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November 16, 2007
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NOW Transcript - Show 346
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Transcript - November 16, 2007

BRANCACCIO: Welcome to NOW. That's Minneapolis, Minnesota behind me here. And like so many other places, Minneapolis is feeling the pain of the mortgage crisis.

In fact, what brought me here was a (15-by-15)-block map of part of Minneapolis. The map was peppered with a spray of dots as if tossed with a handful of Minnesota wild rice. Each one of those dots represents the misery of a house or apartment or building in foreclosure. With the mortgage crisis forcing neighborhoods across America onto the auction block, let's look at proposed fixes ...and don't miss the insider who saw first-hand the way so many borrowers were set up for failure. Na Eng produced our report.

ENGLUND: Now look at this grand old lady, now I'm sure at one time this was a lovely farmhouse...

BRANCACCIO: When Roberta Englund drives through the north side of Minneapolis, she sees her neighbors in trouble...

ENGLUND: There is not a block that I know of right now that does not have a house for sale, and there are many blocks that have as many as three and four foreclosed properties on each block.

BRANCACCIO: England heads a neighborhood advocacy group in this working class part of town. It's all right out her window: the telltale scars of this epidemic of foreclosures. After years of fast-and-loose mortgage lending and an overheated housing market, this crisis has now touched homeowners in every region of America. And many say the worst is yet to come.

ENGLUND: It is beyond devastating, it makes me personally very angry, because part of my work is with the families that are living here who have tried very hard to preserve their investment, it's exceptionally sad to see a neighborhood that has been so stable, reach the point where there are board-ups on every block.

BRANCACCIO: And what's happened in communities like this one has investors everywhere shaken. Giant firms on Wall Street are stumbling and markets around the globe are reeling. Economists talk of a recession, and investors could eventually see as much as 400 billion dollars go down the drain - losses almost twice as big as the saving & loan crisis of the late 1980s.

And there's this: the country is expected to lose two trillion dollars of housing related wealth.

AUCTIONEER: Previously valued at $135,900! Check out the lot size here... Starting bid of $29,000

BRANCACCIO: Last month, home prices were just shadows of their former levels at an auction of foreclosed property in Minneapolis. More than 300 were on the block, the biggest auction of homes people here have ever seen. The room was jam-packed with buyers looking for a bargain.

AUCTIONEER: Sold at $70,000!

BRANCACCIO: How did things get so bad with so-called sub-prime mortgages? Those are the more expensive mortgages for people with problems in their credit history.

We wanted to connect the dots to see the extent to which recklessness, corruption and greed created this subprime mess that now threatens to undermine our entire economy...

Nathan and Pamela Weisel are looking for a place to rent now. But when they bought a house three years ago, a broker recommended a popular subprime option —an adjustable interest rate that starts off low but after two years —boom, up it goes. Their monthly house payment went up another 600 dollars, and it kept climbing.

pamela weisel: Sure, they're adjusting it, but it's only one direction, up. And no, they didn't make that clear. And so I'm extremely angry at that.

BRANCACCIO: After a medical emergency and a job loss, the Weisels ran into trouble. They wanted to re-finance. But that would have cost more than ten thousand dollars in pre-payment penalties.

They also tried to call their bank to work something out, but those conversations went nowhere.

NATHAN WEISEL: Oh, we call—we—we called 'em. And we negotiated. And I said, "Okay, can I send you $800 now and then I could send you some more next week," and trying to make partial payments, at least throughout the month get to the 1,600 we owed 'em. And they're like, "Well, no".

BRANCACCIO: This was the home they scrambled to keep, now with an eviction notice on its door. Nathan had started a new business that brought in enough to cover the original mortgage payments......but not the new rate after it adjusted upward.

Consumer groups say brokers and lenders trapped unsavvy borrowers like the Weisels with these loan terms, enticing them to take on more debt than they could really afford.

