Five
Freddie Rogers
DURHAM, NORTH CAROLINA, 1999
The staff of Self-Help was so focused on their mission of expanding access to mortgage credit for the working poor that for a long time—despite some high-profile warnings—they didn’t notice they had competition. One of the most prominent was the investigative piece that ABC’s Primetime Live did on a company called Associates. It featured an interview with a former Associates loan officer who claimed he could barely live with himself while he worked there, given the gimmicks he was taught (talk fast, turn the pages fast) by higher-ups to trick people into signing for loans they couldn’t possibly afford. A second former employee told of the “tremendous pressure” every loan officer felt to pack loans with expensive extras, and both confessed to witnessing fellow agents forge signatures. The Wall Street Journal ran an equally unflattering piece about Associates focused on a single customer, a retired quarry worker named Bennie Roberts living in Virginia on $841 a month in Social Security and retirement benefits. The Journal found that Associates, a subsidiary of the Ford Motor Company, had refinanced, or flipped, Roberts’ loan ten times in four years, costing him $19,000 in fees on what had originally been a $1,250 home equity loan. Associates would even earn its own chapter in a book called Merchants of Misery, edited and largely written by a reporter named Mike Hudson. But who had time for books or the Wall Street Journal or TV when inside Self-Help they were busy saving the world? “It’s a tough act to run the business we do,” Mike Calhoun said.
Then a man named Freddie Rogers, a widower in his fifties raising a daughter on his own, walked into Self-Help’s offices. “I think we’re basically self-honest about where we’re making a difference and where we’re not,” Eakes said. And Freddie Rogers, earning $8.24 an hour driving a bus for the Durham public schools, showed Self-Help “that just one predatory lender like Associates was doing more harm than all the good we were doing.”
Lanier Blum took an instant liking to the tall black man who showed up in her Self-Help office in the fall of 1998 interested in talking about a new home loan. Borrowers at Self-Help typically seem to arrive wearing whatever they happen to have on, but Freddie Rogers had dressed smartly in nice slacks, a button-down shirt, and a stylish hat worn jauntily on his head. “I had business to take care of,” he would later explain. He was outgoing, warm, and chatty, and he showed Blum pictures of his daughter and spoke lovingly about his wife, who had died some years earlier. “He was a very, very charming guy,” Blum said.
Self-Help had always focused on first-time homebuyers. But Blum had recently been put in charge of a new product Self-Help was experimenting with called the “fix-it loan.” Borrowers seeking a mortgage on a home that needed extensive repairs were eligible for a fix-it loan but so, too, were homeowners who needed money to make the basic repairs so a property holds its value. That was Rogers, who years earlier had bought a home with his wife in a semirural neighborhood on the southern outskirts of Durham. Drainage problems caused the basement to flood, and the flooding, along with a lack of proper ventilation, was causing mold to form on walls inside the house. Worse, there were no sewer or water lines in that part of the city and the septic tank they used for their waste had developed a leak, which was fouling the water of a well they relied on for their drinking water. It had gotten so bad, Rogers explained to Blum, that he and his daughter had been forced to move out until he could find the money to make the repairs.
Blum was familiar with the community where Rogers lived, an historically black section of town not far from a large regional mall that had recently opened near the interstate. Subdivisions were popping up all around that part of town, and, though Rogers still lived in a neighborhood with gravel roads and few amenities, his was a potentially hot property. Already there had been noise about rezoning the area to encourage outside investment. “I really wanted to help him stay where he was living,” Blum said. “He was obviously very attached to the house because he had bought it with his wife. But I also thought he could be in a position to do very well if the area was developed.”
Rogers had served in the army when he was young and then taken a job with the Durham schools, where he had worked since the early 1960s. “He seemed a real stable guy,” Blum said. “He had some credit issues but nothing too terrible. I thought, Let’s get a payoff quote and see what we’re dealing with.” She phoned Irving, Texas, where Associates had its headquarters—and then she phoned and phoned and phoned some more. “We absolutely harassed those people,” said Blum, whom Eakes has nicknamed “the Pest.”
