General Electric made a mess with subprime mortgages in Virginia, but the company is not paying the price.
If the Justice Department wants to get serious about investigating financial fraud by Wall Street big boys, it ought to drop by the White House and interview Jeffrey Immelt, CEO of General Electric. Immelt is chair of President Obama’s jobs and competitive council, where he strategizes about how to revive American manufacturing. In some other places, only thirty miles from the White House, Immelt is known as the subprime foreclosure king.
General Electric preyed upon low-income minorities—people of color and immigrants—with notorious subprime mortgages designed to fail. And fail they did. GE Capital’s mortgage subsidiary originated some $700 million in housing loans to families in Prince William and Manasses—high-cost, predatory loans of which $218 million wound up in foreclosure. GE, well known for its inventiveness, pioneered online loan origination in which borrowers did not have to prove they had any income. Naturally, they were charged sky-high interest rates and sold weird mortgages with variable rates that went up but never went down.
Nearly 50 percent of Prince William homeowners are still “underwater” on their mortgages, still struggling to hold on their houses. The county has particular meaning for this year’s presidential election because Prince William is the first county in Virginia to have a “minority majority”—voters who are non-white. They are especially meaningful for Obama because he needs to win big again in Prince William to have any hope of carrying Virginia as he did 2008.
Mortgage-making was a messy but lucrative business for GE. It became the tenth-largest subprime lender in the nation. Its failure rate was the highest among the big-name banks working the northern Virginia territory. But GE made sure it got out before the borrowers failed. WMC Mortgage, the GE subsidiary that originated the dubious loans, immediately sold them to other companies or packaged them as mortgage-backed securities and sold them to Fannie Mae and Freddie Mac, the federally guaranteed housing finance companies now in conservatorship. Some minor portion of the $150 billion in losses Fannie and Freddie have dumped on the taxpayers can be credited to Jeffrey Immelt’s brilliant banking. When the mortgage scam became a national scandal, GE sold the company that had done its dirty work.
The federal government has not shown much interest. The Federal Housing Finance Agency that now oversees Fannie and Freddie did belatedly sue GE last fall for misrepresenting the quality of the mortgage securities it sold the government. This spring, with White House trumpets and flourishes, the Justice Department announced a major investigative task force to hunt down the swindlers (the second time such a task force was announced).
When government fails to do its duty, citizens have to step up and defend themselves, any which way they can. This month and next, we are seeing an impressive swarm of home-grown protests and nonviolent clashes around the country, citizens confronting bankers and demanding justice. The story makes the local news but has usually been ignored so far by national media.
In Prince William County, citizens are pursuing justice in a more methodical manner. Churches of nearly every persuasion, white and black, Latino and Asian, have organized a new interfaith force for community action they call VOICE—Virginians Organized for Interfaith Community Engagement. Instead of calling on government, which leaders assumed would be unresponsive, VOICE decided to go after the financial big boys up close and personal. After considerable canvassing research and helpful advice from housing advocates, the preachers and priests put Jeffrey Immelt at the top of their list.
First, they wanted a meeting with him. GE blew them off. When they asked its mortgage subsidiary to take responsibility for the damage it had done, its chief executive explained it could not help because it no longer owned the loans and GE can’t help because it no longer owned the company. “Again, we are sorry WMC is not in a position to work with your members,” James Zollo told one of the ministers.
So the people marched downtown to GE’s office on Pennsylvania Avenue with a new demand—Obama should fire Immelt as head of the White House council. Immelt is “unfit to advise the president as long as he does not take real responsibility for his lending that devastated communities and families,” VOICE leaders declared. They identified GE as the “worst lender” in the county. Now they demand that GE help finance the restoration.
Two other predator banks—JP MorganChase and Bank of America—have already agreed to begin negotiations with VOICE which leaves GE all alone. VOICE wants the three banks to finance a major reinvestment fund—$300 to $500 million—that will help finance debt reduction for still imperiled homeowners, build affordable housing and provide zero-interest second mortgages pioneered by affiliated interfaith organizations in other cities (the network known as IAF for Industrial Areas Foundation). Other IAF organizations in major cities have years of experience providing low-cost housing and home ownership to people of modest means through complex financial arrangements they call Nehemiah homes. They are the opposite of the quick-buck fraud bankers spread around the country, boosting profits and ending in ruin.
None of these proposals is assured of a positive outcome, but neither do the pastors and priests intend to settle easily. The political momentum is changing as citizens push back in varied ways. The big banks are beginning to understand that. After a little more heat, GE’s Jeffrey Immelt agreed to meet with VOICE leaders on May 14. Meanwhile, the next time Immelt goes to the White House to talk about manufacturing, the president will pull him aside and ask, “Jeffrey, tell me about the mortgage mess you created in Prince William County.”