Over the past twenty years, the mortgage business has changed radically. It used to be that the neighborhood bank pored over an application. But these days, the company that lends money often re-sells these mortgages quickly to investors who buy them in bundles ... all with little scrutiny from regulators. And even investment rating agencies, until quite late in the game, had judged these bundles of subprime loans as safe investments.

ira rheingold: It was created not to serve consumers. It was designed to make lots of money for mortgage bankers, for mortgage brokers, for Wall Street investment banks, and for investors.
BRANCACCIO: Merrill Lynch, Morgan Stanley and Lehman Brothers were among the many companies with huge appetites for these subprime loans. And their ready capital fueled the subprime boom.

A host of companies - operating with little federal oversight —sought to take advantage of this capital. One of them was a company called Ameriquest. Through TV ads and phone calls, the company made an aggressive pitch - but did their effort to get new customers dip become outright fraud?

MARK BOMCHILL: I would say—"You know, hello Dave. It's—Mark Bomchill with Ameriquest Mortgage. And—you know, how are you doing tonight? We're calling some of the people in your neighborhood to let them know that interest rates are—are great right now."

BRANCACCIO: When Mark Bomchill worked at Ameriquest, he used to call potential borrowers cold to try to sign them up to refinance their debt.

Bomchill told us in appalling detail what he saw as standard practice at the company.

MARK BOMCHILL: The managers never came out and said, "Oh, forge documents. Lie to the customer." But they would pair you up with people who were forging documents and lying to the customers—to—to teach you the—the Ameriquest way. I saw pay stubs be made. I saw W2s get altered. And I saw mortgage histories get out altered.

BRANCACCIO: You could actually see it happen in an office? It was being done openly?

MARK BOMCHILL: Yes. It was being done openly.

BRANCACCIO: Like, you see some guy, like, making up a pay stub or whiting out bits or what was the deal?

MARK BOMCHILL: They would call it arts and crafts —where they would—cut and paste—different numbers on different forms to—to change the—the income forms. I was told quote unquote, "Say anything, do anything to close the loan."

BRANCACCIO: Mark, why are you speaking out now?

MARK BOMCHILL: Because people were hurt. I was involved with something that wasn't good at Ameriquest.

BRANCACCIO: After a year at Ameriquest, Bomchill had enough. He has since spoken out on what he saw there, even giving court statements.

And beyond Mr. Bomchill, forty-nine state attorneys general investigated the company for deception, fraud and other lending abuses. In 2006, ameriquest paid out 325 million dollars to the states but admitted no wrong doing. The company is now going out of business.

Ameriquest declined our request for an interview, as did its founder and owner Roland Arnall. In the past, arnall has said: "mistakes have been made" at ameriquest but the problems were "corrected".

MARK BOMCHILL: I believe Ameriquest paved the way greatly to the sub-prime industry—more so than—than it appears 'cause // a lot of these people slimed their way out of Ameriquest and into the mainstream world and into the banks—into the lenders, the direct lenders, the major banks and continued with their Ameriquest fashion.

BRANCACCIO: Many other companies took the fast and easy approach to giving out loans. Countrywide, America's biggest mortgage lending company, even had a flagship product called "The Fast and Easy" loan.

It's a loan aimed at people with good credit, but it was also easy to abuse.

JEFF SKRENES: What made me uncomfortable was, there was no discussion of what that borrower actually made. There was no asking that borrower what they made. It was all, what can we put down under income to get him qualified.

BRANCACCIO: Countrywide declined our request for an interview.

Consumer groups argue that it was recklessness in the industry that led to the misery we are now seeing: it's estimated that one out of five subprime loans will go bad.

IRA RHEINGOLD: The foreclosure crisis we have today is not a product of people choosing bad products. It is a product of a sophisticated industry selling bad products to unsuspecting homeowners.

However, industry lobbyist Kurt Pfotenhauer, says the market has already started to fix itself. After all, the subprime mess contributed to two top C.E.O.'s on Wall Street getting forced out, and many subprime companies have fallen.

