Lobbying by Lenders Worsened Subprime Mess

Glenn Simpson reports in today’s Journal on how lenders lobbied against state anti-predatory lending laws, with the result of worsening the subprime crisis. While the federal government was asleep at the wheel, or worse, worshiping the “miracle of instant credit,” states were trying to protect their residents from being harangued by jackals promoting risky or questionable lending plans. $20M in donations, however, made it possible to roll back protections:

During the housing boom, the subprime industry succeeded at more than just writing mortgages. It also shot down efforts by some states to curtail risky lending to borrowers with spotty credit.

Ameriquest Mortgage Co., until recently one of the nation’s largest subprime lenders, was at the center of those battles. Working with a husband-and-wife team of Washington lobbyists, it handed out more than $20 million in political donations and played a big role in persuading legislators in New Jersey and Georgia to relax tough new laws. Those victories, in turn, helped blunt efforts by other states to crack down on reckless lending, critics of the industry contend.


Federal lawmakers didn’t pose much of a threat to the subprime industry in recent years. Members of Congress received at least $645,000 in donations from Ameriquest and large sums from other big subprime lenders, Federal Election Commission records indicate. They debated new oversight of the industry, but took no action.

The states were a different matter. “What seemed to be developing in the states was that there was going to be a wave of legislation,” Mr. Andrews, the lobbyist, said in an interview.

In 2001, Georgia passed the Fair Lending Act. Among other things, it required lenders to be able to prove that a refinancing of any home loan less than five years old would provide a “tangible net benefit” to the borrower. Ameriquest began lobbying the state legislature to remove that provision, arguing the standard was too vague. Other lenders also complained about the law, as did Fannie Mae, the giant buyer of mortgages.

“Ameriquest was very, very engaged,” recalls Georgia state Sen. Vincent Fort, who authored the law. Mr. Fort says that Adam Bass, a lawyer for Ameriquest, lobbied him directly. The state senator says he accused Mr. Bass of victimizing poor minorities, which angered Mr. Bass. A spokesman for Ameriquest, speaking on Mr. Bass’s behalf, says the meeting “was a very candid conversation about complex policy issues.”


The subprime industry mounted a campaign against the Fair Lending Act. Within months, the Georgia Senate voted 29-26 in favor of a new law that eliminated for nearly all loans the tangible-net-benefit requirement opposed by the industry. The state House passed the law, 148-25.


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  2. Anonymous

    Ye gods.  I hoped you’d just made that up.

    No matter how cynical I get, I can’t keep up.

  3. Anonymous

    BTW, when you login with Typekey you show up as “Anonymous”.  I’m assuming this is a bug (or maybe I’m still not cynical enough). 😉

  4. I worked in the sub-prime mortgage industry in 2005 and it was a shady business. Even with prepayment penalties on existing loans, loan officers were trying to get people to refinance. Our software application had a “tangible net benefit” calculation built into it, but it could be manipulated to get around it.

    I was shocked when MTAs were re-introduced. Who in their right mind would get an MTA? You’re better off paying interest only and at least not going into negative equity.

  5. I worked in the sub-prime mortgage industry and it was a shady business.

    Which industry was that? It is my understanding that sub-prime (as an industry?) was spread out all over the lender eco-chain extending to reputable(?) lenders and upchain purchasers.

    If you throw unregulated and nontransparent finance on the table, and crass capitalism takes over, we expect Mother Theresas to execute the transactions? Our culture glorifies the aggressive and quick profit, so I can’t say that there’s much surprise here, except to what lengths people will go to deny the problem in order to pocket the last few pennies.

    There may be denialism elements in the entire message that the American public gets from the news, talking heads, and organizations that study risk/quality and assigns ratings. Either that or a conspiracy that leads to charts like this.

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