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Commercial banks now have about $100 billion invested in subprime loans. And that's small potatoes compared to finance companies such as The Associates.
For years, The Associates was owned by Ford -- a name that encouraged unsophisticated consumers to trust the company that covertly gouged them, deceived them and even often forged their names, according to ex-employees. Associates was purchased by Citigroup in November 2000. The nation's largest bank became, according to Atlanta Legal Aid's Brennan and other consumer advocates, one of the nation's biggest predatory lenders. The price Citigroup anted was $31 billion -- a dramatic signal of how lucrative the subprime market can be.
"I remember the day about 10 years ago when it hit me," says Howard Rothbloom, a Cobb County lawyer who waged two class-action suits against a super-predator, the now-defunct Atlanta-based Fleet Finance. "This is not the America I thought it was. Big corporations, companies we are told to respect, are stealing people's homes. And the targets are the elderly, the poor, the most defenseless people in the community."
The corporate giants weren't content to go after only homes. NationsBank (now Bank of America) invested heavily -- $200 million-plus -- in spiffed-up pawn shops such as Cash America. American Express rushed to fund check-cashing stores. Car title loan companies, often funded by major auto retailers, blossomed in every neighborhood (and America's largest, Atlanta-based Title Loans of America, boasts one of the nation's most infamous organized crime figures, mob lawyer Alvin Malnik, as its major investor).
Federally chartered banks, which can't be regulated by states, have teamed up with rip-off payday loan operators to duck under bans on usury. Georgia has allowed these leeches, backed by their pinstriped bankers, to charge as much as 988 percent interest, a national record, on money secured by meager payroll checks.
And, when it comes to homes -- those hallmarks of apple-pie Americana -- it's been a free-for-all. Well, not exactly. Subprime mortgage abuses amount to virtually free money for corporate icons such as Citigroup, Bank of America and First Union. But for the customers, the price has been steep beyond their imaginations.
At the most basic level, the difference between a prime rate mortgage of 8 percent and a subprime loan of 12 percent is staggering. Even if no other predatory factors are involved, the hike in payments for a $50,000 loan over 15 years would be more than $20,000.
A key factor in the debate in the Georgia Legislature will be setting the threshold or trigger for what rates are predatory. Generally the industry argues for a high rate -- say, 13 percent or more. "And then the predatory lenders come in just under that amount, and they keep doing business as usual," says lawyer Rothbloom.
Predatory practices drain about $9.1 billion from homeowners' equity throughout the nation each year, according to a report last year by the activist group Association of Community Organizations for Reform Now, better known as ACORN.
Georgia's share of that equity loss amounts to $27.4 million lost to prepayment penalties, $4.1 million to inflated interest rates, $67.2 million to single premium credit life insurance and $52.2 million to excess fees -- for a state total of almost $151 million.
Fueling subprime and predatory loans is the practice of "securitization." Lenders bundle loans together and sell the packages as investments -- more than $60 billion in subprime loans were securitized in 1999. The proceeds free up more money for loans. While securitization isn't inherently bad, it's a prop for the worst lenders. For example, Green Tree Financial (now called Conseco Finance) was the largest lender to mobile home buyers during the 1990s. The company built its volume by using an accounting gimmick for securitization that allowed Green Tree to claim $2 billion in profits that were pure vapor. While Green Tree's former chairman pocketed $200 million, 50,000 customers have lost their homes in the last two years after they were sold high-interest subprime loans they couldn't afford.
Miss Ivey's pride resides in her small, prim, turquoise-colored bungalow on Hosea L. Williams Drive in Kirkwood. Walls throughout the house are nearly covered with photos of her seven grand-children and 30 great-grandchildren.
Nowadays she spends most of her time caring for her husband, Ralph, 80, a construction worker disabled since 1995 by three strokes and cancer. The couple lives off his monthly Social Security benefits of $828.
The Iveys had paid off a $35,000 loan on their home, but about the time Ralph became ill, they borrowed $34,500 from Beneficial, now a division of Household International, best known as Household Finance.
To the people who, despite my every effort to explain this, think that I'm benefiting…
To Robert Nebel: In Georgia?! Sh'yeah, right; maybe in another decade when it takes assholes…
Please don't vote for this ignorant douchebag.
"Cobb, a mammoth county that suffers both from an inferiority complex and an inflated ego..."…
i'm still waiting to hear from the 30-year-old norcross man with a blotchy, red face…