An old Eddie Murphy bit, made famous in his raunchy 1980s album “Raw,” tells you all you need to know about the foreclosure crisis. In the bit, a cheating husband has been caught in the act by his wife. “It wasn’t me,” he protests. “But I saw you,” she insists. “Wasn’t me,” he just keeps repeating. Faced with no escape, he springs the trap by asserting up is down and daring anyone to say different. I’d have once called that move straight up ‘hood; I now know it’s straight up Wall Street.
Last week, five of the nation’s largest banks and 49 of its attorneys general announced a $26 billion settlement that essentially let the banks off the hook for the widespread use of fraudulent documents in the foreclosure process. Today, the San Francisco County assessor released an audit suggesting that many, many more demonstrable crimes were committed during the foreclosure bust of the past few years. My use of passive tense is not accidental; the audit doesn’t name names, though it’s long past time we start doing so.
“It is very apparent that the system is broken from many different vantage points,” Phil Ting, the county assessor, told the New York Times’ Gretchen Morgenson. Actually, someone broke the system, and evidence that the break was willful is now piled as high as banking execs’ bonuses. Morgenson describes the audit as such: “About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.”
That’s not a quirk. That’s not a system that needs tweaking. That’s not even incompetence. It’s rampant lawlessness. And it’s by design.
Many lawmakers and regulators continue to politely avoid saying as much, because it would naturally lead to uncomfortable places. Acknowledging the crime forces dirty words like “prosecution” and, worse, “reparation.” These are words our lawmakers are far more comfortable hurling at the ‘hood than at the Street. But as Morgenson notes, knowingly filing false documents with any public office in California is a felony. Some people in corner suites could lose their right to vote.
About four years ago I sat in the Atlanta living room of a middle-aged black woman who was functionally illiterate. She didn’t have the resources to keep up her modest home, and its obvious need for repairs made her ripe for the picking. Mortgage brokers flipped her through tens of thousands of dollars of refinances, one of which was “signed” by a son who is in prison. Down the street, brokers flipped an elderly man who’d suffered a series of strokes so severe that he routinely ordered things like pimple cream off late night television through enough refinances that the his mortgage grew to near twice his home’s value.
In Jamaica, Queens, residents up and down one block were steered into overpriced, needless loans through their minister—a linkage so common nationally that one Atlanta-area county set up a task force to interrupt hard sells in church parking lots.
This sort of widespread abuse is why we now see so many problems with the foreclosure process. The process was rife with fraud from the start, so of course it’ll be crooked at the end, too. Or, as the evangelists would say, born of sin, die of sin.
But banks have long dismissed these stories as anecdotal. Or pushed the blame off on the brokers that sold inflated loans, the assessors that overvalued properties, the ratings agencies that looked at the resulting junk and called it gold, the regulators who heard and rejected pleas that they intervene as far back as the mid 2000s. All of these players are surely culpable, but they all worked in service to the banks’ record profits. That’s record profits that banks continue to accumulate, primarily by refusing to acknowledge that millions of mortgages on their books are far overvalued precisely because the banks conspired to make them so.
As a result, millions of people have lost their homes. Will those people ever be repaid? Not likely. Also as a result, already wealth-poor black and Latino neighborhoods and families have been stripped to the bone. Between 2005 and 2009, the racial wealth gap grew to its largest point on record; the median wealth among white households is now 20 times higher than it is among African Americans. In that time period, median net worth fell by 53 percent among black households and by 66 percent among Latino households.
There is hope in the work of a handful of state attorneys general who have suggested they’re ready to at least direct one set of dirty words at Wall Street: “civil and criminal complaints.” The recent settlement is a narrow one, because California, New York, Delaware and others held out for the right to sue for fraud committed at the time loans were originated and at the time they were sold to investors.
The fact that those AGs had to fight so hard in the face of such enormous evidence of wrongdoing is proof of how well the banks’ “wasn’t me” strategy has worked. Still, if there remains a chance for accountability—if not restoration—in the Great Recession, it lies in the hands of people like New York AG Eric Schneiderman and California AG Kamala Harris, to whom the San Francisco County assessor delivered his audit today. Four years after the foreclosure crisis began, we are all still staring down the bald lie that the nation’s largest banks aren’t responsible. The truth would set us free, if we’d let it out.