe, we'll give you a loan"), the hapless
victims have remained in the shadows, condemned to economic ruin.
After faithfully making mortgage payments for decades, Ms. Levey and her
husband, Dan, were persuaded to take out a new loan, ostensibly for debt
consolidation, in 2002. It was like plunging into quicksand. Dan was
seriously ill at the time and he died two years later.
To this day Ms. Levey does not understand what she and her husband of more
than half a century had agreed to. The terms might as well have been written
in Sanskrit.
But she kept trying to meet her obligation. She exhausted her savings. She
lost her car. She stopped buying clothes and cut back on food. But there was
no way to keep up with the payments.
"I had to go to the state and tell them I was hungry," she said.
I heard the same story again and again - decent people enticed, sometimes
fraudulently, into loans they never understood and couldn't afford.
For years redlining and other discriminatory practices served as roadblocks
to homeownership in neighborhoods with significant numbers of poor and
working-class residents, many of them black and brown. Making affordable
loans available to such residents was important.
But we have since moved to the opposite extreme. Over the past several years
mortgage lenders recognized that there were big bucks to be made in those
neighborhoods, and they pounced.
They weren't satisfied to offer reasonable loans at reasonable rates to
customers who could handle them. They went far beyond that. They took
advantage of a poorly regulated landscape to exploit unsophisticated home
buyers and homeowners with mortgages and refinancing schemes that were all
but guaranteed to result in a tragic explosion of foreclosures.
Thousands of poor people like Dorothy Levey, who worked for years to build
modest amounts of equity in their homes, have been hammered - wiped out. The
most unscrupulous of the mortgage lenders, and there were many of them,
swooped in and sweet-talked their targets into signing contracts designed to
squeeze them for everything they had in the world.
The fact that this is often legal doesn't make it right. As insane as it
sounds, Ms. Levey is still getting offers to refinance her mortgage.
There is some truth to the assertion that a lot of buyers signed up for
deals they should have known they couldn't afford. But it won't do for the
fat cats to fall back on empty phrases like "buyer beware."
The subprime mortgage frenzy was a shameful, highly-charged phenomenon,
motivated by greed and played out on a field of rampant exploitation. The
victims deserved more protection than they got. As Paul Leonard, director of
the California office of the Center for Responsible Lending, told me this
week: "You shouldn't have a marketplace that's a 'buyer beware' marketplace
for the most important financial transaction of most people's lives."
It's not too much to ask that when Americans of modest means put their
economic futures on the line, we have regulations in place to see that they
are not ripped off.
If you think this is a small matter, consider that the center reported a
year ago that subprime loans represented roughly a quarter of all home loans
in the U.S., and that an estimated 2.2 million households in the subprime
market would ultimately face foreclosure.
We ignored the subprime frenzy and its predictable consequences until it was
too late. Now we are ignoring the plight of families caught in the tidal
wave of foreclosures, and the long-term consequences that will flow from
that.
There is a desperate need for government and corporate leaders to step in
with a broad plan to modify existing loans and stave off foreclosure
wherever possible. It is both the humane and the economically responsible
thing to do.
Don't hold your breath.