Eleven years have passed since the economic meltdown of September 2008, which accelerated the Great Recession and marked the worst economic downturn since the 1929 crash and the Great Depression of the 1930s. This month, the Federal Reserve Bank of Philadelphia released a working paper titled “Owner-Occupied Fraud and Mortgage Fraud” — and as journalists Malaika Jabali and Ryan Grim see it, the paper effectively tries to let Wall Street off the hook for the 2008 downturn and falsely blames lower income borrowers.
“The new study zeroes in on what its authors call ‘fraudulent investors’: people who got mortgages for investment homes in which they never intended to live, despite claiming that they would,” Jabali and Grim note. And such victim-blaming, they argue, is “similar to faulting hoodwinked students for taking out massive loans from fraudulent for-profit colleges.”
Jabali and Grim observe that blaming the poor and people of color for the Great Recession is nothing new. In a 2009 report, former Texas Rep. Jeb Hensarling” (a Republican) insisted that homeowners facing foreclosures “simply made bad choices” and “overestimated their readiness for homeownership.”
Hensarling’s report, according to Jabali and Grim, reflected a belief that “law enforcement and regulatory response should focus on the borrowers, not the lenders on Wall Street or their brokers.” And that type of thinking, they assert, is alive and well in the new working paper by the Federal Reserve Bank of Philadelphia.
“The working paper, which comes with a disclosure saying it doesn’t represent the opinion of the Philadelphia Fed, complements other research indicating that the ‘subprime mortgage crisis’ is a myth,” Jabali and Grim explain. “But it doesn’t go all the way to citing the role of Wall Street, which is convenient for politicians and regulators uninterested in policing those banks.”
Jabali and Grim, however, make a distinction between overtly racially motivated Republican analysis of the economic downturn and the “more sophisticated academic response” in the financial world.
“While the conservative response to the crisis was to blame black and brown homeowners, the more sophisticated academic response extends the blame more broadly to other borrowers,” Jabali and Grim observe. “The new paper, authored by Ronel Elul, Aaron Payne and Sebastian Tilson, studied the pervasiveness of what it called owner-occupancy fraud — that is, borrowers who applied for home purchase loans as owner-occupants despite no evidence of them subsequently occupying the home.”
Jabali and Grim conclude their Intercept article by stressing that attacking recipients of subprime loans while letting Wall Street and large banks off the hook is quite disingenuous and misleading.
“While recognizing that these subprime borrowers were not the crisis’ primary drivers, recent studies like those published by Philadelphia’s Fed nevertheless blame borrowers and not the actors who created the conditions and set the terms for such transactions,” Jabali and Grim write. “Wall Street banks — whose insatiable demand for loan products it could slice up, securitize, slap a AAA rating on, and sell to pension funds — had created an industry of brokers ready to produce that supply by any means of fraud necessary.”