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by Abid Aslam

Greenspan Wants the Credit, not the Blame

(IPS) WASHINGTON -- Martin Luther King, Jr., the legendary civil rights leader, might well turn in his grave on this 79th anniversary of his birth, as the financial services industry continues to wring money from communities of color.

A think tank called United for a Fair Economy released a new assessment of the mortgage crisis gripping this country and the report is grim: "The subprime lending debacle has caused the greatest loss of wealth to people of color in modern U.S. history," the latest annual "State of the Dream" report said.

To be sure, whites also have been hurt by the mortgage industry, but the organization's economic and social science researchers see clear evidence of racial discrimination in the distribution of substandard loans, with divergent interest rates among borrowers of different racial backgrounds but similar financial standing.

"If subprime loans had been distributed equitably, losses for white people would be 16.5 percent higher and losses for people of color would be about 22 percent lower," the report said.

"The almost 40 percent difference is the racial cost of subprime lending in the U.S. This is evidence of systemic prejudice and institutional racism," it added.

People of color -- mainly African-Americans and Latinos -- will have lost betewen $163 billion and $278 billion to subprime loans taken during the past eight years by the time the crisis runs its course, researchers said.

Even before the current crisis, blacks were 594 years from achieving parity with whites in net worth, a measure of the value of an individual's or household's assets minus liabilities. The report based its figures on an analysis of official trends for 1982-2004.

For home ownership, long the principal or sole asset of those without great wealth, blacks were 5,423 years from equivalence with whites.

"The current crisis is likely to make it take much longer" to achieve parity, the report said.

Mortgage lenders, represented by the Mortgage Bankers Association, have defended subprime loans as necessary to enable them to extend credit to chancy borrowers, the alternative being to deprive those with low incomes or spotty credit histories from entering the housing market in the first place.

United for a Fair Economy remained unconvinced.

"In the hands of the mortgage lending industry, subprime loans became predatory loans -- a faulty product that was ruthlessly hawked, even though financial institutions were aware of its defects," the group said.

"Hungry for new and different products, the financial services industry added features to these loans -- exploding adjustable rates, balloon payments, penalties for early re-payment -- that hobbled their recipients financially and made it unlikely that they would be able, after a brief honeymoon period, to repay the loans at all," it added.

Whole communities have become wrecked as pauperized borrowers default on loans and lenders repossess their homes.

Even a few foreclosures in a given neighborhood can result in increased crime, the devaluation of surrounding properties, the erosion of the local tax base and consequent revenue shortfalls that in turn force local authorities to cut public services.

In some U.S. cities, foreclosures have increased by as much as 300 percent since 2000. More than half a million U.S. borrowers have lost their homes since 2006, and the figure could rise to 1 million by the end of this year, according to industry sources.

"The crisis is having a negative impact on property owners, as well as neighborhoods and local and state governments," the report said.

Local authorities, unhappy with the pace and scope of the federal response, have taken financial firms to court.

The city of Baltimore filed a federal lawsuit last week accusing leading mortgage lender Wells Fargo & Co. of steering black borrowers to subprime mortgages while granting safer traditional loans to similar applicants who were white. The company is denying the charges.

Cleveland is suing 21 lenders in hopes of recouping lost taxes and money spent on cleaning up foreclosed homes that, it said, the lenders should have maintained. Buffalo, in northern New York, is also trying to hold lenders responsible for maintaining homes in foreclosure.

Additionally, Maryland officials have gathered evidence that lenders steered disproportionate numbers of women into subprime loans.

Tuesday's report recommended measures that it said would promote and protect working-class home ownership. It offered specific prescriptions but urged that broad economic inequalities be addressed in order to ensure their success.

U.S. taxpayers are able to deduct the cost of mortgage interest from their annual income tax bill, but the limit for the indirect subsidy is set so high and the bureaucratic steps required to claim it are so cumbersome that much of the benefit accrues to wealthy homeowners, as two in three eligible taxpayers find it too costly and bothersome to apply for the deduction. The report called for this situation to be remedied.

United for a Fair Economy further recommended sticks and carrots to spur affordable housing, saying builders lack incentives to construct anything but expensive housing. The process and costs of securing a mortgage should be simplified, it added, and regulations governing truth in lending and the settlement of disputes should give borrowers greater protection.

Beyond such measures, the organization urged the implementation of a range of measures aimed at promoting equality and representation.

"Throughout the world, from Finland to Brazil to India to South Africa and in countless other countries, affirmative action policies for racial, ethnic, language, economic, gender, and other types of groups have been effectively used -- and are still used -- to fight institutional and historic discrimination," the report said.

The United States began to turn its back on such policies following King's assassination in 1968, the report said.

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Albion Monitor   January 15, 2008   (

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