BRANCACCIO: Isn't the problem here that a system was built up where there was nobody checking hard enough to see if the person had the ability to repay?

MR. PFOTENHAUER: Yeah. The system broke for a while. And that was a fairly quick break. And it's been a very painful repair.
Guarantee ya, the market discipline is there. The market may make different mistakes in the future, but it won't make the same mistakes.

BRANCACCIO: But those mistakes have lasting pain. Democratic congressman Keith Ellison represents this Minnesota district hit hard by the subprime debacle. Plus, he lives here.

This woman had two houses that went into foreclosure.

ANN MARIE ALI IMANI: They said, "Well, by then you'll be able to refinance and—"


ANN MARIE ALI IMANI: "—you'll be able to figure something else out." And then when I went to go refinance it, they tell me "No, you can't refinance."

BRANCACCIO: Ellison often gets an earful from constituents hit by this mortgage mess. And he believes some strong government guidance of the mortgage industry is in order.

CONGRESSMAN KEITH ELLISON: Good, fair well-tailored regulation gives consumers the confidence they need to invest in a market, gives sellers they need.

BRANCACCIO: But regulation as the main approach to this problem, there's an argument, that you should let the market work this out, that the market can cleanse out the bad actors and fix itself.

CONGRESSMAN KEITH ELLISON: Well, ya know, some of the bad actors have gone out of business. But what about the folks who love on this block who make every mortgage payment, who did everything they were supposed to do. But because of bad actors in the market, who may some of them be out of business by now, they have seen other homes on their block foreclosed upon. And therefore, these good players in this—in this situation have seen their housing—values plummet.

BRANCACCIO: As Washington considers how to respond to this crisis—consumer groups worry that the industry's big money influence will block any meaningful change.

Both Republicans and Democrats depend heavily on banks and investment firms for their campaign money... to the tune of 210 million dollars in the past seven years.

Among the recipients are folks writing the legislation to deal with the mortgage mess. People like democratic senator Christopher Dodd of Connecticut and Congressman Barney Frank of Massachusetts.

BRANCACCIO: How's it been for you lately? Going up to Capital Hill. You feel you're on the hot seat in the midst of this so-called mortgage crisis?

MR. PFOTENHAUER: Well, it's a time when—when a lobbyist for the mortgage banking industry is—is fully employed. You know, I think our members will see our value by the end of this process.

BRANCACCIO: Just yesterday, the house passed a major mortgage reform bill that reins in some of the heavy fees charged to subprime borrowers. The bill also requires lenders to make sure borrowers have the money to pay their mortgages.

But the mortgage industry got its way in some key areas as well. Brokers get to keep a bonus system that critics say encourages them to sell the most expensive loans to consumers. And another win—the bill gives industry some protection from tougher state laws.

The bill goes to the senate next month where industry groups are mounting a further spirited defense. They want to preserve flexible credit options that they argue have helped more people get into home ownership.

brancaccio: Mortgages that explode in people's faces after two years, some cities dotted with closed up houses in foreclosure. How does that help the goal of home ownership?

PFOTENHAUER: Look, to be sure, there is an appropriate policy question about what's a socially acceptable foreclosure rate. And there's a clear reason for the government, to get involved in drawing some lines around how far this lending can go.

But keep in mind that the trade-off for that is the removal of options. It's the removal of freedom. It's the removal of the freedom to fail. And with that comes the removal of the freedom to succeed.

BRANCACCIO: And if the bill passes the senate, it goes to President Bush, who also has his backers from the financial services industry . Remember Roland Arnall - the founder of Ameriquest? Arnall was a particularly generous donor: giving millions to pro-Bush organizations.

The president has offered up some help for homeowners, but he has made it clear he does not want to see any radical reforms as a result of the subprime lending crisis.

