It was enough to make you cry.
In January 2003, the lending industry and its servants – mostly legislators who suck the bankers' tits – proclaimed there was a "crisis" in Georgia. The only solution, they said, was to eviscerate one of the most enlightened pieces of consumer protection in America, a law passed the year before that safeguarded Georgians from predatory mortgage loan sharks.
The law was the handiwork of Roy Barnes, who two months earlier had lost his re-election bid for governor. With Sonny Perdue now at the helm, Republicans were ravenous to undo 130 years of Democrat Party rule.
Patrick Flood, at the time CEO of Atlanta-based Homebanc, gave the legislators a doomsday report. "Fixing the current crisis is crucial," he sternly warned, adding that "homeowners will find it difficult, if not impossible, to finance or refinance their homes," unless the General Assembly did exactly as the bankers wanted. He neglected to mention that during the year when Barnes' law had been on the books, Homebanc had scored record profits.
Flood is a religious zealot who wrapped his business in the name of the Lord. Who could doubt his words were anything less than Moses the Mortgage Broker delivering God's rebuke to the General Assembly?
The legislators said "hallelujah." Casey Cagle, then a state senator and now lite governor, warned that the fallout from Barnes' law would be "devastating. The industry would suffer greatly."
Pretty scary, eh?
No one was much interested in listening to those nobodies called citizens. As Barnes today recalls it, "Gullible legislators were swayed by lobbyists' and bankers' thick steaks and cold liquor."
Fast-forward five-and-a-half years.
Homeowners are indeed finding it "difficult, if not impossible, to finance or refinance their homes" – but not for the reasons Flood prophesized. In fact, precisely because the legislators cravenly did the bidding of Flood and his band of Judases, Georgia is among the states leading the nation in the collapse of the mortgage industry.
Flood's Homebanc is in bankruptcy court. He's out of a job – but with a $5 million severance to cushion the trauma. Failure can be sweet. Not so sweet for his clients who lost their homes, however.
In the last decade, an axis of evil arose. Predatory lenders -- the so-called "subprime" industry, which sells high-interest, high-fee loans to poor and credit-impaired people -- conned the aged and the financially unsophisticated into loans that were pure robbery. Some homeowners with a lot of equity saw that nest egg skimmed. Other homeowners were fleeced by repeatedly being sold new loans. Fees and bogus insurance policies bit into the consumers, and interest rates that would make a Mafia don blush finished off people who were trying to achieve the American dream.
Key to the subprime business was finding an ever-expanding base of people to be snookered. Borrowers were enticed with exotic mortgages – adjustable-rate and interest-only among the most common. They'd often have "teaser" payments at low interest rates – but after a few months, the payments would soar.
Bill Brennan, a lawyer with the Atlanta Legal Aid Society who has been fighting mortgage scams for 39 years, says, "These lenders knew [borrowers] couldn't qualify for a loan. The loan officers would put in fake incomes. All they wanted to do was make the loan. Lenders knew they wouldn't be held accountable."
That was only part of the axis. Lenders generally sell mortgages, and then the loans are bundled and resold as securities. To jack up the yield, or what the security pays investors, many of the usuriously high-interest subprime loans would be packaged with other mortgages. As those subprime borrowers began to default, the bottom fell out of the business, and the current crisis swept the mortgage and housing industries like a giant tsunami.
A third group of culprits was the companies that rate securities, such as Standard & Poor's. These outfits greased the scuttling of Georgia's predatory-lending law in 2003. Standard & Poor's claimed it couldn't rate the mortgage securities because Barnes' law actually held accountable those who committed fraud and theft. "It was an innate conflict of interest because these rating agencies collected fees for rating the securities," says state Sen. Vincent Fort, D-Atlanta, a sponsor of the 2002 predatory-lending law.
So the General Assembly in 2003 tossed Georgians into a pond filled with toothy financial carnivores. The story has been repeated nationally. Differences are apparent, however. Barnes points out that he patterned his law after one in North Carolina. "There are many foreclosures there, but nothing like here in Georgia," Barnes says.
There were 12,602 Georgia foreclosures in July, up 75 percent from June. Nationwide foreclosures in July totaled 179,599 – a 95 percent increase over the previous year. Forty-three states showed increases in foreclosures. But the shame for Georgia was special. Along with California, Florida, Michigan and Ohio, Georgia accounts for more than half of July's foreclosures.
That would have been bad enough. But the horror of almost 13,000 Georgia families losing their homes last month is just the beginning. Generally, a combination of events occurs. The teaser mortgage payments suddenly skyrocket. Maybe the breadwinner is laid off, or medical bills devastate a family. After being tossed on the street, the family then gets a bill from the IRS – when a loan is "forgiven" in foreclosure, the tax man sees the amount of the loan as "income."
I asked one of the architects of misery, state Rep. Johnny Floyd, R-Cordele, if he was embarrassed by what's happened since he helped gut the predatory-lending law. "Nah," he said. "What we're seeing is the market at work."
Horseshit. He helped create a "market" where only thieves win.
In California, there is talk among legislators of declaring a moratorium on foreclosures. That should be an absolute must-do here in Georgia. Long term, we must revise the foreclosure laws. Georgia is among the states that allow "nonjudicial foreclosures" – the bank can grab your home without a court hearing and before you have time to even realize what's happening. That must stop.
More than anything, revive Barnes' law against predatory lending.
If the Legislature refuses to act, it's time for Georgians to foreclose on the Gold Dome. We really do need to throw the bastards out..