Chicago Foreclosure Homes Crisis: The Role of Bank Affiliates

During the housing boom that eventually led to the collapse of the market, community groups warned the Federal Reserve about the increasing abusive mortgage lending cases which they pointed out may lead to Chicago foreclosure homes. The Chicago community groups in Illinois presented results of studies that showed how major banking companies, including Citigroup and Wells Fargo, created subprime businesses that focused on providing loans with high interest rates. And the target of the banks' subprime businesses are those living in Hispanic and black neighborhoods in downtown Chicago. The groups' complaints prompted Illinois officials to file a lawsuit against Wells Fargo for discrimination and other lending abuses. But industry experts said that during the peak of the housing market, the federal banking regulator refused to ensure that lenders are complying with federal laws that protect borrowers despite pleas by consumer advocates. Last month, banking regulators reversed their hands-off policy which only resulted to a double standard. Experts said that the loans were issued by banks and their subprime affiliates. But the current process showed that only banks are facing regular federal investigation related to the growth of Chicago foreclosure homes. Experts said that banking regulators did not conduct investigation on consumer complaints against bank affiliates. They said that federal supervision is being focused on the prime market and not on the subprime market which they claimed badly needs supervision. From 2004 to 2007, over 1.1 million subprime mortgages were issued by bank affiliates, representing 13 percent of the nationwide data. And many of these subprime loans ended in foreclosures, leading to the housing crisis and leaving thousands of homeowners losing their houses to foreclosures. The U.S. Congress is now considering whether to phase out the Federal Reserve. A proposal has been made by the Obama Administration to transfer the consumer protection responsibilities of the Federal Reserve to a new federal watchdog agency. In his testimony before the Congress, Federal Reserve Chairman Ben S. Bernanke said that the agency has intensified its efforts to protect consumers by responding to problems immediately and creating new rules. But many consumer advocacy groups believed that the federal agency has been short in its efforts to protect consumers. They pointed out that the agency's refusal to investigate lending affiliates has prevented it from finding solutions to systemic problems. Start your Search for:

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