The consequence? Bitter fruit. An American dream out of reach.

Middle Americans that have had to refinance at subprime are now paying HIGHER monthly payments due to HIGHER interest rates - while they also experience LOWER wages.

We are now reaping the bitter fruit of the declining U.S. workers' wages and income, Bush's deregulation of the financial industry, and the evaporation of the middle class.

In the past few years, regulators discarded rules.

Shady mortgage banking companies, financed by the bluest-chip outfits on Wall Street, calculated that they could make a lot of money offering bait-and-switch mortgages to poor credit risks (poor credit risk = middle Americans whose wages have declined). I wrote about this in one of my previous blog postings, Sub-Prime Crisis = Ultra Rich Still Looting the Middle Class.

You are not yet a believer.

"Hey, wait just a minute. Those lenders were doing middle Americans a favor, weren't they? Weren't they generously offering mortgage loans to low-income or struggling middle income borrowers? Isn't that a good thing," you may be asking.

These are reasonable questions, and, there are very reasonable answers.

The subprime lenders weren't doing good works by making these loans available. When we think of "subprime" we need to remember that these loans are similar to "loan sharks." Why? The loans were set up in a manner that would practically ensure that these Americans would lose their homes after a few years.

But, how is that?

1. All of the subprime loans were made at much higher longterm interest rates, creating much higher monthly payments. Many loans were made at 7.5% or 8.5% or higher, even when the average interest rate at the time for conventional loans was closer to 5%. That makes a BIG difference in the monthly payment.
2. Many of the subprime loans were designed with lower beginning interest rates to lure the borrowers in. However, since interest at the higher rate continues to accrue, when the higher payments kick in, the payments are even higher still.
3. Many of the subprime loans included extremely high closing costs that were rolled into the loan amount, again, making the monthly payments even higher.

The end result? Someone who should have been making a $500 per month payment for a $60,000 house, now is making (or trying to cover) a $1,000 monthly payment for that $60,000 house. With middle America's loss in median income during the same time frame, middle America loses the ability to make those higher payments.

And the mortgage company - isn't it hurting too? No! The lenders make enormous amounts of money upfront in the really high "closing costs" and points, and, by charging the higher interest rate accruals. The lenders make their huge profits upfront.

Subprime lenders do not, in reality, assume more risk. In fact, it's the exact opposite. Sub-prime loans are ultimately abusive, because unlike in the case of traditional "prime" loans - which in the past were more likely to be originated and held by a single institution which assumed all the risk - sub prime brokers, loan servicers, lenders and secondary market investors have all hatched a system in which risk - and ethical accountability - is passed. And, each of the players make huge profits.

Mark Winston Griffith, at Drum Major Institute for Public Policy, puts it this way:

Every major paper is running some variation of the same major story: the sub-prime, "exotic" mortgage market is in trouble.

High priced mortgages that include funky gimmicks -- like adjustable rates or no verification of borrower income -- have resulted in record setting foreclosures and a rush by Wall Street to divest from the sub-prime market. Sub-prime loans comprise only 13% percent of outstanding mortgages, but they contribute to over 60% percent of foreclosures.

Some analysts suggest that sub-prime lenders are being punished for giving high-risk loans to borrowers in low- and moderate-income neighborhoods and communities of color, people, they say, who perhaps never should have received a loan in the first place. After all, their logic follows, not every American can handle the responsibility of credit and owning a home.

This is a convenient, yet misguided, conclusion to draw from the sub-prime mortgage debacle. In truth, sub-prime lending is just the latest example of how lenders have tarred entire segments of the population as credit unworthy through the mortgage industry's own discriminatory, irresponsible -- and now reckless -- behavior.

This recklessness begins with the way the sub-prime industry has built into it financial incentives that defer risk, and liability, along a long chain of sub-prime role players. This marks a sharp departure from the past, when loans were typically originated and held by a single bank that assumed any and all of the risk.

Now, actors in sub-prime lending treat these loans like they are radioactive hot potatoes, making a tidy profit with every hand-off. Take for example the mortgage brokers who legally receive kickbacks for hiking up the price of the mortgage; the lending institution which will most likely sell the poorly underwritten, garbage mortgage as soon as it touches its books (last year 80% of all predatory loans were sold on the secondary market); the secondary market which generates billions in fees and commissions by shuttling around these mortgages in Wall Street securitization deals. Throughout this process the guiding spirit is close the deal, damn the consequences.

