Robert Gnaizda: My Crime Was Not Curbing the Guilty

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By Robert Gnaizda

Many minority leaders concerned about foreclosures and lack of future homeownership opportunities, have asked me, a co-founder and former general counsel of the Greenlining Institute, to respond to charges that it caused the financial crisis by promoting predatory lending practices.

My response is that the accusations against Greenlining are not without some merit, though the facts are a little more complex. For example, the institute unfortunately was far less influential than suggested by the CEO of Countrywide, Angelo Mozilo, when he blamed it for his predatory actions.

In 1992, Greenlining sent a letter to Mozilo criticizing Countrywide for finishing last among California financial institutions in making conventional, prime, fixed-rate loans to blacks, Latinos and Asian-Americans.

Within two years, Mozilo began to correct his discriminatory pattern on prime, conventional loans to minorities. But at all times, we only gave credit for credits that were prime, conventional, fixed-rate loans. We refused to include any data in our comparative Bank Report Cards that were not conventional, prime loans. Some financial institutions tried to “game” our system and-or complained about our “artificially high requirements,” but we never made any concessions.

In 1999 and in 2000, we met with Fed Chairman Alan Greenspan to criticize the Federal Reserve’s laissez-faire attitude toward the major subprime lenders, such as Ameriquest. We asked that Greenspan urge all major financial institutions to set a fiduciary “gold standard” that could effectively compete with and possibly eliminate the unregulated subprime industry. The chairman refused.

Stymied by both the Clinton and Bush administrations’ refusal to act, we failed to continue to protest publicly. A big mistake.

In 2004, we convened a meeting with the 15 largest financial institutions engaged in adjustable-rate mortgages, including Countrywide, to urge that they substantially revise and raise their standards due to the dangers of adjustable-rate mortgages, including option ARMs.

Getting no support, we met with Greenspan in July 2004 to specifically complain about these practices and used Countrywide as a prime example. Greenspan stated that he had reviewed our documents and that, even with a doctorate in math, you could not understand these mortgages. But he refused to do anything.

Simultaneously, we published an article in American Banker raising the alarm for all regulators and the Congress.

In early 2005, receiving no positive response from any regulator, we reconvened the largest financial institutions in San Francisco, with Countrywide in attendance. We again criticized their potentially dangerous mortgage instruments.

Countrywide, however, was intent on exploiting and dominating the market. We therefore published another article in American Banker predicting a mortgage crisis and met again with Greenspan. But he again refused to act. So, too, did the Office of the Comptroller of the Currency (which insisted on blocking state attorneys general’s actions against predatory lending), as well as the predecessor to Sheila Bair at the Federal Deposit Insurance Corp. (If Bair had been chairman at the time, we believe she would have fully concurred with us, as her subsequent actions have demonstrated.)

But we did not do as much as we should have. At our last meeting with Mozilo in late 2006, he demanded that we support Countrywide’s efforts to escape tough regulatory scrutiny by transferring his bank charter to the relatively weak supervision of the Office of Thrift Supervision. We refused and opposed the transfer, but unsuccessfully.

We subsequently contacted OTS Director John Reich and told him we had whistle-blowers who would give him inside information on Countrywide. Reich refused to contact them and continued to rely on his weak staff.

In August 2007, we wrote Ken Lewis, then the CEO of Bank of America Corp., urging him not to make a capital investment in Countrywide because of its predatory practices. He ignored our advice.

In November 2007, Greenlining helped lead the first major protest in California against Countrywide’s predatory practices. We unsuccessfully urged Gov. Schwarzenegger, a strong supporter of Countrywide, not to sign an embarrassingly weak agreement with the lender.

At about that time, Countrywide’s Mozilo commenced his charges that Greenlining, by emphasizing lending to minorities, had compelled him to lower his standards. His accusation was first made at the Milken Institute in about April 2007. To the charge that we urged more minority lending I plead “guilty.” Greenlining believed then, and I know it still does, that minority group members are responsible homeowners when they make down payments, document their income and are offered responsible credits, such as 30-year, prime, fixed-rate mortgages.

My biggest fault, and it is a major fault, is that I had far more faith in our regulators, Congress and the financial institutions than I should have. I was in over my head.

I did not fully understand the depth of the problems, though I thought I did. I hope not to repeat such mistakes in the future, but I am unsure that I, or anyone, has ability to do so.

Unfortunately, Sheila Bair, the most capable of the regulators, will be departing in June at a time when our nation may most need her courage and vision.

Robert Gnaizda is of counsel for Homefree USA, the National Asian American Coalition and the Black Economic Council