Boston Globe----
Guarding the House
Wall Street made billions off the backs of homeowners. But when the mortgage crisis blew up, a pit bull named Bruce Marks stood up for the Average Joes and, incredibly, got some of the biggest banks to bend.
There are guys you'd want to talk Sox trades with over a beer, guys you'd want to deliver the toast at your wedding, guys you'd want by your side if some goateed knucklehead took a swing at you because you accidentally bumped into his girlfriend. Bruce Marks is none of these guys.
But if you should find yourself up against one of the nation's most powerful banks, feeling abused by a maddening loop of automated messages, threatening letters, and buck-passing paper pushers, if you should feel powerless to reassure your little daughter when she tearfully asks you if you're going to lose the only home she's ever known, well then, there's nobody you'd want in your corner more than Bruce Marks. And sadly, a whole lot of desperate people had to turn to Marks for help this year, and a whole lot more will need his emergency services in the year ahead.
Marks is a 52-year-old man of slight build, a harmless-enough-looking guy. He has dark, narrow eyes, a brown beard threaded with gray, and lonely swirls of brown hair scattered atop an otherwise bald head. He rarely departs from his uniform of casual shirts emblazoned with the menacing slogan of his housing organization ("Financial Predators Beware!"). The CEO of the nonprofit Neighborhood Assistance Corporation of America, or NACA, Marks works out of a stripped-down office above an electrical-supply store in Jamaica Plain. Yet over the years he has become one of the most feared men in the corporate boardrooms of the nation's leading financial institutions.
How can this be? It starts with an approach best summed up by a nickname some friends gave Marks years ago: The Junkyard Dog, because once he gets his jaws around somebody, he's not letting go until he gets what he wants.
When Marks began his housing work two decades ago, banks were still largely operating in a yes-or-no world, lending only to those deemed creditworthy. Some banks were still redlining whole neighborhoods of low-income people they dismissed as not worth the risk. Marks came along and argued that people of limited means and imperfect credit could, in fact, become good mortgage bets if they were just given a proper education and a fair deal. Over time, he succeeded in shaming a host of big banks into committing millions to NACA so his organization could write reasonable loans for the banks, getting tens of thousands of working-class people across the country into the ranks of homeownership. Today, NACA has commitments, principally from Bank of America and Citigroup, totaling $10 billion.
"No matter what you think of Bruce," says Jim Mahoney, director of public policy for Bank of America, "there are thousands of people who are successful homeowners who otherwise would not have been without him."
And had he stopped there, he would have had quite a record to rest on. But events this year catapulted Marks to the forefront of a national crisis.
We're in the midst of a mortgage meltdown, one we're told was caused by something called "subprime." That opaque term suggests discount steaks but turned out to be a scheme through which the rich became richer by hoovering people - often of limited means and with poor credit - into cynical loans that were really ticking time bombs.
Now that those bombs have begun to go off and the shrapnel is hitting people up and down the economic ladder, there is panic all around us. Homeowners are trying to stave off foreclosure, lenders are trying to stave off bankruptcy, and everybody else is bracing for a recession. With many of the players engaged in a heated blame game, Marks is, once again, standing apart. Whether testifying before Congress or staging takeovers of lending-company offices, he is making the case for average homeowners by keeping the pressure on the big banks.
Meanwhile, behind the scenes, he is offering a sophisticated solution that may well make the most sense for borrowers and lenders alike. He's already persuaded the nation's biggest mortgage lender, Countrywide Financial, to let NACA restructure many of Countrywide's bad subprime loans with reasonable terms based on what the borrower can pay. And now other big-name banks appear poised to follow Countrywide's lead.
It is for his relentless advocacy and sensible innovation in working to find a way out of this mortgage mess that affects so many that Bruce Marks is our 2007 Bostonian of the Year.
IT MAY SEEM LIKE AN UNUSUAL CHOICE, given that Marks is a controversial character who once infamously called himself a "bank terrorist." But this is no ordinary time, and it seems uniquely suited to Marks's curious blend of in-your-face activism, customer-focused service, Machiavellian angling, and social-justice passion.
Over the years, as part of his permanent campaign to browbeat banks into giving fair loans to low- and moderate-income people, Marks and his yellow-T-shirted followers have swarmed shareholders' meetings with enough force to shut them down. They have picketed outside the schools attended by the children of bank CEOs, pressing the youngsters in signs and chants to answer for the actions of their daddies. And they even once distributed scandal sheets to every house in one CEO's neighborhood, detailing the affair he was allegedly having with a subordinate. In time, that CEO, like most of the others that NACA targeted, sat down with Marks and signed a deal.
