I ran across an article posted on the National Association of Realtors website regarding predatory lending. Turns out that this article warns about applying predatory lending rules to many toxic loans. The article admits that applying these rules would lead to a popping of the real estate bubble! Remember, this was posted on June 21, 2005. Yet David Lereah was on CNBC after this, as head of NAR, promising that real estate would recover. Daily I watched this pitch for recovery from what, even NAR has admitted, was a bubble. To be fair, NAR had many articles posted warning of interest only loans as well.
Another NAR article posted on February 22, 2005, the author was haggling over the appropriateness of interest only mortgages, and says that only on the margin, are these loans dangerous. Yet the OCC was to clamp down on these types of mortgages. That certainly didn’t apply to the shadow banking set up by the Bank of International Settlements. Shadow bankers never stopped giving interest only loans and other toxic loans to almost any warm body.
But I think what these episodes show is that predatory lending was known to the mortgage industry, to banks and to governments, yet it was not at all stopped. There were rules in place to stop it but no one stopped it.
I have argued that the Ponzi housing bubble was a planned scam. This continual and consistent refusal to enforce the law sure adds to that argument. Loans that would never have been offered to first time buyers, to people with bad credit, to people with good credit but little reserve resources, would simply not have been allowed in the past. The concept of holding mortgage payments down by making toxic, easy money loans, and interest free or pay option arm loans, was sure to increase sales in a massive way. This increase of sales was a sure way to increase the values of the houses, until the Ponzi stopped. For anyone wondering why this shadow banking was permitted need only to look at the Bank of International Settlements, who made certain that easy money loans and unsound underwriting would work together to drive the values of homes up.
So, why did the central banks want this Ponzi scam in the first place? Well, I believe it was patterned after the payday loan. These loans were very lucrative to banks, not just for the interest collected, but for the fees generated. These loans are only illegal in a small minority of states.
The defence Department forced congress, in 2006, to curtail rates with “usury’ laws for military personnel. Georgia outlawed payday loans, but could not stop it until 2004 when they made payday lending subject to racketeering laws.
Payday loans are debt traps. They turn out to be the guide for Ponzi housing loans that turned out to be debt traps as well. It is interesting to know that the biggest banks fund the payday loan industry. JP Morgan, Wells Fargo, and US Bankcorp are the funders of these odious loans, according to a Los Angeles Times investigation. Taxpayers are subsidizing these loans through Fed loans to these banks at less than 1 per cent. These banks turn around and lend this money out at over 300 per cent, plus late fees! It is noted that this involvement by big banks started in the mid 1990’s.
It seems that there is no moral sensibility that large banks are not willing to abandon these days. People need to be aware of this bad behaviour, even if they never go close to a payday loan establishment. If these big banks can rip off the poor, how much more would they like to do the same to you!
As an aside, how seniors are treated is important for banks who are foreclosing at a fast pace. They must realise that they may be committing elder abuse as well as just confiscating without proper documents. People can get into a lot of trouble for abusing elders. It is my view that not only is traditional fraud elder abuse, but attorneys need to make sure that this elder abuse does not include foreclosing with faulty documents. Going forward, I would like to see prosecutions of big banks or any financial company for any abuse that may occur with the elderly.
With regard to payday loans and mortgage easy money, it seems that many of the players in the payday funding industry also became subprime lenders. They then got involved in the packaging of all kinds of toxic mortgages to people with better credit, including jumbo and interest only, and option arms.
Seeing that lending could be so lucrative to those who you could charge fees to seems to have become a model for mortgage lending. Also, seeing that lending to people without the need for underwriting became a model that began in payday lending. People were able to get mortgages, and “too much house,” as lenders simply gave them loans that were destined to either generate late fees or fail.
This lending without proper underwriting on such a large ticket item as a home is, was never contemplated until the payday model was brought to the mortgage models. No bank CEO would subject a bank to that sort of risk. However, we know now that it was not a major risk, as the originate to distribute model put risk on unsuspecting investors, and on the borrowers. The blame goes squarely on the lenders, as it is overwhelmingly proven to be their scheme. Houses should not be sold in this fashion, as people were never expecting loans that were so doomed to failure. Most people growing up in the United States in 1950-2000 had never seen anything so unethical in the lending industry. They were blindsided by a very sophisticated ring of predators.