A coalition of community activist groups nationwide, including one in Buffalo, is calling on five leading Wall Street investment banks to donate more than $30 billion in expected employee bonuses to a national homeowner rescue fund.
The group, calling itself the "Save the American Dream Campaign," accuses the investment banks of playing an active role in fomenting the rampant subprime mortgage lending of the last few years -- by dictating the terms lenders could offer and buying the loans.
In a report written here in Buffalo, the activists say the banks "pushed it to unsustainable levels and reaped tremendous revenues and bonuses as a result." And they say Wall Street needs to step up to the plate to help, rather than pocketing holiday bonuses that could top $25 million for some individuals.
"Wall Street must do the right thing and forgo their lavish bonuses to help families stay in their homes," said Inez Killingsworth, a board member of the National Training and Information Center, an umbrella network of community organizations that is spearheading the national campaign with the National Association for the Advancement of Colored People and groups in 15 cities. "It's time they clean up their mess."
Subprime lending refers to loans made to borrowers with bad credit, at high rates and fees. Once a small portion of the mortgage business, the market exploded in recent years, as lenders aggressively pushed new adjustable-rate products on borrowers with low "teaser" rates for the first two or three years, or with unusual terms like "interest-only" payments.
But as interest rates have risen and home prices have flattened or fallen in many areas, many homeowners found themselves unable to afford the new higher payments, and unable to refinance or sell their homes. As a result, according to Congressional estimates cited by the groups, about 2 million U.S. homeowners either have already lost their homes in foreclosure or will soon lose them.
"We have a foreclosure crisis of epic proportions facing our country, especially low-income people, many of whom fall victim to predatory lending practices," said Aaron Bartley, executive director of People United for Sustainable HousingBuffalo, a West Side housing group and coalition member.
The activists want the bonus money pledged to a national foreclosure prevention fund to provide immediate relief to those homeowners. The National Training and Information Center is calling for Treasury Secretary Henry Paulson to convene a national summit of homeowners, grassroots community groups, national community advocates and investment banks to finalize details of such a fund.
Letters are being personally delivered this week to the chief executive officers of Goldman Sachs Group, Merrill Lynch & Co., Morgan Stanley & Co., Lehman Brothers Holdings and Bear Stearns Cos., the five largest U.S. investment banks. Last year, they doled out $36 billion in holiday bonuses, and the amount is expected to be at least $30 billion this year, despite major losses on mortgages and trading because of the subprime market collapse.
"If we can get a healthy percentage of that for a nationwide rescue fund, we'll have done our work," said Bartley, who questioned why the bankers would deserve the bonuses given industry losses. "We're putting out our call and this is the first part of the negotiation."
Merrill Lynch spokesman Bill Halldin declined to comment. The other four banks did not respond to e-mails seeking comment.
Buffalo has not experienced the enormous surge in losses and record foreclosures found in Long Island, Florida, California, and Arizona, largely because Western New York's sluggish economy and low home values meant there was no lending boom as in the other areas.
Still, the city's foreclosure rate increased from 13.6 percent at the end of 2006 to 15.7 percent as of October. An analysis by PUSH also found 609 foreclosure actions in Erie County from Aug. 1 through Oct. 23 -- or seven families a day.
One such victim is Emin "Eddie" Egriu, a Buffalo contractor and former State Senate candidate, whose wife took out a $50,000 mortgage on their West Side home in 2003 so they could pay off $20,000 in medical debt and start a pizzeria on the East Side. Both had bad credit, and his wife earned just $300 a week at the time.
Even so, Option One, H&R Block's subprime mortgage unit, approved them, at more than 8.5 percent interest, because they already owned their home, valued at $130,000. But as the pizza business faltered, they fell behind, the interest rate soared, and legal fees piled up. Egriu settled once for $13,000 to bring the loan current, but lost the home the second time because the lender demanded the full $57,000, including fees.
"It became an impossible mission for me to fulfill," said Egriu, 45, who recently paid $17,000 in cash to buy an abandoned and vandalized home.
The national campaign marks the latest criticism of Wall Street's role in supporting the subprime lending market, whose rapid growth depended on lenders' reliable access to cash. Without Wall Street's financing, most subprime lenders couldn't operate; indeed, when investor panic caused funding to dry up this year, many firms shut down.