BUSH: "We've got a role, the government has got a role to play —but it is limited."

BRANCACCIO: In the meantime, as more mortgages hit deadlines for the upward spike in interest rates, more families like the Weisels will lose their homes.

NATHAN WEISEL: The most difficult part of losing a house is that—that—your hopes and dreams are dashed.

BRANCACCIO: It's predicted that as many as two million homes will face foreclosure in the next two years. The Weisels are now living out of boxes at a friend's place. That friend is also facing foreclosure.

But the political donor and billionaire banker from Ameriquest has landed on his feet...

ARNALL: "I am honored to appear before you today as President Bush's nominee to be the United States Ambassador to the Kingdom of the Netherlands..."

BRANCACCIO: The president nominated and congress confirmed Roland Arnall to the post, and he is now the United States ambassador to Holland.

And back in Minneapolis, it wasn't just the auctioneer working hard. In one room, the mortgage company Countrywide was getting rid of its stock of foreclosures. Just one door over—Countrywide's loan officers were on hand to sell the buyers of those foreclosed properties a whole new round of mortgages.

For more on ways out of the housing mess put PBS-dot-org into your computer. Adding a "slash" followed by the word "now" is even slicker.

After of all this misery and the malfeasance it's often useful to get a booster shot of hope from folks who take action when faced with a community in crisis.

One place that's happening is Nairobi, Kenya, in one of the poorest neighborhoods in Africa. It's the story of a little radio station being run out of a shipping container by and for the people of Nairobi's, Korogocho slum. While the three hundred thousand residents there do pay taxes, they don't get much back from the government in the way of infrastructure or services, and that's just one of the things Koch-fm is looking to change.
Dan Logan produced our report.

BRANCACCIO: Nairobi, Kenya is the bustling commercial hub of East Africa.

But of the city's three million residents, an estimated one-third... that's one million people... live like this.

Right in the middle of Nairobi, you'll find some of the most neglected places on earth... massive slums, where people live in makeshift earth-and-metal huts.

One of those settlements is called Korogocho - which, in Swahili, means scrap metal. It's located right next to a massive garbage dump. People mingle with scavenger birds, picking through the wasteland.

With poverty and disease like this, you can't blame someone for losing hope in this place.

But a group of upstart twenty-somethings are stirring up change.

KOCH FM DJ: We are broadcasting live, straight from the heart of Korogocho and remember this is the first ever community radio station to ever hit Nairobi, so keep it locked to 99.9 FM.

BRANCACCIO: Korogocho or "Koch" for short has its own radio station: Koch fm... a new voice, broadcasting in Swahili and English, for a community that has little sway with its politicians.

WANJIKU: It's high time that young people take action. Young people start acting and just changing the mentality of people.

BRANCACCIO: Helen Wanjiku founded Koch fm nearly two years ago when she was twenty-three. She grew up in Korogocho... but when she was fourteen, one of the slum's local gangs threatened her life and her family.

WANJIKU: They would've come. They would have raped us. And then after raping us, they would have killed us.

BRANCACCIO: She escaped Korogocho and got a college education, thanks to an aunt outside the slum who took her in.

But two years ago, she got word that a close friend had been viciously murdered in a case of domestic abuse. Wanjiku decided to return.

WANJIKU: If maybe I had told her, "If your husband beats you up, please get out." Then, this will not have happened. So that's why I came back.

BRANCACCIO: You found it unacceptable to be too far away because you thought you could do some good here.

WANJIKU: If you get out and go, you tend to forget the problems that you have left behind. But being part of those problems, then you can get solutions for them.

BRANCACCIO: Community radio - cheap to produce and easy to access, compared to television - is a powerful solution for the problems of the developing world, according to aid organizations like the World Bank and the U.N. they've increased their support for radio in recent years... Because its efficiency allows places like Korogocho to tune in to civic life.

KOCH FM DJ: You have to stand for your rights, because when you don't do that, you're killing yourself, you're killing your loved ones...

