I can't find a newspaper anywhere today that doesn't have a story about New Century's bankruptcy, but I can't find one story anywhere that tells me exactly where I would send my next mortgage payment if I was with New Century. Perhaps it's too early to tell, but there is one very significant thing I've learned and that is how big New Century was in relation to another program I've known and recommended, NACA.
NACA came about as a negotiated settlement between Bank of America and a shrewd consumer advocate by the name of Bruce Marks.
The Neighborhood Assistance Corporation of America (NACA) is a non-profit community advocacy and housing services organization. NACA’s confrontational community organizing and revolutionary mortgage program have set the national standard for effective neighborhood stabilization programs that make homeownership a reality for working families.
NACA began in 1988 in Boston as the Union Neighborhood Assistance Corporation (UNAC). NACA has been the driving force behind the research, exposure of, and battles against predatory lenders and discriminatory lending practices that destabilize communities and devastate families.
In 1994, a four-and-a-half year advocacy campaign by NACA culminated with Fleet Bank committing $8.5 billion to community lending, paying hundreds of millions of dollars to settle lawsuits, and launching a revolutionary mortgage product with NACA. These victories enabled NACA to fulfill the dreams of thousands of people who had thought homeownership impossible.
NACA continued its campaigns against predatory and discriminatory lenders. These campaigns led First Union, Barnett Bank, Riggs Bank and others to make major community lending commitments and participate in the NACA program. After a four-year campaign, Associates Financial, the country’s largest finance company, also joined this long list.
Other lenders such as Bank of America (previously NationsBank) and BankBoston saw NACA’s product, process, and superior performance as an excellent opportunity to expand their market and serve working people. They created partnerships with NACA that give them access to customers they never would have reached.
OK a quick moment of truth. According to the LAT:
New Century originated $51.6 billion in mortgages last year. At the start of this year it had 7,200 employees in 216 sales offices in 35 states, funding loans primarily through independent mortgage brokers and also through Home 123, a direct-to-consumer business.
Now if there is anything whatsoever to the claim that the subprime market was predatory, Bruce Marks is going to be all on top of that. Clearly the legal precedent exists to show that enough of a problem existed to fund the whole of NACA through lawsuits. But unless and until Marks can figure out a way to capitalize on the current situation, the best friend of the folks needing subprime just kicked the bucket.
CNBC has been obsessing over this story for several weeks. They read the writing on the wall. So let's see what the political fallout is going to be. Anybody who starts ranting about corrupt executives is just blathering. Nobody loses 50 million bucks in personal fortunes without feeling pain. Nobody who has to layoff thousands of people feels no pain.
I think that clearly, the days of 100% financing on jumbo loans is over, and probably all 100% financing is dead. So all the folks that got in, nice going. The other thing to keep in mind is that these subprimes are a relatively new market, and if people are going on a headhunting expedition to make some socialist points, they are only going to ruin it for potential subprime customers in the future. What I'm saying is that if some Congresscritter decides they need a Michael Milken for the ages in the subprime business and start a campaign of demonization and regulation, then all of the companies who might have gone for New Century's business and done a better job are going to stay at arms length. Congress needs to keep it's nose out of this and let the market correct itself. Again, nobody knows the subprime market very well, this is the first big down cycle, and naturally it takes its toll. But there are lessons to be learned from New Century, and they shouldn't be, never make subprime loans again.
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