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Subprime Reporting

     Media coverage of housing is booming again. This time, it’s the Shocked and Victimized Homebuyers versus the Big Bad Loan Companies.

 

     As the subprime lending “crisis” has gone primetime, the media have labeled lenders “home wreckers” and accused them of leaving families devastated.

 

     “We should have went to the mob for a loan. That’s the bottom line. I think the mob would have given us a better loan,” said Bronx homeowner Ana Rosado on CNN’s March 27 “American Morning.”

 

     Reporters called the situation a “meltdown,” an “epidemic” and a “crisis” that could potentially lead to recession, and blamed lenders while almost entirely ignoring personal responsibility for borrowers. Instead, media accounts portrayed borrowers as victims, many of whom seemed shocked when their adjustable-rate mortgages adjusted upward.

 

     While lenders were painted as the bad guys, they were rarely allowed to give any perspective. The networks have done at least 26 stories on subprime loans just in the month of March, but only six of those included a lender’s voice. That meant an overwhelming 77 percent of stories didn’t even try to explain the lenders’ position.

 

     Sen. Christopher Dodd (D-Conn.) has reacted to the situation by blaming regulators and said, “We need to do something on this,” according to The Wall Street Journal. Federal Reserve Chairman Ben Bernanke has added to fears, saying on March 28 that he still saw risks in the housing market, though a housing slowdown has not “spilled over” into the general economy.

 

     Meanwhile, the heavily one-sided media coverage has hyped housing concerns and left out many pertinent facts.



Is Anyone Making the Payments?

 

     One point overlooked by the networks is that 87 percent of subprime loans are being paid on time, according to the Mortgage Bankers Association.

 

     Instead, news programs brought on person after person struggling to make their mortgage payments, but often gave no indication of why the homeowner had taken on that mortgage.    

 

     “John and Cheryl Trueblood have had a terrible time trying to hold onto their home,” said ABC’s David Muir. “They’ve had to cut back on groceries, even clothing for the children.” The Truebloods, who had trouble paying mortgage payments after John got sick, were mentioned in the March 13 “Good Morning America.”

 

     Subprime mortgages are high-risk home loans given to people with low credit ratings or high debt. The loans typically carry higher or adjustable interest rates and in some cases borrowers are able to put a small or even no down payment for a house.

 

     But now many borrowers are now defaulting on those mortgages because of adjusting interest rates. There were 1.2 million foreclosure filings in 2006, according to RealtyTrac.

 

     Some lending companies are also in trouble. 25-35 companies have gone out of business or have announced that they will go out of business, according to the March 13 “World News.”

 

     In a multi-part series, ABC’s “Nightline” interviewed individuals coerced into new mortgages, heralded an anti-lender documentary and speculated that the subprime problems could be “very bad news for the economy.”

 

     On March 12, Cynthia McFadden of “Nightline” sounded the alarm of coming economic disaster: “In the midst of the housing boom, the market in risky loans quadrupled in just five years to over $600 billion … Tonight, concerns that this could ripple through the already troubled housing sector and beyond.”

 

    But CBS “Early Show” viewers heard a much calmer perspective on March 14. It’s not likely “to derail a $13 trillion economy that has a lot of positives going in its direction,” said senior financial analyst Greg McBride.



Lenders Take the Blame

 

     Instead of recognizing that borrowers are responsible for their own debt, the media found plenty of excuses for them: fine print, circumstances and, of course, evil lenders. And in most cases the media didn’t include anyone to represent lenders.

 

     Out of 26 March reports, only six (23 percent) included a lending representative. More often, viewers heard crisis stories of families losing their homes.

 

     “[T]hey never realized how much their loan could really cost,” NBC’s Kevin Corke said of one couple who took out an adjustable-rate mortgage, on the March 18 “Nightly News.” Corke blamed “provisions buried in the fine print.”

 

     But borrowers are responsible for what they sign.

 

     “It’s the biggest purchase a consumer will likely make in their life. We would hope they would shop around and do some research ahead of time,” said Laura Armstrong, vice president for public affairs with the Mortgage Bankers Association (MBA).

 

     A March 20 segment of “Nightline” blamed life’s uncertainties: “Getting laid off was just one of a series of events that caused David to lose his house. It started with a divorce and was compounded when he took on a new loan that had consequences he did not fully understand,” said ABC’s Heather Nauert. But “Nightline” didn’t include a single lender’s perspective in the story.

 

     NBC’s “Today” even used the word “victim” during its March 25 broadcast. Reporter Janet Shamlian interviewed an Ohio man helping people “avoid becoming a growing statistic: victims of foreclosure.”

 

     “Of late, subprime borrowers with defaulted loans have sometimes been referred to as ‘victims.’ In my view, however, anyone who lied about their income to get a loan hardly qualifies as a ‘victim,’” said American Enterprise Institute fellow Alex J. Pollock.

 

     By portraying borrowers as victims, the media created a generalization that all lenders had coerced families into taking loans they couldn’t afford.

 

     “I think there are bad actors in the industry, and we support a national uniform standard on predatory lending,” MBA’s Armstrong said. She added that there are 21 federal laws already on the books, and they need to be enforced.

