The Fall of the House of Banking Revisited

You may recall that when the subprime loan market literally turned both the real estate market and stock market upside down, some tried to paint it as an issue of lack of personal responsibility on the part of the low-income buyers who took on mortgage loans they knew they had no hope of repaying and Congress which “prodded” banks to do such lending in these previously redlined markets.

A lawsuit in Baltimore, chronicled in the Sunday Times, against a major retail bank bolsters, however, the argument that it was the banks’ greed that propelled the house of cards.  One of the bank's loan officer admits in an affidavit that the bank created a mid-Atlantic office to market the most expensive refinancing loans on African-American customers including those living in poor areas.  The loans were referred to as “ghetto loans” and minority customers were indiscriminately termed as “those” people who have bad credit, “those” people who don’t pay their bills, and “mud people.”  The bank offered bonuses for subprime loans issued to minorities.  Sales people were instructed to deliberately push minorities who qualified for prime loans into subprime loans.  Some loan officers wrongly claimed that buyers with good credit and supporting documentation did not want to provide documentation which automatically made these loans subprime.  Other times, loan officers would cut and paste credit reports from one customer to that of another.

These actions actually commenced as early as 1997 so it would have proceeded much of the deregulation which the Democrats purportedly hoisted on the market.  Yes, many of these people should not have taken on these loans, and Congress should not have eased regulation, but the real bad actors were the unscrupulous actors and institutions who saw low-income areas as a new area to exploit. The case is in a nascent stage and the bank still has not responded, and still has a chance to exonerate itself. Of course, the work of some actors in not meant to impugn all of the banking industry, but clearly there were unscrupulous actors who sought to exploit this market.