Ironically, because savings and loans and commercial banks over generations systematically failed to address the credit needs of low and moderate income communities and communities of color -- despite the passage of the Community Reinvestment Act and fair lending laws -- mortgage companies and sub-prime bank affiliates swooped in and aggressively peddled sub-prime mortgages to areas starving for credit.

The term sub-prime is engendered with the belief that certain communities represent a lower order of customer species. As a result, sub-prime lenders justify their predatory pricing by claiming that African Americans and Latinos are higher credit risks. In other words, they deserve whatever horrific loans they get.

Subprime mortgages totaled $600 billion last year, accounting for about one-fifth of the U.S. home loan market. Loans to homeowners with less-than-sterling credit are the fastest-growing segment of the mortgage market as lenders reach out to those unable to qualify for conventional mortgages. An estimated $1.3 trillion in subprime mortgages are currently outstanding.

That means that AT LEAST one out of every five homeowners is potentially at risk.

Mark Winston Griffith continues his explanation of who this hurts:

Not surprisingly, more than 50% of African-American and 40% of Latino mortgage borrowers have sub-prime loans. While of course many of these folks do in fact have poor credit histories, many of them, often targeted by hyper-aggressive marketing campaigns, would otherwise be eligible for low-cost, "prime" loans. A study by the Center for Responsible Lending documented that African Americans and Latinos get high-priced mortgages far more frequently than whites -- even when they are equally qualified for prime loans.

For proof of this, all one has to do is go to South Queens, where blacks have higher incomes than their white Queens counterparts, but pay more for credit and are losing their homes through foreclosure at epidemic rates. Or in Maryland's Prince George's County where the middle-class, majority black, residents have credit scores that on average are higher than the state average and national averages, but refinanced their homes in 2005 using high-cost loans at almost twice the rate as homeowners region-wide, according to a recent Washington Post article.

Sub-prime lending often works as self-fulfilling prophecy. The most efficient way to ruin a person's credit, and thus make him or her truly eligible for a sub-prime loan, is to make a loan unaffordable, or indiscriminately jack up the price of the loan after a few years, to a person who has a good credit history, but whose income is unlikely to rise along with the payments. For those of us involved in anti-predatory lending organizing and advocacy, we talk to people everyday who never missed a loan payment in their lives until they received a sub-prime mortgage.

The subprime mortgage industry has had no real commitment to the homebuyers. The lenders were in this for one reason only - to merely make some quick bucks.

Now that home prices have weakened in many parts of the country and lenders are being more vigilant, refinancing isn't an option for many subprime borrowers facing dramatically higher payments.

What is our illustrious Congress doing about this melt-down?

Some senior politicians are scurrying to find ways to reassure voters that they will "clean up" the sub-prime sector - by clamping down on the practices that have created it. (A Long Overdue Effort).

While the most visible aspect of this entails tighter controls on those who sell mortgages to consumers, another idea is that the US should also impose new restraints on how mortgages are subsequently "securitized" (or sold by specialist mortgage lenders on to new investors, such as Wall Street banks, who then use these to issue bonds which are often then repackaged again as derivatives).

As sub-prime lenders retrench, it will become harder for working-class people to buy a home and, as more people lose their homes, the overall economy could be in danger of a recession.

But what about the borrowers?

According to housing experts, anywhere from one to three million Americans may lose their homes this year.

Who will offer hope to those that have lost wages, lost credit and now risk losing their homes? Are we doing enough? Let's take a look.

Sen. Charles E. Schumer says, "The sub-prime mortgage market has been the Wild West of the mortgage industry for far too long." In a bid to stop a wave of foreclosures, Sen. Charles E. Schumer (D-N.Y.) today urged Congress to approve $300 million for counseling and outreach efforts to help beleaguered borrowers hold onto their homes through refinancing deals and other financial strategies that would require cooperation from private lenders. Schumer's new legislation also would hold mortgage brokers and independent, non-bank lenders such as Ameriquest Mortgage Co. legally responsible for making fair loans that borrowers understand and can afford.