To those who found his tactics an outrageous invasion of bank executives' personal lives, Marks refused to acknowledge any line between home and work. "What you do is who you are," he says. "It's all personal."
There is no such distinction in Marks's own life. His wife, Marissa Landrau-Pirazzi, a former public defender, began working at NACA four years ago, partly because she believes strongly in its mission and partly so she could see more of her workaholic husband. Their 11-year-old daughter, Gabriela, has also figured out the score. Many afternoons, she can be found doing her homework not at the family's home in Jamaica Plain but at the nearby NACA office, where she has her own desk.
As to what makes Marks tick, even his own mother is still a bit mystified. "I'm very proud of him," June Marks tells me. "But how you put Bruce together, I don't know. As soon as you figure him out," she says, chuckling, "please let me know." She insists he was a nice, quiet boy who never gave her any trouble or any hint of the aggressive street fighter he'd become.
He grew up in a middle-class family living in the moneyed towns of Scarsdale, New York, and then Greenwich, Connecticut. The family was culturally Jewish, but non-practicing. His father, who died three years ago, was a toy-company salesman and a competitive tennis player. A birth injury deprived him of much of the function in his right arm and leg - but remarkably he never spoke about it and refused to let it hold him back. Bruce insists he never realized his father had a handicap until he was a teenager and other kids asked about it.
His father was also an alcoholic, though a highly functioning one. Bruce's mother thought she managed to shield her husband's disease from her two children. In fact, it gnawed at Bruce. "I would hide the bottles on him," he says.
Only now does June Marks wonder if her husband's alcoholism exacerbated Bruce's most obvious problem as a child: a severe stutter.
Because Bruce inherited his father's talent on the tennis court, he spent lots of time at the country club and even worked as an instructor. But he realized how little he fit in once he stepped off the court. He was surrounded by the sons and daughters of privilege. To him, they carried themselves with arrogance and entitlement even though their only obvious talent was getting lucky in the birth lottery. And here was Bruce, the stuttering son of a salesman. He says he learned to appreciate what people went through when they were judged by things out of their control, "like the color of their skin or their accent or where they were born."
It's not surprising that so much of his work over the years has been in minority communities or that NACA's nationwide staff of around 300 is more than 90 percent people of color. Marks's longest-running partner in NACA is the Rev. Graylan Hagler, a onetime Boston mayoral candidate and prominent black minister who now lives in Washington, D.C. "People who face some kind of disability in life, they get discounted. It's the same kind of thing that people of color often feel," Hagler says. "Part of what burns our desire is to have nobody disregarded, because we know what that feels like."
That anger at entitlement that has fueled so much of Marks's advocacy was clearly born in his boyhood. All these years later, it remains undiluted, even after he has largely conquered his stutter and has managed to outnegotiate some of the most powerful executives in the country. I ask Marks, who now makes a healthy $150,000 a year, if he remains automatically suspicious of anyone who is wealthy.
He pauses and smiles. "Absolutely."
IT'S NO MYSTERY WHY MARKS HAS BEEN SO disliked by bank CEOs. But his lack of popularity among fellow soldiers in the battalion of affordable-housing advocates is more puzzling. There are a few specific complaints, notably his refusal to make public the standard performance data of NACA loans, leading some to suspect he's been hiding bad numbers. Yet after I repeatedly pressed him to release this data, the numbers he provided turned out to be impressive. (See chart.) Why, then, did he resist all these years?
Well, that gets to the bigger problem some people have with Marks: his personality. In a nonprofit world built around coalitions, Marks, apart from working with his rank-and-file NACA members, prefers to go it alone, cutting the best deal for his members regardless of the interests of other groups. While he is tireless and can be quite charming, like many driven people, he can also be tiresome and theatrically stubborn. Tom Callahan, who heads up the Massachusetts Affordable Housing Alliance, puts it this way: "Bruce doesn't play well in the sandbox."
Marks doesn't disagree. He says he learned early on that playing nice is often a waste of time, and sometimes the people you think are your allies in the sandbox can stymie you as much as your foes. Not long after he arrived in Boston in the early 1980s, he made history, hatching a first-in-the-nation plan to negotiate through collective bargaining a housing benefit for members of Boston's local hotel workers union, so that waiters and maids might have a shot at living in the city where they worked. But first the union had to get federal labor law changed. When Marks and union president Domenic Bozzotto tried to do that, they found their biggest obstacle was not big business, but rather big labor, namely the AFL-CIO, which did not want to rock the boat for a bunch of hotel workers from Boston. Against the odds, the local union eventually prevailed.
