3-20-08, 9:07 am
The FBI appears to be investigating Bear Stearns along with 16 other companies involved in the subprime mortgage crisis for criminal misconduct, according to suggestions made by FBI agents in recent media reports.
This news comes just days after a massive federally-aided bailout of Bear Stearns, the country's fifth largest bank, after its well-paid executives revealed they had lost billions in the mortgage crisis.
News of the possible FBI investigation caused MSNBC's Keith Olbermann to quip on his Mar. 19 show that the Bear Stearns mess 'is going to make Enron look like the failure of a lemonade stand.'
The bailout has raised eyebrows among advocates for a moratorium on foreclosures and revisions to bankruptcy laws that would help middle-income homeowners avoid foreclosure and keep their homes.
In a teleconference with reporters Mar. 19, Rep. John Conyers (D-MI) described the federal government's swift action to protect shareholders at Bear Stearns while dragging its feet to respond to the needs of homeowners as an insult.
'We're at a crucial point where Bear Stearns is receiving $400 billion of largesse. This is quite an affront, it seems to me,' Conyers stated. He wouldn't say Bear Stearns was the worst among predatory lenders, 'but they are certainly way up there at the top.'
New measures to solve the crisis need to be pursued, Conyers said. He compared the Bear Stearns bailout to putting more air in a balloon without 'fixing the places where there are leaks. This (bailout) will not fix this thing permanently.'
Wilhelmina Leigh, an economist with the Joint Center for Political and Economic Studies, compared the lack of oversight and federal regulations in the housing and mortgage markets to the 'wild, wild west.'
“You can think of the subprime market as the ‘wild, wild west,’ because it developed largely in an environment without monitoring and regulating the players in this particular market,” said Leigh. “It also grew at a time when house prices started to go up and kept going up to sustain its profitability, despite the underwriting deficiencies in many of its mortgage products.'
Driven by speculation and predatory lending practices, the subprime mortgage crisis was fostered in an atmosphere in which subprime lenders were not 'subject to the kind of scrutiny that FannieMae and FreddieMac are or the banks are who make prime rate mortgage loans,' Leigh said.
Loans were made with 'lax underwriting' and securities were 'packaged that were backed by loans that were done in a very unregulated and not very foresightful manner,' she noted.
The 'global meltdown' was in part caused by the fact that major lenders like Bear Stearns sold many of these unregulated and suspect mortgage-backed securities overseas, Leigh added.
African Americans experienced the worst impact of the home mortgage crisis, said Leigh. She said that African Americans view homeownership as the key to improving their standards of living and because of a history of red-lining and discriminatory lending by banks, they have had fewer chances to purchase homes.
In addition to lower incomes, higher rates of unemployment, and lower credit scores, these historical facts led directly to a special vulnerability in the African American community to the predatory lending practices that led to the subprime crisis, she added.
Hilary Shelton, of the NAACP's Washington Bureau, described 'predatory lending as a major civil rights issue.' African American families are more than three times as likely to face foreclosure as whites, while Latinos are more than twice as likely.
Like many working families, African Americans were lured into adjustable rate mortgages (ARMs) with low teaser rates that after two years increased massively, sometimes doubling their monthly mortgage payments.
“Predatory lending has contributed significantly to the foreclosure crisis we as a nation face today,” said Shelton. “For years, predatory lenders targeted African Americans and other racial and ethnic minorities through steering and other immoral practices with dubious products that contain prepayment penalties, the so-called ‘exploding ARMS’ and other misleading, deceptive confusing and discriminatory loan packages.”
“Most Americans dream of buying a home and using the equity in that home as their nest egg. Many homeowners intend to use the equity in their home in the event of a major medical emergency, or when it comes time to put their children through college. Some just hope to have something to pass on to their children when they die. It’s the American dream,” said Shelton.
“The subprime mortgage crisis has turned the American dream into a nightmare for many African Americans,” said Nancy Zirkin of the Leadership Conference on Civil Rights. “Responsible subprime lending certainly helped many African Americans to buy homes. But the responsible part of subprime lending went out the window when greed stepped through the door.”
Rep. Conyers is urging rapid passage of the Emergency Home Ownership and Mortgage Equity Protection Act of 2007. The bill recognizes that for many families who face foreclosure, the amount that remains on their mortgage is more than even what the house is now worth.
The reforms contained in the bill would allow bankruptcy judges to reduce principal and runaway interest rates so at-risk homeowners can avoid foreclosure, stay in their homes, and pay off their modified mortgages. This small change to the bankruptcy code would help half a million at-risk families avoid foreclosure, including many white, African American, and Latino families.
If the Bush administration can do so much so quickly for the speculators and potential criminals at Bear Stearns who helped drive the crisis, why couldn't minor modifications to bankruptcy law that would aid so many working families be passed as quickly?