I commend Senator Schumer for being to first member of Congress to step up to the plate with a bill that at least tries to get to part of the real problem here - lack of regulations for lenders. I am also happy that he sees the need for relief and a helping hand for all those middle Americans that have been caught in the subprime nets. Homeowners with subprime mortgages struggling under payments need federal government help to ease them through the crisis. Schumer's proposal has gained little traction in the Senate, however.

But will Schumer get his bill through Congress?

HUD secretary Alphonso Jackson is reported to have asked Fannie and Freddie "to look into possible steps that could be taken to assist troubled borrowers." But, I wouldn't count on the Bush administration to solve this crisis.

Listen closely to this. Jackson recently said, "we can address upcoming subprime problems if we have the wisdom to get ahead of the curve. And we had better get ahead of the curve -- or we're going to have serious problems."

Does this sound familiar? Is that like Brownie saying that the National Guard was taking food to Katrina survivors when Brownie didn't even know that there were thousands of hungry, thirsty and sick people at the Convention Center in New Orleans? Does this other Bush administration person even know that the "curve" is already here and that every day middle Americans are losing their homes? Does he know that we ALREADY have serious problems?

It's not enough and it's not fast. It reminds me of the thousands of Katrina victims waiting for days at the Convention Center for water, and, many dying before it arrived.

Many policymakers have underlined the disproportionate impact of subprime mortgages on minorities and the elderly, who often are targets of predatory lending practices that lure people into loans that they are incapable of repaying.

Jack Guttentag, writing for the Washington Post, explains, "The big losers are those borrowers who, as unwitting victims of hype and deception, took out mortgages that were unworkable if house prices stopped rising. Now, with values stagnant, many of these borrowers are waiting for the next shoe to drop. They have adjustable-rate mortgages on which the rate will reset to a much higher level."

One of the nation's biggest and most respected advocates for fair housing, the National Community Reinvestment Coalition, urged the Administration and Congress to amend federal regulations to allow the Federal Housing Administration to refinance sub-prime borrowers' loans in default, preventing a torrent of defaults and foreclosures expected to deluge the mortgage market as a result of the sub-prime lending crisis. NCRC also called for legislation to establish a national rescue fund to support low-income borrowers, strengthen consumer laws and eliminate nontraditional, exotic loans and incentives for bad lending practices.

"As this crisis worsens, mortgage tsunamis will ravage working-class neighborhoods across this country. Sheriffs will be knocking on people's doors, only to find keys and furniture left behind. This is not the way the market should work. We should have a higher standard. We should not allow this to happen," said NCRC's President and CEO John Taylor.

Chuck Schumer said in a March 2007 congressional hearing,

...First, the typical American family has been left behind so far in the recovery from the 2001 recession. Productivity growth has been strong, but workers' earnings have not kept up with that growth.

Profits have risen sharply and so have the salaries and bonuses of top management.

But middle class families have not seen their paychecks keep up with gas prices, health care premiums, and college costs, just to name a few expenses squeezing families today. It would be a cruel injustice if this recovery were to be cut short before workers' earnings began to reflect their productivity and families' real incomes more closely followed the trajectory of our economic growth.

But the real tragedy here is that 2.2 million homeowners face the real possibility of losing their homes because they were misled, or just plain swindled by modern day bandits.

We can better protect millions of American families from being robbed in this lawless, wild west of exotic home loans.

So, my dear readers, you don't personally have a subprime loan?

Why should you care - that is, if all these foreclosures won't hurt the economy of the top 20% of America? Well, I guess it's the other 80% I'm concerned about.

You don't have a subprime loan.

Please don't let that stop you from being angry and getting involved. We really need to stand up for our declining middle class. We do need to take stands.

Let your individual congressmen and senators know that you expect action on this issue.

Tell your elected officials that you want legislation and services that offer forbearance periods, that assist homeowners in selling distressed properties for borrowers that choose to no long own, that provides credit counseling for the endangered borrowers, and outreach services that help in negotiating with credit reporting agencies to delete defaults or forecloses for borrowers that are considered to be in failing, predatory loans.

Write letters. Make phone calls. Do your part to say you want to protect the American middle class.

Tell your elected officials that you want a national congressional focus and legislation that would help distressed homeowners restructure their individual loans.

Where do we draw the line in the sand? Wherever we are.

Let's draw it here.