The term “emerging markets” usually refers to
business and commercial activity in industrializing or developing
regions of the planet. It is “sometimes loosely used as a replacement
for emerging economies, but really signifies a business
phenomenon that is not fully described by, or constrained to,
geography or economic strength,” says Wikapedia.com. I’ve never
actually thought of African American and Latino communities
in this country as “emerging markets” but evidently, three years
ago, quite a few people did.
In October 2004, the PR Newswire carried a press
release that began, “Expanding upon its role as a national leader
in residential finance and a leading provider of mortgage loans
to African Americans, Countrywide Home Loans, Inc. has launched
a new radio advertising campaign designed to appeal to the home
ownership aspirations of African American families.”
“The new radio campaign focuses on the perceived
barriers that many African Americans and others harbor about
buying a home, including common misconceptions regarding credit
issues, down payment costs and other apparent obstructions to
making the dream of home ownership a reality,” the release ran.
“Aimed at raising awareness and fostering Countrywide
as the lender of choice among African American consumers, the
ads feature Countrywide’s innovative products, including its
new Optimum LoanSM, which offers low down payment options, relaxed
credit guidelines and allows for multiple income sources to
facilitate more approvals,” said Countrywide. “We want the African
American community to know that with the multitude of Countrywide
mortgage programs to fit a variety of financial situations,
the dream of home ownership is truly within reach for many who
may think otherwise,” remarks Rodolfo Saenz, executive vice
president of Emerging Markets for Countrywide. Saenz said
the radio ads “should appeal to African Americans’ strong sense
of community and neighborhood ties as they will highlight Countrywide’s
local experts who work in the community and who have the ability
to ensure fast, easy approvals and better overall service.”
That same month, Angelo Mozilo, Countrywide chair
and CEO, addressed the 4th Annual Hispanic Marketing Convention
and Expo in Denver. A release about the event noted that “Under
his leadership, Countrywide has led the industry in its service
to Hispanic home buyers by introducing innovative products and
programs that are geared to first-time, low- to moderate-income
and minority home buyers.”
“More than a decade ago, Mozilo formalized the
company’s commitment to affordable lending when it launched
House America, an initiative to provide increased home ownership
opportunities for all Americans,” the announcement said. “More
recently, the company announced The Optimum LoanSM Program,
a mortgage product that is specifically tailored to non-traditional
home buyers who do not have the credit history or debt-to-income
ratios of typical borrowers; and a Spanish-language national
TV and radio ad campaign that is directed at the home ownership
aspirations of Latinos.”
According to Countrywide material, the Optimum
Loan(SM) program is “specifically designed to assist the many
creditworthy individuals who have little or no funds for down
payments and closing costs - one of the biggest obstacles to
home ownership. The program requires a cash contribution of
the lesser of one percent of the home's sale price or $500.
The program includes flexible underwriting guidelines that consider
non-traditional credit, income and asset sources.”
Now it is being suggested that the 2004 decision
by Countrywide and other mortgage lenders to step up their drive
to lure African American, Latino and other minority communities
into the world of risky “subprime” and other innovative mortgage
schemes was directly due to a shift in government policy. Early
that year, then Federal Reserve Chair Alan Greenspan observed
that the country “might benefit if lenders provided greater
mortgage product alternatives to the traditional fixed-rate
mortgage.”
“And guess what happened: Wall Street did just
that, used the green light of the Fed Chairman to go after the
few sectors of the American population they still did not have
as customers, coincidentally, those who have been historically
excluded from the American dream,” noted the blogger The
Bankruptcy News a couple of weeks ago.
In the spring of 2005, Greenspan announced: “Where
once more marginal applicants would simply have been denied
credit, lenders are now able to quite efficiently judge the
risk posed by individual applicants and to price that risk appropriately.
These improvements have led to rapid growth in subprime mortgage
lending” and “fostering constructive innovation that is both
responsive to market demand and beneficial to consumers.”
On Oct. 13, 2004, the Countrywide PR department
announced: “As a result of its ongoing effort to increase home
ownership in low-income and minority communities, Countrywide
Home Loans, Inc., a national leader in residential finance,
today announced it has become the nation's leading mortgage
lender to emerging markets communities, which include African
American, Hispanic, Asian/Pacific Islander and American Indian/Alaskan
Native homeowners.”