From that achievement sprang NACA. And even though Marks was soon running a mortgage business, NACA never departed from its street-activist roots. Homeowners who get a NACA loan are required to participate in five actions a year, whether stuffing envelopes or storming a shareholders meeting. Marks continues to approach negotiations with Bozzotto's philosophy foremost in his mind: "You only get what you're strong enough to take."
Bozzotto says part of what makes Marks so effective is that he is beholden to no one, having resisted all overtures to join the insider crowd. After Bozzotto left his union position, he went to work for the Massachusetts Turnpike Authority, a job he acknowledges he took to help pay his kids' tuition bills and which he received largely because of his past support for Republican governors. In a way, he says, "I co-opted myself." As for Marks, he says, "I don't know anyone who's managed to stay as pure."
Marks credits his deep-seated anger for keeping him barking from behind the same chain-link junkyard fence for two decades. During that time, Marks watched as many of the world's most powerful financial institutions went from ignoring people of modest means to coveting them, realizing they could make billions by catering directly to that mortgage market. But instead of doing it through the tedious, disciplined work of a group like NACA - which offers extensive education before qualifying borrowers for a below-market-rate, 30-year fixed mortgage with no down payment or closing costs - they opted for the subprime route. Suddenly, virtually anyone could qualify for a loan. It was just a question of how much they'd be charged. Subprime loans generally come with a rate at least 3 percentage points higher than the going prime rate, but they are often masked by lower "teaser" rates and have nooselike provisions slipped into the fine print, such as penalties for prepayment and timed resets to extremely high rates. Wall Street fell in love with all this subprime "product," because loans were bundled into huge funds, theoretically minimizing risk - but in reality pushing it downstream - while producing hefty returns for investment firms. As the players all along the lending process got rich, from mortgage brokers to servicers to investment bankers, the demand for more borrowers exploded. Before long, the normal safeguards for underwriting loans got tossed faster than losing scratch tickets outside a convenience store.
It got so bad that some lenders began offering what they called "no-doc" loans, where borrowers didn't need to provide even the most basic documentation for their income. One 41-year-old Brockton woman named Tammy told me that even though she made no more than $15,000 a year as a part-time newspaper delivery person, she watched as her mortgage broker put down her income as $44,000. "I was smart enough to know what was happening," Tammy says. "Who's going to give me a loan when all I have is a damn paper route?" But she figured that was just the ways things were done.
As the number of subprime loans climbed, Marks railed against them as just old-fashioned predatory lending gussied up in a new skirt and pumps. He says NACA lost a good deal of business when low-and moderate-income borrowers found they could qualify for a lot more money, with a lot less work, by signing a subprime note with a big-name bank.
In the meantime, Marks busied himself making the NACA process better, working with his IT guy to develop a streamlined Web-based software system that was able to determine, efficiently and reliably, what a borrower could afford to pay. The system improved quality control for Marks as he continued to open new NACA offices across the country.
When subprime went south and homeowners started defaulting and getting squeezed out of their homes, Marks shifted into his activist mode. He refused to see borrowers as anything but victims, even if some of them, like Tammy of Brockton, blamed themselves. "Bruce has a Messiah complex," says local real estate analyst John C. Anderson. "He refuses to differentiate between people suffering discrimination and people who are legitimately bad credit risks." The latter, Anderson says, "have always been able to borrow their way out of trouble, until now."
But Marks blamed only the greed of the big guys. He started by going after the biggest of them all, Countrywide. He prepared himself for a long fight and was shocked to see the lender cave within 48 hours.
The teetering company no doubt wanted to shut Marks up. More important, though, was NACA's state-of-the-art system, which integrates financial counseling and behavioral change on the part of the borrower with the creation of a solid new loan package based on what that particular borrower can afford to pay. Marks offered Countrywide a more reliable alternative to a flood of expensive foreclosures.
As senior policy adviser to the Financial Services Roundtable, veteran banking executive Bill Longbrake is one of the key players in plotting the response, by government and industry, to the mortgage meltdown. Until now, he never wanted anything to do with Marks, given his reputation. But after seeing NACA's operation up close, he became a believer in Marks. Now he's trying to persuade other banking executives to do the same. "The time is right for what he's built, given the crisis in this country," Longbrake says. "It's almost as if Bruce has two personalities. There's the advocate and bomb thrower, which has made many people in banking wary of him. But behind that, there's this incredibly effective, disciplined businessperson."
