Super-bad: Bank Behavior in Black Majority Counties.

This week the Washington Post did a 3 part series on the effects of the 2008 mortgage crisis in Prince Georges County, a black majority county.  If you haven't read the story (part 1, part 2, and part 3), it is well worth a read.  For now I'll summarize two main points from it:  the mortgage crisis hurt black communities worse than white ones, and housing prices in predominantly black communities have not rebounded in the way they have in predominantly white communities.

There's a lot to chew on in these three installments.  For today, though, I want to focus on one thing.  The extra pernicious behavior of banks in black majority counties during the bubble.  Of course, anyone who followed the bubble and the 2008 recession that followed knows the banks were engaged in go-go lending.  But, the bad behavior was especially bad in black majority areas.  And, despite the wealth of knowledge about how badly banks actually behaved in all neighborhoods, a significant number of commentators still continue to blame borrowers.

Unfortunately, the 'blame the borrower' view assumes that lender and borrower have equal knowledge.  That is, while the banker has your personal asset and income statements, you the borrower know enough about mortgages to know whether you're getting a fair deal.

The story in PG county, and the upper middle class neighborhood of Fairwood, illustrates just how uneven that relationships can often be, and how unfair the banks could behave.

In the third installment of the WAPO series we meet the Boatengs, a couple originally from Ghana.  They owned a townhouse in Germantown but with a growing family they decided in 2005 to find a bigger house.  A friend in their church recommended they check out the Fairwood neighborhood--a upper middle class enclave with beautiful new homes.

The Boatengs fell in love with a house in the neighborhood.  It had a price tag of just over $600,000.  Their joint income at the time was just over $110,000.  By any credible standard, the Boatengs should not have qualified for a mortgage for the house.

But, Lehman Brothers, who gave them the mortgage found a way to make it work.  They had the Boatengs cash out the equity in their town home for use as a down payment.  They used savings to increase the amount, allowing them to take out a mortgage for just under $500,000.  Even with a 100,000 reduction, the loan amount was not sustainable.  By my optimistic, back of the envelope calculations, the Boatengs would have brought home about $7,300 a month (assuming a tax rate of 20%).  Their mortgage payments (according to the story) were $3,662 (more on this in a bit).  That means the Boatengs were paying 50% of their take home pay on housing.  Housing experts argue that families should pay no more than 30% of take home pay on housing costs.  For the loan to work the Boatengs would also need a lot of things to fall into place (and stay in place).  They'd need to find a reliable renter for the Germantown townhouse, for example, and they'd need to keep their jobs.    

So far we have an example of the garden variety bad behavior banks were engaged in during the bubble years.  That is, a bank gave out a loan to someone who'd likely have trouble repaying it.     

But, Lehman Brothers decided to pile on.  The Boatengs were immigrants.  They weren't familiar with US banking.  They believed in the American dream, and like many immigrants the idea that the American dream can turn into a nightmare never occurred to them.  The loan the Boatengs got was an adjustable rate, interest only loan.  For the first 5 years the couple would only pay interest (no equity building here).  After 5 years, they would start paying down some principle, but their interest rate would also go up, from 6.1% to 8.3%.  Not surprisingly, the Boatengs couldn't make the new payments.  They've since gone deeper in to debt to improve their ability to repay their mortgage.  They are in over the heads on multiple front.  Foreclosure looms.  

What happened to the Boatengs is called exploitation plain and simple.  And, it was targeted.  West Africans are about 5% of the population of PG county, but they held almost a third of the mortgages that were foreclosed on in the county. 

Superbad--it ain't just a movie.  It's a bank thing. 

Dodging an Olympian sized bullet

Folks in DMV can breath easy.  Boston was selected as the American city to be put forward to the International Olympic Committee to host the 2024 summer Olympics, besting LA, San Francisco, and DC.

This is good news for many reasons!

1.  Hipsters and athletes don't mix.  Yes, they are both skinny, but only one is emaciated.   

2.  Politicians and athletes don't mix well either.  The doughy unhealthy look is popular in Congress.  Congress is all about that base, no treble.   

3.  Ok, both groups do like to drink.  But one will be off the sauce at game time.  

4.  Metro can't handle 4 inches of snow.  The Olympics would destroy it.

5.  The Olympics does not have a 'hot air bloviating' contest.  The area's pompous asses would have taken their balls and stomped off home when they found that out.    

6.   The Swiss crooksInternational Olympic Committee will get their public assistance checks from someone else's tax base.   

7.  The endless chatter about how much the DC2024 team cares about lining their pocketsDC will stop. 

8.  Dan Snyder won't have yet another way to make money on a losing team. 

9.  Traffic will remain in Dante's first circle of hell instead of descending into the ninth circle, where the millions of people all fleeing hurricanes at the same time live.      

10.  More time to focus on the antics of Kirby DeLauter, Kirby DeLauter, Kirby DeLauter!