 

     Foreclosure stories pulled on heartstrings but left out crucial information. For example, three out of four borrowers facing foreclosure end up working out the situation with their lender, according to Armstrong.



Worse Than the Mob?

 

     The media heaped virtually all the blame on lenders for the increasing number of foreclosures in subprime loan cases.

 

     Occasionally, reporters’ comments were almost as severe as Ana Rosado’s perspective that she would have been better off getting a loan from the mob.

 

     ABC’s Charles Gibson said on March 26 that certain lenders were “creating financial crises, taking borrowers down the road to bankruptcy” on “World News with Charles Gibson.” The ABC anchor was introducing the first segment of the “World News” series pejoratively called “The Homewreckers.”

 

     “World News” also blamed lenders on March 13 saying, “As housing prices shot up, mortgage companies were lending to people with questionable credit. Now 900,000 homes are in foreclosure across this country.” Reporter David Muir interviewed one couple who bought a home “they could otherwise not afford,” and still managed to spin it as lender irresponsibility.

 

     Americans taking on more debt was blamed on “lenders egg[ing] them on” during “Nightline” on ABC March 14.

 

     Another “Nightline” segment on March 20 quoted Rick Sharga of RealtyTrac saying “lenders got a little bit too lax.” Reporter Heather Nauert didn’t disagree.

 

     The media did not draw a distinction between responsible and irresponsible lenders, lumping them all into the latter category.

 

     “Responsible lenders want to extend only to borrowers who are willing and able to make their mortgage payments,” wrote Mortgage Bankers Association Chairman John M. Robbins. He said he thinks the market is working and that “[l]enders who made poor loan decisions are feeling the effects.”

 

     But what about personal responsibility? “Look how many people must cooperate to make a questionable loan,” said Dr. Jennifer Roback Morse, a senior fellow in economics with the Acton Institute. The buyer, the realtor, the broker. “All of these people indulge in some wishful thinking.”

 

     Lenders build in risk and understand that in the case of subprime and adjustable-rate mortgages there will be a higher percentage of delinquencies, but they don’t want a home to go into foreclosure because they will lose money, said Armstrong.

 

     Some lenders made very poor decisions, but Armstrong said there are 8,000 lenders and most of them are responsible.



In A Lot of Bias, A Little Balance

 

     Occasionally, the media made it clear that borrowers had made a bad choice.

 

     The last line of “World News” “Homewreckers” segment on March 26 included a dose of reality about one family struggling with mortgage payments “because of a home they couldn’t afford and should never have purchased.” But that perspective came after the show laid the blame on lenders for taking “borrowers down the road to bankruptcy.”

 

     ABC’s Vicki Mabrey attempted balance in the March 14 “Nightline” segment on “Maxed Out,” a documentary that attacks credit card companies and other types of lenders. Admitting the show’s favoritism Mabrey said, “We’re being very sympathetic to the consumer, but they chose to get the credit card, they know they have to pay it. You just don’t spend more than you have coming in, right?”

 

     But after Professor Elizabeth Warren rebutted that there is “irresponsibility on both sides,” Mabrey was blaming lenders again as she said “credit card offers keep coming.”

 

     Unlike most reports, “Good Morning America” did an unexpectedly positive story about the other side of foreclosures on March 19. ABC consumer correspondent Elisabeth Leamy explained that the situation “means there could be a bargain waiting for you.”

 

     Leamy interviewed a buyer who was being careful not to purchase a house she cannot afford: “I’m gonna be strong about it. I know what my budget is.”



The “R” Word

 

     In 2006, the shift from a seller’s housing market to a buyer’s market had the media in a tizzy, and now the increase in foreclosures has had broadcast journalists uttering the “R” word: recession.

 

     “It could be a huge problem with all these people defaulting on their mortgages and all these houses going into foreclosure could affect the – the economy as well. People are talking about the potential of the big ‘R’ word,” said John Roberts as he co-anchored CNN “American Morning” on March 27.

 

     Robin Roberts asked about the possibility of recession on the March 13 “Good Morning America.” ABC financial contributor Mellody Hobson answered that it is a possibility and that “it does weigh on me and worry me.”

 

     But there are experts who say the subprime “meltdown” is not the catastrophe reporters and legislators are making it out to be.

 

     “We don’t believe it will spill over into the prime market or the U.S. economy,” said Armstrong of the Mortgage Bankers Association.

 

     Neither did Greg McBride of bankrate.com. He told the CBS “Early Show” on March 14 that the delinquencies are largely confined to the subprime sector of the market.

 

     As far as predictions of recession, economist Alan J. Reynolds wrote in a recent column that those projections “rely on the notion that the low-income subprime market could somehow cause [all] house prices to fall by ‘up to’ 10 percent nationwide.”

 

     The National Association of Realtors has said demand for homes may decrease because of subprime lending problems, but “[i]t probably won’t postpone the recovery (in housing) but it will slow it,” according to the Associated Press.

 

     Still, there are legislators like Dodd calling for government intervention.

 

     But Morse said back in September 2006 that that would be the wrong solution, because the mortgage market is already highly regulated. In fact, she writes, “The current regulation may even be part of the problem … People see those piles of paperwork and assume everything must be all right.”