At first the sticking point was the payoff figure. The person on the other end of the phone refused to give it to her, though refusing a payoff quote for a borrower is akin to a credit card company declining to tell a customer the total amount he or she owes in back charges. When finally someone provided Blum with the dollar figure, that only served to confuse the issue further. Rogers had records showing that while he was often late in paying his mortgage, he had never missed a payment, yet Associates was claiming he still owed the company nearly as much as he had borrowed ten years earlier. In all those years he had managed to pay down the principal by only a few thousand dollars. That must be a mistake, Blum told herself, so she asked someone to fax over a copy of his payment history. That seemed no more complicated than making a few taps on a keyboard but a company representative claimed that information wasn’t available. The Pest persevered until eventually somebody in Irving faxed over pages of records that Blum was convinced had been fabricated, and she handed the file off to Self-Help’s loan servicing department.
At that point, Blum wasn’t suspicious so much as curious. Sure, the people on the other end of the phone couldn’t respond in a straightforward manner to a routine request, but she figured they were some fly-by-night operator staffed by incompetents. “I had never seen a loan like this,” Blum said. “I really wanted to know what these other lenders knew that we didn’t know.” More borrowers came in seeking a fix-it loan and they too had loan terms similar to Rogers’s. At Self-Help, they required down payments of at least 5 to 10 percent, yet Associates and other lenders proved willing to write loans valued at 100 percent of the assessed worth of the property. “I was thinking, Why are we being so conservative? What have these banks figured out that we haven’t?” said Blum. These other lenders were charging interest rates four, five, or six percentage points higher than Self-Help’s, if not more. That struck Blum as a steep premium but she also had to ask herself if Self-Help was taking more risk than people inside the organization realized.
“We always saw ourselves as the high-risk lender of last resort,” said Blum, who had a degree in city planning, not finance. “We thought we were the ones out there providing loans to our customers where no one else was doing it. It came as a surprise that there were even these other players in the communities we were serving.”
The truth would emerge once Blum, with the help of others inside Self-Help, was able to piece together the details of Rogers’s loan. Years earlier, he and his wife had borrowed $29,000 through the Veterans Administration to buy their home, but then they had allowed themselves to be talked into refinancing with Associates. Under the new loan terms, they were paying 13.7 percent in interest and now owed $47,500, including thousands in fees and thousands more for a credit insurance policy. Associates hit Rogers with a penalty fee every time he was late with a payment, as any lender would, but the company would also tack on extra interest charges, treating his account as if it were perpetually in arrears. The bottom line was that Rogers was stuck. His home was not worth enough to justify the size of the loan Self-Help would need to pay off Associates and still have enough money left over for Rogers to make the necessary repairs on his property. And even if Self-Help were inclined to take the risk, Rogers, with a salary of around $17,000 a year, didn’t make enough to reliably cover the monthly payments.
“It took us some time,” Blum confessed, “but we eventually realized this wasn’t just an issue of one guy. This was a big company out there and they were lending a lot of money to a lot of people.”
Blum stopped by Eakes’s office one night when both were working late. She told him about Rogers’s predicament and Eakes pulled out his calculator. Had Rogers refinanced his loan through Self-Help and made the same monthly payments he had been making to Associates, Eakes found, he would have paid off his loan in full and even built up a modest-sized savings account. Instead he still owed Associates nearly as much as he had borrowed. Freddie Rogers’s only crime was that he, like much of the populace, wasn’t financially sophisticated. It had ended up costing him tens of thousands of dollars and it might well cost him his house. “This is scandalous,” he declared. He promised Blum he would call Irving, Texas, the next day.
Pretty much any housing activist or consumer advocate who has heard Martin Eakes speak in public in recent years has heard the story of the phone call Eakes made to Texas on behalf of Freddie Rogers. The woman on the other end of the line accused Eakes of being a competitor out to steal a loan away from her company. She was evasive and dodged basic questions that a lender was legally obligated to answer. “I just snapped,” Eakes said. “I just started making a lot of threats.” We’re going to get this borrower out from under your thumb, he told the woman. We’re going to drive your company out of our state. “You’ve picked a fight with the wrong guy at the wrong time,” he told her. It was only after he hung up the phone that, with the help of his staff, Eakes realized he had threatened to boot from North Carolina one of the two or three largest consumer finance companies in the world.
