Another elected official would have sought a meeting with Barnes or at least one of his top people. Instead Fort took to the airways. If nothing else, Roy Barnes was a politician who read the polls, especially then as he geared up for a tough reelection. Getting Barnes to embrace predatory lending as a priority, Fort figured, required him to move the public opinion dial. And so Fort was all over the local media as 2001 turned into 2002, doing what he could to call attention to the problem of predatory lending in Atlanta.
Mainly that meant borrowing from the Bill Brennan playbook and offering the media the stories of elderly Georgians facing the street because of a deal they had done with a subprime lender—people like Ralph and Ethel Ivey. They had been making do since Ralph, eighty, a retired construction worker, had been incapacitated by a series of strokes, but then they needed a few thousand dollars’ worth of home repairs on the small turquoise- colored bungalow they had paid off years earlier. So they turned to Household Finance for help. “Atlanta is under siege by predatory lenders,” a consumer reporter told listeners on the town’s ABC affiliate. “These lenders were your friend so long as you owned equity in your home,” said Fort in an interview with
“I’d hear the stories and get mad,” Barnes said. “They were loaning money to people who couldn’t afford it. They were churning people through loans to collect more fees. They were not using any underwriting criteria because they were just going to sell the thing on Wall Street through securitization. So I had my administration take over Senator Fort’s bill.”
The governor’s people fiddled with the language but otherwise left the key provisions in place. As in previous legislative efforts, the bill created a special category for “high cost” loans. The bill defined that as any home loan carrying fees exceeding 5 percent of the loan amount (versus 8 percent under the federal HOEPA law) or an annual interest rate more than eight percentage points higher than the corresponding Treasury bill (Fort had initially proposed six percentage points). The proposed law would ban balloon payments and prepayment penalties on any high-cost loan and required a borrower to receive counseling from a nonprofit organization before a deal could be consummated. The bill also capped the financial reward a lender could give a mortgage broker for putting a borrower into a more expensive loan (in the trade, a “yield spread premium”) and stipulated that there must be a clear tangible financial benefit to a refinancing on a loan less than five years old. And, as Fort’s original bill had done, the proposed legislation also gave any borrower burdened by a high-cost home loan the right to sue not only the original lender but anyone taking possession of that loan.
“I saw that as the key,” Barnes said. “Wall Street had legitimized subprime lending and predatory lending by allowing for the securitizing of mortgages. We had to get at that if we were gonna get a handle on all the abuses.”
The bills might have been virtually the same but the result wasn’t. Again the legislation came before the Senate Banking and Financial Institutions Committee but this time it passed unanimously and cleared the full Senate by a vote of 52–2. It was in the Georgia House that the lenders would make their stand.
Wright Andrews, Jr., ran the National Home Equity Mortgage Association out of his offices in Washington, D.C. From those same offices he ran a group he called the Coalition for Fair and Affordable Lending and also a third that went by the name of the Responsible Mortgage Lending Coalition. Andrews was a top lobbyist for the subprime mortgage industry so Bill Brennan was understandably surprised to hear Andrews inviting him to a conference in Palm Beach, Florida. They were having a panel discussion on regulation and would Brennan participate? Seeing this as a perfect chance for some choice reconnaissance work, Brennan readily said yes.
The trip wouldn’t disappoint, but only because Brennan, being Brennan, stayed through to the end for some final remarks from Andrews. “He tells everyone that the next battlefield is Georgia,” Brennan recalled. “He tells the group, ‘We’re going to Georgia to stop Roy Barnes from passing this anti-lending ordinance.’”
Barnes took to calling his bill the Lobbyist Relief Act of 2002. Between the mortgage brokers, the local banks, the out-of-state banks, and nonbank lenders such as Countrywide and Ameriquest, Barnes said, “they hired every lobbyist in town.” And then there were troops who had been flown in from out of the state. Fort remembers in particular a pair of female lobbyists for Ameriquest ubiquitous in those weeks when the two sides were vying for support in the House. “One was black and one was white and they’re both in their mid-twenties,” Fort said. “And I’ll tell you what, they were both really attractive.” In a series of articles that ran at the end of 2007, once the subprime market was already showing deep cracks, the
Andrews offered something of a mea culpa in the
The other side, of course, was offering much the same complaint: A fractured system meant fighting the same battle in town after town and in state after state. At the end of 2001, the Federal Reserve, which Congress had deputized to monitor the field, modified its definition of a “high cost” loan to include any loan carrying an interest rate eight percentage points higher than a Treasury bill, putting it in line with the North Carolina law and Georgia’s proposal, and declared that any lender making a “high cost” loan needed to take into account a borrower’s ability to repay the loan. Yet both sides had their powerful stalwarts in Congress, and neither could muster enough support to change the system. So despite the wishes of either side, the fight played out in states and cities around the country, creating a complex and multilevel battlefield (if not also a lucrative one) for Andrews and other lobbyists.
Martin Eakes had proven that a lender could make loans to subprime borrowers at rates around one percentage point above the going rate for prime borrowers and at least break even. Self-Help was a nonprofit, but even if charging only two or three percentage points above the conventional rate, a lender could still make double- digit profits. Georgia’s proposed law only applied to mortgages that charged rates eight percentage points above conventional rates, yet Andrews and his colleagues deemed the proposed new rules unduly excessive. It will hurt first-time homebuyers. It will chase away the legitimate lenders, not just the crooked ones. “I had one bank CEO in my office telling me that Georgia is going to become an island; no one is going to make a loan here,” Barnes scoffed. “We were the third or fourth fastest-growing state in the nation, at least at the time. I just couldn’t believe no one was going to loan us money when we were growing that fast.” In one meeting, a contingent of out-of-town lenders argued that if Georgia insisted on imposing its own rules on mortgages, then it would be difficult to sell them in the secondary market. Mortgages are the latest commodity sold on the global market, they explained, but Barnes was thinking these guys weren’t thinking beyond next quarter’s bonuses.
“I’m telling ’em, ‘You’re in for a crash here, this isn’t going to end well,’” Barnes said. “But they’re looking at me like I’m the one who doesn’t understand.”
Barnes was confident he could outmaneuver the out-of-town lenders. He knew he could best the mortgage brokers, but the state’s biggest banks, even those not making high-cost loans, were also aligned against him and that had him worried. So he called them into his office to threaten them en masse. “I have this vacancy on the banking commission,” Barnes recalled telling them, “and if y’all don’t back off this bill, I’m going to do a nationwide search to find me the most sandal-wearing, long-haired, liberal consumer activist I can find to regulate every last one of you.’” Whether that was a bluff was not something they were willing to find out. “I finally backed them off,” Barnes said.
Even many of his fellow Democrats were opposing him. “You’d’ve thought I was proposing the repeal of the Plan of Salvation, that’s how much they were fightin’ me on this,” Barnes said. Some told him that they were worried his measure would make them appear antibusiness. “This ain’t about business,” he’d tell them, “this is about taking advantage of folks.” And when reason wouldn’t work, he reminded them that he was governor and could make life miserable for them if he set his mind to it. “They were mostly mad because they were enjoying those thick steaks and the cold liquor they were getting from the lobbyists,” he said.
Fort confessed to experiencing a few pinch-me moments during those weeks of arm-twisting and uncertainty.
