You’d think that in a disaster like this, no one saw profits.
Wrong — they saw they could sell a product to people knowing they’d flake on it. They took advantage of their cluelessness, and disguised their actions as benevolence toward the oppressed:
The filing cites multiple studies that found that African Americans and Latinos received a disproportionate share of subprime loans during the housing boom years. A Federal Reserve study in 2006 estimated that 45% of mortgages extended to Latinos and 55% of loans to African Americans were subprimeâ€”a utilization rate â€œthree to four times that of non-Hispanic whites.â€
Because the loans themselves often came with terms that increased borrowersâ€™ probability of defaultâ€”upfront teaser rates followed by unaffordable reset payment adjustments, no required documentation of applicantsâ€™ incomes or assets, plus hefty prepayment penaltiesâ€”African Americans with subprime mortgages are projected to lose $71 billion to $92 billion through foreclosures, while Latinos are projected to lose $75 billion to $98 billion, according to one study cited in the complaint.
â€œHad subprime loans been distributed equitably,â€ the complaint estimates, â€œlosses for whites would be 44.5% higher and losses for people of color would be about 24% lower.â€
The civil rights complaint is the latest in a series of lawsuits, regulatory investigations and congressional criticism of the rating firmsâ€™ roles and conduct during the mortgage bond heyday years of 2003-05. In dollar terms, subprime and so-called Alt-A no-documentation loans accounted for 32% of all mortgage originations in 2005. Their share had been 10% two years before. Virtually all of those high-risk loans were sold to Wall Street firms for inclusion in complex bond structures that were resold, often in bits and pieces, to pension funds and financial institutions.
Anyone who bought one of those loans has so little ability to reason critically, they should probably not be homeowners.
Anyone who thought this was a good idea was a savvy, sick businessperson — and knuckling under to Bill Clinton’s pressure to do good by the oppressed. Hey, two birds/one stone… I win! You idiots pay for the backlash.