Countrywide played
a major role in a national program called With Ownership,Wealth
(WOW) for increasing African-American home ownership, joined
forces with the Congressional Black Caucus Foundation to contribute
to the mutual goal of “creating one million additional African-American
homeowners by 2005.” According to the company, it features outreach
programs such as home ownership fairs and seminars, credit counseling
and educational resources addressing down-payment and closing-costs
assistance programs and participates in educational events for
potential homeowners in some Congressional Black Caucus districts
attended by Caucus members. The meetings are attended by members
of the Congressional Black Caucus. The company also works with
and helps fund New York-based Asian Americans for Equality (AAFE).
As of now, Countrywide hasn’t gone belly-up as
have so many mortgage lenders but industry insiders aren’t giving
any assurances that it will not (or that it won’t be bought
up). In July, Bank of America bought a stake in the company
for $2 billion and Countrywide secured a $11.5 billion line
of credit.
On Sept. 10, Mozilo addressed an investment conference
hosted by Bank of America in San Francisco. He welcomed the
recent decision of the Federal Reserve to cut interest rates
saying, “It is imperative that liquidity return to the mortgage
market, and that the tide be turned in order to stabilize home
prices. A failure to do so will not only imperil the financial lives of hard-working American
families, but will inevitably impact our broader economy."
As of the end of June, he revealed, 20 percent of his company’s
loans were delinquent and something less that 4 percent were
in some stage of foreclosure. He didn’t say what part of the
20 percent were in minority communities but given the company’s
leading position this “emerging market,” it would seem safe
to assume it’s quite bit.
In 2003, Countrywide accounted for 27.3 percent
of all home loans made to Native Americans.
Countrywide is, of course, not the only mortgage
company that leaped into the African American, Latino, Asian
and Native American “emerging market.” They all did. And now
the chickens are coming home to roost.
Home foreclosures across the country soared 36
percent between July and August (243,947 as opposed to 179,599).
That’s one filing for every 510 households. And it’s expected
to get worse. According to RealtyTrac, the highest foreclosures
rates were in Nevada (one for every 165 households), California
(one for every 224) and Florida (one for every 243). The top
10 also included Georgia, Ohio, Michigan, Arizona, Colorado,
Texas and Indiana.
The effect of the foreclosure epidemic is not
restricted to the Sunbelt or the rustbelt, or the South, however.
“What is happening to the African-American community in central
Brooklyn isn’t called genocide or ethnic cleansing, but when
you put it all together, it appears more malevolent than not,”
wrote David Mark Greaves in Our Times Press, Sept. 22.
“One of the elements now coming to the fore is the Category
5 foreclosure hurricane bearing down on central Brooklyn, or
rather, on the African-American population in central Brooklyn.
Because what is particularly of note about this hurricane, is
that it, like Katrina, is race-specific for the worst of its
wrath, this according to testimony given at the Senate Democratic
Conference Public Hearing on Subprime Lending Practices in New
York, convened by State Senator Velmanette Montgomery and held
at Bedford-Stuyvesant Restoration earlier this month.” As of
Sept. 18, over 10,000 Brooklyn homes were in pre-foreclosure,
with another 1,300 headed to auction. For Queens the figures
were 1,121 new filings in August and some 9,400 homes in pre-foreclosure.
According to the Urban League, African-American
home ownership reached its historical peak at nearly 50 percent
in 2004 only to slip to a little over 47 percent in 2006, largely
do to foreclosures. The still largely untold story is the devastation
this housing market collapse is having not just on mostly working
class individuals and families but on the whole of the African
American community.
“Housing Crisis Reduces African American Wealth”
read a headline over a Sept. 6 Pittsburgh Courier commentary
by Judge Greg Mathis, a national vice president of Rainbow PUSH
and a national board member of the Southern Christian Leadership
Conference. “At first, these loans seemed like a dream come
true. Those who previously thought they couldn’t buy a home
were now struggling to sustain the high-interest loans they
originally believed were the answers to their prayers.”
“Subprime lending has always had its opponents who say these
lending companies intentionally loan to borrowers who could
never meet the terms of their loans, leading to default,” wrote
Mathis. “Activists have for years tried to curtail the spread
of high interest personal loan companies in African American
communities, and subprime auto lenders also have been on the
hot seat in recent years.