Eakes is intense when he’s angry but he’s not the demonstrative kind. The signs that he is steeling for a fight are more subtle. His normally ruddy complexion turns a darker, more splotchy red. His jaw gets a fierce set to it and his jaw muscles start working. Those who have been at his side for a long time notice that his language changes as well. The more pragmatic Eakes, the physics major turned lawyer and banker, is replaced by the philosophy major who orates about right and wrong and the moral imperative everyone at Self-Help should feel to confront injustice when they see it. When Eakes is in that mode, Thad Moore, who has worked with Eakes for more than twenty-five years, hears a lapsed Baptist channeling the sermons of his youth. “He gets in this preaching mode about why we do what we do and why it’s important and how we’re taking on these pressing issues in our society that demand to be dealt with,” Moore said. “When I hear him power up and get going, I feel like I’m hearing the Baptist within.”
The Self-Help way is to meet, analyze, and dissect, and then meet some more. Every time Self-Help contemplated venturing into a new area, whether it was loaning money to charter schools and day-care centers or the move into the refinance business, their modus operandi was to gather in small groups and as an organization debate the new initiative. Eakes might have been hell-bent on action but they were a credit union, not a public interest advocacy organization. With everything else going on, were they going to devote the money and the energy that would be required to see them through a fight that would invariably land them in Raleigh, the state capital, if not Washington—all because the boss had lost his temper during a phone conversation with another lender? Mark Pearce, who had started at Self-Help in 1996, was among those arguing forcefully for them to take the fight to Associates. But Pearce, who would serve as the Center for Responsible Lending’s first president before leaving in 2006 to take a posting as North Carolina’s deputy commissioner of banks, also saw why some, especially those working in the business loan department, might disagree. “It was a real challenge to our mission,” Pearce said. “Self-Help was working so hard to get people into homes, and it’s not like we were anywhere near to meeting our goals on that front.”
In the end, though, the sheer size of Associates left the Self-Help executive team feeling they had no choice. Associates had started its life nearly a century earlier as an auto finance company aimed at helping people buy a Model T. Where Self-Help had a half dozen offices around the state and had made around five hundred home loans in North Carolina in 1998, Associates had eighty storefronts scattered around North Carolina making or buying thousands of home loans each year. Self-Help relied largely on word of mouth and a network of nonprofits; Associates had Terry Bradshaw, the former football great, pitching its loans on television and booming, “We make loans that make life better!” At Self-Help they felt like they were really something when in the late 1990s they were making more than $25 million in home loans each year. When, in 1998, Ford spun off Associates First Capital, as its subprime lending unit was called, through an initial public offering, it was generating nearly $1 billion a year in profits.
“It really hit us in the face,” Mike Calhoun said. “We recognized that if we don’t do something about predatory lending, we’re kidding ourselves that we’re really achieving something by putting people in homes.” This organization that had always viewed its core mission as helping families build wealth had come to the conclusion that it was equally as important to help families protect the wealth they had already attained. The solution, as they saw it, was for North Carolina to become the first state in the country to pass an anti–predatory lending bill aimed at reining in the most audacious practices of its subprime lenders.
In downtown Durham, an activist named Peter Skillern heard from Martin Eakes and told himself that it was about time. For years, Skillern, the executive director of the Community Reinvestment Association of North Carolina, or CRA-NC, had been organizing protests against subprime lenders at home and in Washington. He had even been known to don a rubber shark’s nose to underscore his point that these lenders were a dangerous breed to avoid. Skillern admired Eakes and all that he had accomplished but Self-Help had declined to take part in CRA-NC’s actions. “Martin is a remarkably effective leader,” Skillern told me when I visited with him in Durham—but that only made Eakes’s lack of engagement in the fight that much more maddening.
