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The great divide

November 22, 2012

Government intervention in the mortgage and housing industry was and still is, an egregious error in judgement.

During the 2000s housing boom, the govt advocated – and subsidized the housing market. Fine intentions – particularly for the lower to middle income folks to own a house and grab a piece of the pie. But it didn’t quite work out as planned.

Uncle Sam jaw boned – and then mandated Freddie and Fannie as well as banks to hit loan targets – turning a blind eye to relaxed loan standards – shoddy mtg processing and dodgy securitizations. The Fed also did its part by lowering interest rates – all to tease folks to borrow way more money then they should or were qualified – all the while our politicians touting and taking credit for the housing boom.
Bankers concocted scheme after scheme to keep mortgages pumping out of the shop – packaging loans into CDO’s and other oblique investment structures and selling them to far off lands such as Iceland. Along with the mortgage brokers, bankers got filthy rich doing exactly what govt demanded of them. But hey, people who never dreamed of owning a house owned not only a house, a big overpriced house! Happy days. Everybody was happy….

Then the shit hit the fan and It became a nightmare for those who lost their homes – but for bankers, it was business as usual. Well, maybe a 20% hit to bonuses in 2009.

Now as painful as the below story is, do I feel that Mrs black should have her loan forgiven or modified?
No, absolutely not. Fact remains that she made an egregious error and had no business owning that home.
What’s horrible is that the govt, along with her loan officer, made her believe she could and should…

Why is nobody in jail?

The Govt can’t prosecute those responsible for doing what they were told to do.

Just google Eric Holder.

“Rebecca Black abandoned her dream house on Hazelwood Road in Memphis, Tennessee, in 2010, Today she rents an apartment about the size of her old living room and works for the same $12 an hour she’s earned for years.

Thomas F. Marano makes more money in a single morning than Black does all year. Marano once led the team at Bear Stearns Cos. that bought Black’s mortgage in 2005 and thousands of other subprime loans to sell to investors.

In the aftermath of the longest economic downturn since the Great Depression, only one of them kept winning. The biggest lenders are doing better than ever while those with the least, many of them black borrowers, are struggling the most. One dividing line for this widening gap is the dotted one where millions of home buyers signed their names to loans they couldn’t repay. With the dream of home ownership snatched away, they and their communities may never be the same.

Abandoning Graceland

Four million U.S. homeowners have lost their homes to foreclosure since June 2009, when the 19-month U.S. recession ended, according to RealtyTrac Inc. Few places have felt the pain more than Rebecca Black’s hometown of Memphis. In the residential blocks around Elvis Presley’s home, Graceland, 30 percent of the houses are empty or visibly in need of repair, compared with 22 percent in 2009, according to the Center for Community Building and Neighborhood Action at the University of Memphis.

“You see rows and rows of single-family homes that have been abandoned, not just in the so-called ghetto but everywhere in the city,” says Memphis Mayor A C Wharton Jr. “Home ownership was beginning to catch on with people who never dreamed of it. Just when they got their hands on the ladder to pull themselves up, it turned out they bought more house than they could afford and some had interest rates they didn’t know they’d agreed to pay. And it was over.”

Memphis had the highest concentration of subprime mortgages among the 20 biggest U.S. cities in June, based on data from the National Association of Realtors. Subprime loans have higher interest rates and were given to borrowers with bad or no credit.

Predatory Lending

Lenders were 3½ times more likely to steer blacks to high- interest mortgages than whites with comparable credit scores, according to a Center for Responsible Lending study of 27 million loans originated from 2004 to 2008. In Memphis, where 63 percent of the 652,000 residents are black, officials say their city was targeted for such predatory lending — a practice that Marano says his company didn’t engage in.

“Bear Stearns had rigorous compliance policies in place to prevent predatory lending and unfair mortgage practices,” Marano says in an e-mail.

Marano, 51, whose fellow 1983 Columbia University graduate was a transfer student named Barack Obama, left Bear Stearns in 2008, the year it became burdened by defaulting subprime loans and collapsed. He now works as chief executive officer of a mortgage company called Residential Capital LLC, or ResCap, which filed for bankruptcy protection in May. Marano received $8 million in compensation last year, an 8 percent raise from 2010.

Black, a 64-year-old Army veteran who works feeding, bathing and dressing a man crippled by Lou Gehrig’s disease, made about $24,000 in 2011, the same amount listed on her 2005 mortgage application.

Earnings Gap

The earnings gap between the richest Americans and the rest of the country grew to its widest point in more than four decades last year, based on U.S. Census Bureau data. The 1.2 million households whose incomes ranked them in the top 1 percent saw their pay rise 5.5 percent last year, while incomes fell 1.7 percent for the 96 million households in the bottom 80 percent — those that made less than about $100,000 a year.

