As our nation and the world descended into a full-blow financial crisis in April of 2007, New Century Financial Corporation filed for bankruptcy. Before it went belly up, the mortgage company was a prime example of a predatory subprime lender.
New Century had an especially atrocious record for discriminatory practices toward communities of color.
This moment, a little over 11 years ago, is one of many that form the timeline of a financial crisis that snowballed into a Great Recession, a crisis that was especially devastating for California’s Central Valley.
This moment resonates today as Congress and President Trump are on the verge of enacting the biggest-ever rollback of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – the financial reform law that established safeguards to prevent a return of the reckless lending that caused an economic catastrophe.
This bill to weaken post-crisis rules, S. 2155, has already passed the Senate and is expected to receive a vote in the House as soon as Tuesday.
It will be interesting to see how two of the Valley’s Representatives Jeff Denham, a Republican, and Jim Costa, a Democrat, vote. After all, their districts were enormously affected by the Great Recession.
The President has promised to sign S. 2155 into law. The bill has been nicknamed the “Bank Lobbyist Act” as it prioritizes the desire of well-connected financial players for looser rules and short-term profits over the public need for a stable, sustainable market that serves all credit-worthy borrowers.
For example, the Bank Lobbyist Act would exempt banks with between $50 billion and $250 billion in assets from the enhanced supervision put in place after the crash to guard against bank failures that could, once again, tear down the broader economy. Financial crisis posterchildren Countrywide and Washington Mutual had assets in this range at the time of their collapse.
The nonpartisan Congressional Budget Office said this legislation would make bank bailouts more likely.
Prior to the financial crisis, predatory mortgage lending was both ubiquitous, touching nearly every corner of America, and specifically targeted at black- and Latino-Americans, stealing an entire generation of wealth from these communities. Recent analysis from the Center for Investigative Reporting shows lending discrimination remains prevalent.
To help address this problem, the Dodd-Frank law expanded the Home Mortgage Disclosure Act to collect new data. This information is needed to help identify and address problematic lending patterns. The Bank Lobbyist Act would exempt 85 percent of depository banks from reporting this new data, making it far tougher to find and eliminate discriminatory lending.
This bill would also harm manufactured-home mortgage borrowers. It would exempt many retailers from rules that prevent borrowers from being “steered” toward loans that are more expensive than those for which they qualified.
Keep in mind that manufactured homes are depreciating assets, borrowers are usually low-income, and this is a market already rife with consumer abuse. Much of the market is controlled by Berkshire Hathaway – hardly the small, community bank the bill’s backers claim to be helping.
It gets worse. The Bank Lobbyist Act would exempt lenders from appraisal requirements for most loans in rural areas. This would reopen the door to abuse and inaccurate valuations, leading to homeowners paying higher costs for homes than they are worth or consumers losing equity in their homes. The Financial Crisis Inquiry Commission found appraisal fraud was a major factor in the crash.
These are but a few of the provisions that would hurt the very Americans struggling the most to get by. This bill comes as bank profits are soaring.
Will Congressmen Denham and Costa and other members of Congress from the Valley side with the predatory lenders who devastated the region, or will they side with their constituents, who want basic economic security for their families? We will soon find out.
Graciela Aponte-Diaz is Director of California Policy at the nonpartisan Center for Responsible Lending. Email Graciela.Aponte@ResponsibleLending.org.