Skillern’s bête noire wasn’t Associates but a lender much closer to home, NationsBank, based in Charlotte. To him, NationsBank, one of the country’s largest, offered a stark example of what he saw as the country’s “parallel banking system.” “It’s like NationsBank has two doors, side by side,” Skillern told me. If you were white, middle class, and had good credit, you were ushered into one door. If you were low-income and had imperfect credit, you were shuffled into the door for either NationsCredit or EquiCredit, Nation’s two subprime subsidiaries. And if you were black your economic class or FICO score didn’t seem to matter; according to studies, you were far more likely to end up with one of the subprime lenders and one of their high-interest loans just by virtue of the color of your skin. The subprime lenders claimed they needed to charge higher interest rates and steeper fees to offset the increased risk they were taking with subprime borrowers but Skillern thought that was bunk. The big consumer finance companies, Forbes reported in 1997, were enjoying returns as much as six times greater than those of the best-managed banks. Neither NationsCredit nor EquiCredit was nearly as large as Associates, but by the late 1990s the two units were generating around $400 million in profits each year.
Skillern would prove to be one important Eakes ally against Associates, Bill Brennan in Atlanta another. Eakes could rely on Rogers to help put a human face on predatory lending and there were others from among the fifty people who had complained about Associates to the state authorities over the previous year. Brennan, however, provided video, much of it starring Bill Brennan and all of it powerful. Brennan had played a key role in the making of the Primetime Live episode, providing some of the piece’s rhetorical fire (he described Ford Motor as “the worst predatory lender in the country”) and also its heart. It was Brennan who pointed a producer to the couple who would give the exposé its emotional anchor, the Iveys of Atlanta, who almost lost their home of twenty-five years after a broker with Associates talked them into consolidating some credit card bills in a preposterously expensive home equity loan that included 24 percent in up-front charges and a payment schedule this couple of modest means couldn’t possibly afford.
Then there were all those television pieces Brennan was able to orchestrate in the Atlanta area using his local contacts. Abusive and predatory loans weren’t necessarily illegal, and so when he was getting nowhere with a case, he would give a heads-up to a friendly TV reporter. In short order, a story would air about an elderly black woman living on meager means who had been ruined by Associates, or the short-order cook with diabetes who struggled to stand on his feet all day, or the hardworking couple with two young children, and there would be Brennan, eyes moist, bathing the viewer in sincerity, decrying the terrible injustice that had been done. With the heat turned up high, negotiations would commence and an accord would be reached contingent upon everyone’s future silence. Brennan’s friends dubbed it the “media-induced settlement.” Brennan copied several of these local broadcasts onto a video and, along with the Primetime Live piece and a few other choice offerings (including snippets of depositions with two former Associates employees, who spoke of the lengths they would go to lard deals with expensive extras), sent it along to Self-Help.
In the hands of most advocates, Brennan’s tape would have been a useful tool. In the hands of Martin Eakes it took on a life of its own. Inside Self-Help they made jokes about what they called Eakes’s “teletubby”—the stout combination TV-VCR that the boss brought with him everywhere during the months they were lobbying for an anti–predatory lending law in Raleigh. There were fifty state senators in North Carolina and 120 members of the state assembly and Eakes, intent on showing the tape to every last one of them, rolled his teletubby door-to-door in the manner of an old-fashioned vacuum cleaner salesman. If a receptionist or some other staffer was reluctant to allow him inside to see a legislator, he would show it to that person, hoping after viewing it he or she would feel compelled to pass the tape he left behind on to their boss. One news account had Self-Help distributing seven thousand copies of the videotape around the state. By that time, Eakes had testified no fewer than eight times in favor of an anti–predatory lending bill. “People say I work hard,” Mike Calhoun said, “but he put me to shame in that fight.” The initiative was supported by a group calling itself the Coalition for Responsible Lending. The coalition included such mainstream advocacy groups as the NAACP and AARP but the political establishment in Raleigh could be forgiven for thinking this legislative battle was brought to them and sponsored by Martin Eakes and the people of Self-Help.