BRANCACCIO: Getting Koch FM on the air was a big deal. Its founding members raised thirty thousand dollars and bought two shipping containers, fitted with a metal roof, to house the studio. Local authorities were resistant... so Helen and her crew used the element of surprise.

WANJIKU: We went and we built the two containers. We had not asked authority. Like, we had not asked permission.

BRANCACCIO: You didn't ask the authority for permission?

WANJIKU: No, this is a chief—I mean, this is a youth camp. They're supposed to put—build things here. So we didn't ask.

BRANCACCIO: So one day the authorities woke up and there were two shipping containers here?

WANJIKU: Yes. And they came and they locked them and they told us that we are not supposed to put them here.

BRANCACCIO: What could you do then?

WANJIKU: We went around. We brought some things and just came and opened them forcefully.

BRANCACCIO: In the confrontation that followed, another Koch fm founder, Francis Ngira, says he was physically assaulted by the police.

NGIRA: They started beating me up. Then I was like okay, you can beat me. You can hit me. You can jail me. But you won't change me into what you want me to be.

BRANCACCIO: Eventually, Koch FM prevailed, as local authorities backed down and Kenya's communications commission gave them a broadcast frequency... After months of protest.

WANJIKU: We didn't give up. We hassled. Some of us were arrested. But by the end of the day, justice was done.

BRANCACCIO: And you have a license.

WANJIKU: Yeah. Now we have a license. We are broadcasting freely. We can say anything we want to say to educate people.

BRANCACCIO: It's estimated Koch FM's signal reaches 300,000 listeners. With a national election approaching next month, there is heated discussion of topics like government corruption.

KOCH FM DJ: Every day of the budget we know there is money which is allocated for that. What happens to this money? Who is supposed to take care of this?

BRANCACCIO: People in Korogocho do pay taxes and are represented in Kenya's parliament. But city services like sanitation remain virtually non-existent.

WANJIKU: The government has neglected us. They think we are not—not people. They have not given us good water. They have not given us proper sewage system. We have to act as people from the community.

BRANCACCIO: Especially crucial for Helen Wanjiku is the issue of women's empowerment... the subject of her own radio show.

WANJIKU: It will take a lot of time. But one day, we will start realizing that if a man can build a house, so can a woman.

BRANCACCIO: And these are some of the issues you discuss on your—on your program?

WANJIKU: On my program. Yes.

BRANCACCIO: The gender program. What's it actually called?

WANJIKU: Strength of a woman.

BRANCACCIO: Strength of a woman.

WANJIKU: Uh-huh.

BRANCACCIO: Koch FM takes on serious issues. But they've found a way to package them in an engaging way, so people actually listen.

WANJIKU: We call ourselves "Edutainment".


WANJIKU: Yes. Edutainment. We believe in educating people through an entertaining way.

BRANCACCIO: An interational non-profit called "Developing Radio Partners" has identified benchmarks for community radio. Koch FM meets some, including a clear mission... a defined audience... and local content.

What they need to work on is financial independence. Grants from George Soros and a coalition of Norwegian churches help pay for equipment. But donor funds might not be around forever.

WANJIKU: What if maybe one day they decide to pull out? The radio station is going to fail. And so what we are doing, we are trying to sell T-shirts. And also—we also come up with adverts, which will be selling airtime to people and also programs.

BRANCACCIO: Oh, so maybe you'd bring on advertisements to the station?

WANJIKU: Yes we are—we will bring on advertisement.

BRANCACCIO: There is hope that those money-making plans will eventually pay people's salaries... in what is now an all-volunteer effort to be the voice for a forgotten community.

KOCH FM DJ: For us here at Koch FM, 99.9, the only radio that gives you the whole reality and nothing but the reality. We are signing out.

BRANCACCIO: And that's it for NOW. From Minneapolis, I'm David Brancaccio. We'll see you next week.

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