Mark Seifert warned of the impending mortgage crisis eight years ago. It's just that everyone thought he was crazy.
The year was 1999, when Seifert's guerrilla nonprofit, the East Side Organizing Project, was helping parents battle the bungling monster known as the Cleveland school district. That's when ESOP members began to suddenly disappear. Their phones were disconnected. Their homes were mysteriously vacant.
Bankers had launched their assault on Cleveland.
Their weapon of choice: the subprime loan.
There was a day when banks refused mortgages to people with no money or bad credit. It was a cruel but wise practice: Broke guys simply aren't fit to enter a 30-year debt involving large sums of money.
But by the late '90s, bankers stumbled upon a keenly malevolent plot: By providing subprime mortgages with high fees and high interest rates, they could take every last penny these people had. And so they did. Though the plan couldn't pass the St. Peter test, it did meet the far lesser standards of Ohio law.
Bankers, of course, weren't entirely to blame. God Himself warned of the usurers 2,000 years ago. Trusting them with your financial future is like hiring a Labrador to guard your dinner.
But people ignored this essential truth. The banks were handing out money to damn near anyone, as long as they indentured themselves with the proper paperwork. "We've seen people making $750 a month, and they own five properties," says Seifert.
Unfortunately, easy money begets a thirst for more. So banks launched even more aggressive tactics, best described as flat-out fraud. They would inflate people's income, lie about appraisals -- anything to get a loan approved. Countrywide and Charter One were brazenly funneling black customers into subprime loans -- even when they had good credit. Cleveland's mortgage industry had become as lawless as the Old West, only the terror came from paper instead of guns.
But there was one small problem: This was a scam with no shelf-life. People stuck in loans they can't afford will naturally default. Seifert first saw it in black neighborhoods, where bankers have traditionally test-marketed their thieving. His members were losing their homes. Vacant houses were piling up on every street. The city was on its way to leading the nation in foreclosures.
Seifert tried to warn people. "Early on, when we approached elected officials, they thought we were crazy. 'The banks would never do that. These people are deadbeats.'"
Stereotype made the problem easy to dismiss. On one side were black residents, who simply couldn't handle their money, politicians theorized.
On the other side were the captains of finance -- Key, National City, Bank One, JP Morgan, and Citicorp were all in on the scam. They were the kind who sat on all the important committees, broke bread at the best clubs, slapped backs at the finest parties. And they were dumping huge checks into campaign treasuries. It was easy to look the other way.
When Ohio cities tried to enact anti-predator laws, the legislature moved to stop them. Former Attorney General Betty Montgomery actually sued Cleveland to bar it from protecting residents. Her successor, Jim Petro, blamed the problem on stupidity. "We were told that people were not educated and he couldn't do anything," says Seifert.
Local pols weren't any better. Though ESOP was compiling evidence of fraud by the pound, Prosecutor Bill Mason preferred to bag crackheads. It made for easier hunting, better headlines.
President Bush even named Roland Arnall his ambassador to the Netherlands. At the time, Arnall's company, Ameriquest, was the biggest predatory lender in Cleveland ["All the President's Men," October 19, 2005].
So ESOP took matters into its own hands. It started protesting outside banks and executives' homes, throwing rubber sharks and delivering jars of vaseline. Shame was its weapon. But it would be bankers' own stupidity that eventually did them in.
As long as they kept to Cleveland's black neighborhoods, everything was fine. Yet they started moving to the inner-ring suburbs and beyond, where laws are still upheld, and politicians actually care. "In the last two years it started hitting white people," says Seifert. Bankers had foolishly created a more vigorous enemy: suburban mayors and legislators.
At the same time, the chickens were coming home to roost. The industry had been issuing bad loans for a decade. Foreclosures soared, and Wall Street began seeing default rates as high as 50 to 60 percent.
It's one thing when Joe Sixpack goes bust. It's quite another when some very big people start losing some very big money. The mortgage crisis was now sailing in full regalia.
Today, Seifert is charged with cleaning up the mess. ESOP has largely evolved into a financial activist group, its mission to bang bankers into working with those they've screwed.
Most banks have come to the table -- not because they've rediscovered honor, but because it favors their wallets. Foreclosure will get them nothing. Rewriting loans on more reasonable terms will at least keep the money coming in -- though it's now honest and smaller. At its present rate, ESOP expects to save 800 people from losing their homes this year.
But the sins of the usurers can still be seen on any drive through the city. All those vacant homes turned drug houses? They're likely owned by banks, reclaimed from foreclosure. Countrywide alone owns 300 homes in Cleveland. They're left to decay and die from the banks' neglect. After all, there's no money in keeping blight from your street.
At least it makes for wonderful irony. The empty homes now provide free housing for the crack industry. When it comes to morality, the bankers are now among kindred spirits.
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