banks in town, along with representatives from the local board of Realtors and the home builders’ association.
The industry representatives were initially defensive. You beat us up for failing to make loans to these customers and now do you see what happens? “There was a real ‘I told you so’ attitude around the table,” McCarthy said. But they dug deeper and even the bankers had to concede the point: The problem wasn’t the people but the product they were being sold. The staff in the county clerk’s office told of brokers and lenders rummaging through residential tax records, looking to see who had fallen behind in their property tax payments. They were poking around the ownership records as well to determine how long people had owned their homes. “It was like they were focusing on elderly African-American ladies, mostly widows, who all lived within a few miles of each other in west Dayton,” said Stan Hirtle, a legal aid lawyer in Dayton.
Dora Byrd was ninety years old, a widow for the previous thirty-five years, when a man knocked on her door to talk about some home repairs. “‘He was a nice, clean-cut young man’—she kept saying that to me over and over,” McCarthy said. “‘He was so nice he’d even read my mail for me.’” Byrd, who had owned her home outright for twenty-seven years, had made a modest living running a small beauty salon out of her home. She had been enough of a businesswoman to recognize it would be unwise to let her home fall into disrepair, and this nice young man talked her into financing several home-improvement projects, all in the name of maintaining a property that ended up in foreclosure. Byrd died before the issue would be settled in her favor.
“She was this little bitty, tiny, frail woman who sat on her front stoop with her head in her hands and just cried,” McCarthy said. “She said she was so embarrassed this had happened to her.” Others would feel equally foolish—people like Gloria Thorpe, who was living on a monthly Social Security check of $354 when a lender sold her a $5,000 home equity loan. With fees, the deal ended up costing Thorpe $12,000 and so, at the age of seventy-two, she found herself working once again, a security guard on the second shift at a local factory. “They’re sitting there talking to you and making it sound so good,” Thorpe told the
Even those in McCarthy’s working group were stunned when, at the start of 2000, the county government agreed to fund what they called the Predatory Lending Solutions Project. They had asked for $350,000—but county officials gave them that much plus another $600,000 to educate the public about these loans based on the worth of someone’s home rather than a person’s ability to pay. “It really worked in our favor that most of these people were senior citizens,” McCarthy said.
Those behind this new project tried everything they could think of to spread the word. They leased billboard space along busy thoroughfares warning people about predatory loans; they took out ads in the
The Miami River cleaves Dayton in two, and the vast majority of the city’s black citizenry lives to the west of it. The Predatory Lending Project focused mainly on the city’s west side because that’s where the lenders were focusing their efforts. Its people, mostly volunteers, set up a booth at the Dayton Black Cultural Festival and did Saturday blitzes in west side neighborhoods, borrowing a replica trolley from the regional transit authority and showing up eight, ten, or twelve strong, dressed in yellow-and-black T-shirts that read DON’T BORROW TROUBLE: ANTI–PREDATORY LENDING SOLUTIONS. They distributed door hangers and brochures and trinkets stamped with their hotline number and spoke with thousands—8,578 residents in their first full year, according to the report they submitted to the county. Yet while they were busy spreading the word in one part of town, lenders were working the other side of the river.
“Apparently they started to reach a saturation point in the inner city so they moved into the rest of the city,” McCarthy said. So in 2001, its second year of operation, the Predatory Lending Project added the Appalachian Mountain Days festival to its list and dispatched the trolley and its teams of volunteers into white working-class neighborhoods.
But they remained perpetually one or two steps behind the lenders. In 2001, Richard Stock, the director of the Center for Business and Economic Research at the University of Dayton, released a study offering the first snapshot of subprime lending in Dayton. The first surprise in his study was the steep rise in foreclosures. There had been barely 1,000 foreclosures in 1994 but the county registered nearly 2,500 in 2000. The city’s deteriorating manufacturing base could explain some of the rise but Stock’s numbers also revealed an eightfold spike in foreclosures involving subprime home loans.
The second surprise involved the names of the most active subprime lenders. Those behind the Predatory Lending Project were pleased that the county had been so generous in providing them funding yet it turned out they were fighting large corporations with millions to spend on marketing and millions more to invest in sales teams. They included H&R Block, which was one of the area’s most aggressive subprime lenders through a subsidiary called Option One, and a list of large banks as impressive as it was disturbing. Bank of America, Bank One, First Union, and Washington Mutual ranked among the top subprime lenders in the Dayton area, but topping Stock’s list were Household Finance and Citigroup, the New York–based giant that promoted itself as the world’s leading bank.
The final surprise—and perhaps the biggest—was how widespread the problem had become in so relatively short a period. Stock and his team of researchers found that a large portion of those default judgments involving subprime loans weren’t occurring on the west side or even in the white working-class enclaves on the city’s east side but instead in first-ring suburbs that had fallen on hard times. Zip code and the color of a borrower’s skin, it turned out, wouldn’t make a difference to subprime lenders seeing nothing but opportunity in Dayton’s economic decline. They were, McCarthy concluded, “equal opportunity predators.”
In 1998, Senator Charles Grassley of Iowa, the Republican chairman of the Senate Special Committee on Aging, held a one-day hearing into subprime mortgage lending. The title he chose for the event left no doubt about his sympathies: “Equity Predators: Stripping, Flipping, and Packing Their Way to Profits.” Among those testifying on Capitol Hill were Ormond and Rosie Jackson, an elderly Brooklyn, New York, couple living on Social Security, whose loan had been “flipped” so many times that, six years after a salesman knocked on their door promising that new windows could be theirs for just $43 a month for fifteen years, they owed $88,000 and were facing foreclosure—the “stripping” of their equity. Helen Ferguson, a seventy-six-year-old widow from Washington, D.C., living on a monthly $504 Social Security check, told a similar story, except that in her case it wasn’t a knock on the door but an ad she saw on television pitching low-interest home-improvement loans. Prior to that, her mortgage payment had been $229 a month, but—in part because her loan had been “packed” with an expensive credit insurance policy that a woman living alone did not need—five years later she had a house payment of $810 per month. “My perfect customer,” a former salesman for several subprime lenders told the senators, “would be an uneducated woman who is living on a fixed income—hopefully from her deceased husband’s pension and Social Security—who has her house paid off, is living off credit cards and having a difficult time keeping up with her payments.”
People in Dayton reached out to their congressional delegation hoping for help in Washington. They did their homework, and Jim McCarthy made contact with Martin Eakes and Bill Brennan. They were fighting national banks and other publicly traded companies with a broad geographical reach. This was a problem best fought in Washington, D.C., not Dayton city hall.
Those hoping to warn the rest of the country about the threat posed by the subprime lenders had their successes. Andrew Cuomo, in his final days as HUD secretary under Bill Clinton, spoke out publicly against the problem and Cuomo, along with Larry Summers, the Treasury secretary, created a short-lived task force in April 2000 to examine predatory lending in the United States. That same year Congress would again turn its attention to the subprime lending industry when Congressman Jim Leach, a Republican from Iowa and the chairman of the