“It’s the subprime mortgage lenders, however, who are destroying
African American wealth. A recent study shows that more than
2 million homeowners who purchased homes with a sub prime mortgage
loan between 1998 and 2006 will lose their homes to foreclosure.
Ten percent of them will be African Americans.”
“More of our families – African American families,
hardworking families - are falling prey to loans that were never
any good,” continued Mathis. “These predatory lending practices
are chipping at the hard-earned wealth our people are building.
If the sub prime lending industry is not regulated quickly,
the wealth gap between whites and African Americans will only
grow and the economic development of the African American community
will be set back several decades.
“Without immediate action, the foreclosures resulting from these
sub prime loans will seriously deplete the resources of the
African American community,” wrote Mathis. “We cannot afford
to let this happen.”
It’s amazing how little the financial experts
who have for years lectured us on the glories of the “market
economy” seem to understand how it works. When the news began
to seep out last year that a crisis was brewing in the subprime
mortgage market, its possible effects were minimized. When it
became obvious that the situation was serious, that millions
of people were, indeed, in danger of losing their homes, the
idea that the development carried a threat to the economy was
belittled. Now that the “credit crunch” has engendered a full
scale economic disruption, not just in this country but throughout
the capitalist world, we are being reassured that a little manipulation
of interest rates by the bishops that oversee the system will
probably make it all go away.
In October 2005, before he was selected to replace
Greenspan, the current Fed chair Ben Bernanke told Congress
he did not think there was a housing “bubble” and that even
though house prices were “unlikely to continue rising at current
rates" still “moderate cooling in the housing market, should
one occur, would not be inconsistent with the economy continuing
to grow at or near its potential next year."
A few days later, Joseph E. Stiglitz,
a Nobel laureate in economics and professor of Economics at
Columbia University, criticized Greenspan’s support for the
Bush Administration’s tax cut. The problem, he wrote, was not
only its size “but also in its design; by directing the cuts
at upper-income Americans, it provided little economic stimulus.
“But soaring deficits did not return the economy
to full employment, so the Fed did what it had to do – cut interest
rates. Lower interest rates worked, but not so much because
they boosted investment, but because they led households to
refinance their mortgages, and fueled a bubble in housing prices.
“In short, as Greenspan departs, he leaves behind an American
economy burdened with high household and government debt and
fragile balance sheets – a legacy that is already contributing
to global financial instability.”
“The median price of American homes is expected
to fall this year for the first time since federal agencies
began keeping records after the Second World War, according
to an FT/Thomson Financial poll,” reported the Financial
Times Aug. 30. “Economists said continuing turmoil in financial
markets had significantly worsened their outlook and that they
now expected a drop in the value of homes in each of the next
three years, in what would be the worst downturn for house prices
since the government began keeping records.”
“To have a house of your own is the essence
of the American Dream,” John Authers wrote in the Financial
Times Aug. 29. “The problem is that that dream shows signs
of turning into a nightmare. And all of the world now shares
it.”
“Following Monday's news that the overhang of
unsold apartments in condominiums and co-operatives is now equivalent
to a year's worth of supply, the message was clear: US housing
could still get worse,” wrote Authers. “Publication of minutes
for the Federal Open Markets Committee's meeting this month,
showing that Fed governors thought the housing slump would be
‘deeper and more prolonged’ than earlier expected, confirmed
the gloom.”
“I will not analyze here the validity, importance
or wisdom of owning a home, but it should suffice to say that
in American culture, home ownership is a desirable trait,” wrote
the The Bankruptcy News blogger. True, but I remain a
skeptic when it comes to the notion that putting everybody into
an individual house or condo is a valid or justifiable goal
of social policy. The more this crisis unfolds the more it looks
like the boom in the market and the tragic aftermath resulted
more from financial policy that anything else. Greenspan even
gives it an ideological or political angle. “I believed then,
as now, that the benefits of broadened home ownership are worth
the risk. Protection of property rights, so critical to a market
economy, requires a critical mass of owners to sustain political
support,” he now says.
As the crisis and the doom deepen, a few million
people and their friends, families and communities might start
to lag in their enthusiasm for such a system.
BlackCommentator.com
Editorial Board member Carl Bloice is a writer in
San Francisco, a member of the National Coordinating Committee
of the Committees of Correspondence for Democracy and Socialism
and formerly worked for a healthcare union. Click
here to contact Mr. Bloice.