Calhoun, whom Bill Brennan described as “the smartest lawyer I’ve ever worked with,” was the resident expert on consumer law within Self-Help, so it fell to him to type out a draft of the legislation. (“You’re not going to see a lot of clerical staff at Self-Help,” Calhoun sighed.) The aim of the bill was to impose limits on what a subprime lender could charge its customers. Roy Cooper, the senate majority leader and a Democrat, agreed to sponsor the bill. “We were beginning to see complaints filed by consumers and we began to hear concerns voiced by lawyers seeing these unfair terms at closings,” said Cooper, who had been elected to his second term as North Carolina attorney general by the time I visited him in the fall of 2008. “So we realized we needed to put some bright-line limits on the amount of charges associated with the loans.” Years later Cooper still remembered Freddie Rogers—not just his name but also his exact hourly wage and other details of his case.
Initially a long list of senators joined Cooper as co-sponsors, but after the lobbyists weighed in, Cooper ended up as its sole sponsor in the Senate. “North Carolina is the second-largest banking state in the country, so the banking industry is a significant economic engine here,” Cooper said. “They had a significant influence over the legislature and government process.” The key was to bring the banks around, or at least convince them to remain on the sidelines. That would be no easy task given the hundreds of millions in profits a local giant like NationsBank was booking selling subprime loans.
A year after the predatory lending fight was over, Eakes asked Keith Corbett, an executive at North Carolina Mutual, the nation’s oldest black-owned insurance company, to join them at Self-Help. “We don’t pay a lot in salary,” Eakes told Corbett. “But if we see someone who’s been mistreated, we’re willing to spend two to three million dollars to right that wrong.” Corbett was sold.
That’s exactly what happened in the case of Freddie Rogers. Mike Calhoun was among those working out an out-of-court settlement with Associates that allowed Rogers to refinance with Self-Help under terms he could afford. A few years later, a developer seeking to gentrify Rogers’s neighborhood paid him a substantial bounty for his home. By that time he had remarried.
Over the years Eakes had made his share of political enemies in Raleigh. “Imam” or “ayatollah” were among the less flattering nicknames given to him inside the state capitol by those resenting his sermonizing and righteousness, but there was also no denying his effectiveness. “He got along with a lot of my Republican colleagues, maybe better than I did,” Wib Gulley said. To his activist allies he might have been the accidental banker who was still one of their own, but for political purposes he was a subprime mortgage banker horrified by the lending practices of some of his more unscrupulous rivals. He was also a man on a first-name basis with the CEOs of some of the state’s largest lending institutions. He made the same pitch to each: The bad practices of the worst subprime lenders hurt the reputations of all in the mortgage business. Eventually even the North Carolina Bankers Association supported the reform bill. “That was Martin,” Roy Cooper said. “Working and working and working to bring the industry into the fold.”
The political fighting over the anti–predatory lending bill raged for the better part of a year. The bill was modified, for instance, to allow a lender to charge a borrower as much as 5 percent in up-front fees. “If your parents paid five points on a loan, you wouldn’t be very happy,” Calhoun said. But the legislation banned prepayment penalties on any mortgage less than $150,000 and made it illegal to roll into a loan the cost of credit insurance (credit insurance itself, with separate monthly payments, was still legal). Lenders could charge interest rates well above the rates enjoyed by prime customers but anyone wanting to sign a deal that would have them pay rates more than ten percentage points higher than a Treasury bill would be required to meet with a credit counselor. The bill was signed into law in July 1999.
Even with its limitations, consumer advocates hailed the law as a significant breakthrough. Inside Self-Help’s offices, the phone was now ringing with activists from places such as New Jersey, Chicago, and Dayton eager to pass something similar in their locale. “Initially we thought we passed this predatory lending bill, okay, good, we’re done, now we can go back to our day jobs,” said Mark Pearce. “But people wanted to know how we did it, especially as North Carolina wasn’t exactly seen as the most liberal, consumer-friendly state in the country.”