LATE LOANS
The most recent available data on the percentage of mortgages in the NACA portfolio that are at least 90 days late - called "seriously delinquent" - compared with the national average:
NACA RATE 1.15 percent VS. NATIONAL RATE 2.95 percent*
*Prime loans, which make up the bulk of mortgages, have a national "seriously delinquent" rate of 1.31 percent. For subprime loans, that rate is 11.38 percent.
NOTE: NACA borrowers pay into a Neighborhood Stabilization Fund, to which they can apply for assistance if they run into financial trouble. NACA reports that 6.32 percent of its borrowers have taken advantage of that fund.
Huffington Post----
Dems Using Drug War Playbook For Bank Regulation
Democrats in Congress are taking a page from the drug war playbook to see if they could apply it to new financial regulation.
The drug war model was suggested by Harvard professor Dan Carpenter, University of Iowa law professor Katherine Porter and others, as part of the Tobin Project, an alliance of academics seeking to shape debate on public policy. The Controlled Substances Act instructs the Food and Drug Administration to parse drugs into five separate categories, known as Schedules, based on their harmfulness, usefulness and risk of abuse.
Rep. Brad Miller (D-N.C.), in coordination with policymakers at the Treasury Department, is considering their proposal and the possibilities of applying it to financial regulation. (Read the papers that are influencing the discussion.)
"In the [drug-regulation] statute there's this gradation of five tiers of regulation, how strict the regulation is," says Miller. "And it's based upon the risk of harm and the usefulness. So aspirin is useful, doesn't have any recreational applications and if you wanna buy it over the counter, you can. LSD is harmful and has no medicinal value. It only is recreational. It's prohibited in every circumstance, and then there's stuff in between."
LSD is in Schedule I while aspirin isn't scheduled at all. Highly risky investment products -- say, adjustable rate loans where the borrower provides little documentation of income and only pays a portion of the interest for the first several years -- would be placed in a higher schedule and more strictly regulated. A standard 30-year fixed rate mortgage to a borrower with well-documented ability to pay could be in a lower tier and encounter less red tape.
Lenders, says Miller, could use form contracts that have been pre-approved in cases where the products are standard or familiar. "They would actually issue a form contract and say, 'If you use this contract you will get in no trouble with us. If you want to do something different, then there's the possibility of disapproval. And you've got to advertise it; you've got to let consumers know in a really conspicuous way, that they're using a form that's not approved by the regulator,'" said Miller, pointing out that the regulatory proposals were "just discussions" at this point.
The approval process touched on by Miller relates to another FDA-related regulatory approach. Today, a lender can gin up whatever exotic product it can think of and sell it to any customer willing to take it. Miller and other Democrats are looking at slowing that process down. Much as a new drug must first be tested and deemed safe, so would a new financial product.
Elizabeth Warren, head of the Congressional Oversight Panel, has advocated for a Financial Product Safety Commission modeled after the existing Consumer Product Safety Commission. The new ideas being floated would still create an FPSC, but model it instead on drugs. The reason is simple: A toaster that catches on fire is a bad toaster, no matter who uses it. But some drugs are safe for some people while dangerous to others.
"Pharmaceuticals, like credit products, are not easy to categorize as safe or dangerous on an across-the-board basis. The task is to calibrate the product to the consumer and to balance the benefits of use against the risks. The FDA has to contend with the hard reality that some people are willing to suffer grave side effects to cure grave diseases, just as some people are willing to suffer severe financial distress to relieve severe privations," writes Porter in a paper that has influenced Miller's thinking.
The problem with the consumer commission, writes Porter, is that the "agency largely uses a binary approach, either banning or approving products, without promulgating guidelines for their use."
Sending new financial products through government hoops would slow down innovation but lessen systemic risk. It was the exotic innovation, after all, that got the U.S. economy into this mess in the first place. The FDA approach might be one way to keep the system healthier.
"In order to get the drug approved, drug manufacturers know that they really need to come in with a lot of data. And then the approval can be limited. It can be limited to use in a certain market for a certain time, and there can be conditions on the approval," says Miller. "The analogy is that a consumer financial product -- retail financial product -- could be allowed a limited market, initially, for a limited time. And then see what the experience is during that period. That is a profound change from what we've had before."
It's not the kind of change House Republicans can believe in. Rep. Mike Pence, a leading conservative Republican from Indiana, responded to the idea by telling HuffPost he wants "...the government out of the business of picking winners and losers and assessing risk. I think the American people want a refereed private sector, but I think there's an awful lot of fatigue about government intrusion into various aspects of the economy."
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Sources: Huffington Post, Boston Globe, NACA, Google Maps
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