The fates of Black and Marano show how the 7.2 percent expansion of the U.S. economy over the last 3½ years has mostly been an economic recovery for the already well-off. Hard times still plague neighborhoods such as Hazelwood Road in southwest Memphis, where Black bought the three-bedroom brick house for $61,750 in May 2005.

Nine of the 15 parcels on Black’s side of the street have houses that sit empty, have been bulldozed flat or have been overtaken by vegetation growing as thick as a wall. Five of them were abandoned after the recession ended, public records show.

“This used to be a pretty neighborhood,” Black says.

Marano is a defendant in “five or six” securities lawsuits, says Joel C. Haims, a partner with Morrison & Foerster LLP in New York who does represent him.

Empty Row

Home values have fallen by half in Memphis’s Frayser neighborhood, where Steve Lockwood checks out rehab candidates in his pickup truck. On Sunny View Drive, in the northernmost part of town, 10 houses in a row sit empty, their yards a mess of weeds.

Lockwood, 63, is executive director of the Frayser Community Development Corp., a non-profit group that has renovated nearly 100 abandoned homes in the last decade.

“I’m proud of what my people do and what we’ve accomplished because we’ve accomplished a lot,” Lockwood says. “But we’re getting our a–es kicked. We’re winning a lot of battles but we’re losing the war.”

Predatory lending contributes to the suffering, says Phyllis G. Betts, founding director of the Center for Community Building and Neighborhood Action at the University of Memphis.

Complaint Settled

In May, Memphis and Shelby County settled a predatory lending complaint they’d filed against Wells Fargo & Co. (WFC), with the bank pledging $7.5 million to help borrowers with down payments and home renovations. The San Francisco-based lender admitted no wrongdoing, and says it strictly prohibits discrimination based on race, age or other demographic factors.

After reaching the settlement, Wells Fargo, the biggest U.S. mortgage lender, set a record in the third quarter of 2012 with $4.9 billion in net income. Over the last four quarters, its profit was greater than that of Walt Disney Co., McDonald’s Corp. and Boeing Co. combined.

Since January 2009, Wells Fargo has forgiven more than $5.5 billion of mortgage principal for customers facing financial hardship, says Vickee J. Adams, the bank’s vice president for external communications.

“We are committed to putting people in homes and helping them stay there,” Adams says.

Predatory lending has been devastating to the black middle class, says Webb A. Brewer, an attorney with Brewer & Barlow Plc in Memphis who helped represent the city in its Wells Fargo lawsuit. “It’s not hyperbole to say that this is one of the biggest civil rights issues of our time.”

No Tricks

In 2007, two years into paying her mortgage, Black says her $502 monthly bill went up. She says she thought she’d gotten a fixed-rate loan and complained to Marcus L. Gibbs, her mortgage broker.

Gibbs, in an interview, says he remembers it was difficult to get Black a loan because she paid everything in cash and didn’t have a credit history. Her loan documents say she signed a variable-rate mortgage. Black paid $13,519.63 in fees, the documents say.

“I thought it was a fair loan,” Gibbs says. “I didn’t trick her or anything. I wouldn’t do that.”

BayRock Mortgage Corp., a now-defunct Alpharetta, Georgia- based mortgage wholesaler, bought the loan from Gibbs’ company, according to BayRock’s founder and CEO, William M. Medley Jr. In turn, Bayrock sold it to a Bear Stearns subsidiary, EMC Mortgage Corp., Medley said.

‘Stratospheric Compensation’

Marano’s team at Bear Stearns put Black’s mortgage into a security called BSABS 2005-HE8, according to a person with direct knowledge of the transaction who asked not to be named because of pending litigation. Bear Stearns sold the security to Hamburg-based HSH Nordbank AG, according to court documents. In a legal complaint, HSH Nordbank says it lost “a minimum of $42 million” on that security and others from Bear Stearns.

In a separate complaint, mortgage insurer Ambac Assurance Corp. says Bear Stearns “deliberately and secretly” abandoned loan-quality standards to churn out securities it could sell to investors. The investment bank’s conduct enabled Marano and his colleagues to receive “stratospheric compensation,” most of which was paid in cash, the complaint says. Marano, who is not a defendant in the case, declined to comment on it and other pending litigation.

By the end of 2007, Black was struggling to keep up with her bills. First she cut out trips to the movies, then the family’s occasional dinners at the China Inn buffet. She drove without car insurance. Then one of her clients died and she was out of work. It bothered her to be unemployed, she says. She felt purposeless. She went on food stamps and fell behind on the mortgage. All she could afford to fix for dinner were chicken necks and beans, she says.

