This week's Newsweek features a lengthly story about how predatory lending decimated Cleveland's Slavic Village neighborhood. Over the past week two public radio programs have reported on Slavic Village: NPR's Weekend Edition and American Public Media's Marketplace.
The Newsweek story is devastating. We heard about Cleveland trying to regulate predatory lending and being preempted by state officials. As the story makes clear, the unregulated environment and promises of easy money led to widespread fraud:
- Yet insidious forces were at work in the neighborhood. After the mortgage-refinancing boom of 2003–04, demand for fresh subprime "product" grew so intense that lending standards nationwide disintegrated. To meet Wall Street's demand for a steady supply, lenders kept reaching lower and lower down the scale of quality in both property and borrowers, until the street hustlers jumped in to offer up their "product." Not surprisingly, the once shunned inner city became a prime lending spot across America. That, in turn, led to the phenomenon of reverse redlining. More than a decade ago, the big story was the redlining of low-income, often African-American, neighborhoods by banks that refused to lend there. Now the opposite happened.
Wall Street's insatiable demand inspired the local shop owner and plumber to go into the mortgage business—what Brancatelli calls "station-wagon brokers."
"There are a lot of former drug dealers who have gotten into the business," adds Ed Kraus of the Ohio Attorney General's office. Many brokers simply invented biographies and jobs for their indigent borrowers, officials say. In one case, says Brancatelli, Kellogg saw a lawn mower in a truck belonging to Williams's husband and declared him a "landscaper" for the mortgage records.