Racial Targeting Under the Heading of Diversity, Equity & Inclusion
Valuation Jiu-Jitsu Will Lead to Future Addie Polks
Addie Polk was a 91-year-old African-American widow who shot herself in the chest in 2008 during a Fannie Mae-initiated eviction in Akron, Ohio. It marked the low point in Fannie’s embrace of toxic mortgages. Fannie, now in federal conservatorship, bought or guaranteed subprime loans made to vulnerable borrowers in the years leading up to the 2007-2008 financial crisis. There are now signs of new abuses. Under the banner “equity and inclusion,” some nonbank lenders, again enabled by Freddie and Fannie, seem to be targeting Black borrowers in schemes based on inflated appraisals – one of the few tools still available to fraudsters.
In Polk’s case, a fraudulent mortgage was originated in the widow’s name through an affinity scam in which commissioned salespeople for the now-defunct Countrywide Home Loans infiltrated her largely African-American Baptist church. It is believed bad actors, after taking volunteer positions at the church, copied her signature from donation checks or otherwise gained her trust. The subsequent mortgages and lines of credit taken out in her name devoured the equity in the nonagenarian’s home, which she had owned free and clear.
Polk became the national face of predatory lending as she lay dying of self-inflicted gunshot wounds in the Akron General Medical Center. When Polk’s story went global, Fannie quickly announced it would halt its eviction of the dying elderly widow and forgive her debt. Magnanimous. Her story was retold in the 2020 docuseries “The Con” by filmmakers Eric Vaughan and Patrick Lovell.
Polk’s case came to symbolize the way in which lenders, particularly the nonbank lenders – egged on by Fannie and Freddie – targeted African-Americans for subprime loans.
In their book “Predatory Lending and the Destruction of the African-American Dream,” wrote law professors Janis Pearl Sarra and Cheryl Wade:
“Millions of middle-class and high-income African-Americans who qualified for regular fixed-rate, long-term mortgages were steered to subprime mortgages. For the most part, white American borrowers who had credit histories identical to the credit histories of African-American borrowers were not targeted for subprime mortgages.”
Fast-forward to 2022. There are new signs commissioned salespeople have descended on equity-rich but cash-poor neighborhoods, using affinity schemes to assist Black homeowners in depleting home equity or shoveling equity into credit card debt traps with frequent refinancings. But this time around, the racial targeting is masked as a virtue under the heading “Diversity, Equity and Inclusion,” or “DEI.”
In 2020, the Greenlining Institute, an Oakland, California-based nonprofit, reported that the eight largest nonbank mortgage lenders in the state had lent disproportionately to Black and Hispanic home buyers when compared with chartered banks in the state. That suggests racial targeting.
Meanwhile, bank appraisers are being pressured by Freddie and Fannie to compensate for years of supposed bias. Permeated by politics and unholy alliances with the Realtors, home builders and lenders, the mortgage giants have even taken steps over the years to keep appraisers from viewing the properties they’re asked to appraise. “Nothing to see here.”
New attention is being paid to properties that don’t appraise to what commissioned salespeople want the properties to be worth to make their deals work. Appraisers are also being pressured even by their state licensing boards to play ball, to abandon established analytical principles and become warriors on the front line of social justice – or else.
National appraiser organizations that once pioneered analytical techniques like discounted cash-flow models and regression analysis have been recently flogging webinars by an organization called ACTION, which calls for “restorative appraisals” in which appraisers are taught to use comparable sales from so-called “white neighborhoods” when appraising homes in what are identified as “Black neighborhoods.” Using comparables from distant neighborhoods is how a dishonest Ohio appraiser, working with Countrywide, was able to appraise Polk’s home for reportedly twice the home’s market value. With the implicit full faith and credit of the U.S. government, Fannie Mae then guaranteed Polk’s loan based on the inflated appraisal. This led to Fannie’s eviction of the elderly widow.
The large financial institutions have been armoring up to repel the next public relations disaster like the Addie Polk case or the next Justice Department civil rights investigation.
They’ve been hiring high-profile diversity, equity and inclusion figureheads as protective camouflage. It will help them to flip the script when future affinity scams, like the one that destroyed Addie Polk, are discovered. No longer allowed to openly push negatively amortizing loans – so-called pick-a-pay loans – and Alt-A loans, they’ve made inflated appraisals the new big thing in an effort to sell loans to African-Americans. The nonbank lenders may be able to keep the party going by pushing for inflated collateral values under the guise of equity and inclusion.
To appraisers, it looks like regulators have lost their marbles. Before Ameriquest’s spectacular collapse in 2006, the U.S. Justice Department’s Civil Rights Division had brought a case against the now-defunct subprime lender for padding mortgages made to minorities, women and the elderly, and for engaging in bait-and-switch tactics. Countrywide was also in government crosshairs for targeting Black and Hispanic Americans, along with the elderly. This would have been no surprise to Addie Polk. After the crisis, the Justice Department levied big fines against its new owner, Bank of America, over 10,000 toxic subprime mortgages. The now-bankrupt New Century was also linked to predatory lending.
People of goodwill should remember the story of Addie Polk. She deserves to be remembered.
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- The Nightmarish End of Home Appraisals - July 31, 2023