Demand Letters

Black found work again. EMC Mortgage, the Bear Stearns subsidiary, sent her letters demanding she catch up on her payments. As it was, she and the boys didn’t have money to go anywhere, she says. It was work and school and come home. Her monthly payments rose to $650. Almost everything she earned she spent on food and the mortgage, she says.

In March 2008, JPMorgan Chase & Co. (JPM) bought Bear Stearns in a deal brokered by the Federal Reserve Bank of New York. Soon after, Marano joined ResCap. In 2009, his first full year at the helm, he was paid $5.6 million while ResCap lost $7.3 billion.

“I was chosen to lead ResCap because of my depth of knowledge of the mortgage industry and my more than 25 years of experience in mortgage-backed securities,” Marano said in an e- mail. “I believe that given the challenges and complexities associated with ResCap I have had a significant positive impact on the business and obtained the best result possible for all interested parties.”

Left Behind

In April 2010, Black says she got a letter from EMC, which had become part of JPMorgan Chase in the Bear Stearns deal, saying that the mortgage company was going to foreclose.

” I was scared the sheriff was going to come and put a lock on the door and put me out,” she says. That was an embarrassment she couldn’t bear, she says. “We got out in a hurry.”
“I was scared the sheriff was going to come and put a lo
Among the possessions Black says she left behind were two items she wishes she’d taken — a lamp and a chair given to her by a late older sister who took her in after her father died when she was a teenager. She had no room for them in her new apartment and no money to rent a storage space.

Black filed for Chapter 7 bankruptcy. Her $60,000 debt to EMC Mortgage was discharged.

Boarded-Up House

EMC never foreclosed (because if they did they would have to realize the loss on the loan). The house is still in Black’s name. According to public records, she owes $1,529.35 in city and county taxes for 2011 and 2012 and $615.06 for city workers to board up the house and mow the grass after a neighbor complained of snakes.

New York-based JPMorgan Chase set a record with $5.7 billion of net income in the third quarter of 2012.

Black’s possessions might still be in the boarded-up house, she says. “In what condition, I don’t know,” she says.

The rent for Black’s one-bedroom apartment is $475 a month including utilities.

“For the rest of my days I want to stay right where I am,” Black says.

Modifying Loans

“Our company’s process for preparing foreclosure affidavits was flawed,” Marano told a congressional committee in November 2010, a little more than a year before the settlement. “There were affidavits signed outside the immediate physical presence of a notary and without direct personal knowledge of the information in the affidavit. These flaws are entirely unacceptable to me.” He vowed to correct the problems.

ResCap “has been diligent in modifying loans whenever possible, having completed more than 820,000 default workouts for borrowers since 2008, which represent more than 30 percent of loans serviced during my tenure,” Marano says in an e-mail.

Greatest Snow

In 2010, the year Black abandoned her dream home to the tall weeds, Oldpike Associates, the New Jersey-based company that lists Marano and his children as members, built a 6,000- square-foot, 4½-bathroom house on 10 acres in Park City, Utah, according to public records. It sits on the top of a hill, surrounded by pine, aspen and oak, at the end of a winding driveway lined by boulders.

Park City, which advertises the “greatest snow on earth” and hosted events of the 2002 Winter Olympics, is perhaps best known to non-skiers as the site of the Sundance Film Festival.

The Summit County tax assessor values the home at $1.69 million.

On Hazelwood Road, the house two doors down from Rebecca Black’s old place sold for $3,000 in February 2011, public records show — a 95 percent reduction from what Black paid for hers in 2005.

That was before the bloodshed.

On the night of March 30, police say Calvin DeWayne Jefferson, commonly known as Mack Kane, was behind the wheel of a white pickup truck when two men approached him on Hazelwood Road. One or both of them shot Jefferson, police say. As he died, the truck kept rolling, according to a resident, Katie Greer. It flattened a section of chain-link fence across the street from Black’s old house.

Angel’s Trumpets

It’s impossible to draw a straight line from the community’s decline to Jefferson’s death, says Kioni Logan, who grew up in the neighborhood and says she knew Cal, as she calls him, for more than a decade. It would be equally wrong to conclude there’s no connection at all, she says.

Police haven’t announced any suspects and haven’t called the killing gang-related. Still, Logan says she believes gangsters played a role.

“Gangs take over empty houses,” she says. “They do whatever they want.”

Greer says Jefferson’s killers fled into the woods along a path in the grass between the house with gang graffiti and the house where she’s lived for 13 years.

“It’s really depressing,” Greer says, looking out her storm door, hands folded at her chin. “I try to stay prayed-up and sometimes that doesn’t even work.”

In the front yard of her old house, Rebecca Black searches for her favorites, the droopy yellow flowers called Angel’s trumpets. She has to high-step through overgrown grass, and when she finds them there are no blossoms, just green stalks choked by weeds.

To contact the reporter on this story: Bob Ivry in New York

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