House and home

CHARLOTTE, N.C.-When RBC Bank opened a new 33-story tower in its Raleigh, N.C., headquarters on Oct. 2, bank officials nixed one of the flashier activities planned for the grand-opening: skydivers parachuting from the top of the bank.

Three days after the worst-ever point drop of the Dow Jones Industrial average, RBC spokeswoman Jamie Averette Mitchell told reporters: "Given the recent market activities, we just didn't think it was an appropriate time to have people jumping off a bank building."

Nearly 200 miles south, stunned employees at the Charlotte, N.C.-based Wachovia Bank weren't celebrating: Citigroup announced that it would buy the nation's fourth-largest bank for just $2.1 billion in a deal arranged by federal regulators to save Wachovia from collapse. (Four days later, Wells Fargo offered to buy Wachovia for nearly $15 billion. Citigroup cried foul, sending the two banks into a battle that could split Wachovia into smaller pieces.)

Wachovia carries some $42 billion in losses linked to high-risk mortgages, and borrowers are defaulting on those loans at a skyrocketing rate. Mortgage goliaths Fannie Mae and Freddie Mac, along with American International Group Inc., the nation's largest insurer, have also fallen. The mess is systemic: lenders hawking loans to borrowers who couldn't afford them; borrowers taking on debt they couldn't pay back; and mortgage companies selling questionable loans to investors hoping to eventually profit by taking on high levels of risky debt.

As financial experts and others dissect a crisis threatening to send the country into a recession and global markets into chaos, they'll miss an opportunity for true reform if they miss the moral failure at the heart of the collapse. For those willing to look beyond Wall Street and government, some nonprofit organizations offer quiet examples of how to help low-income families with effective, biblical compassion rooted in accountability and consistent involvement in people's lives.

On the edge of Charlotte's skyline, an under-construction skyscraper originally slated to serve as Wachovia's new 48-story headquarters rises half-finished like a monument to a financial system frozen by its own poor choices. A few miles west, in a modest, two-story building, Bill Reid leads a small staff helping local families frozen by their poor choices.

Reid is executive director of Jackson Park Ministries (JPM), a Christian organization in one of the poorest areas of Charlotte. The ministry began 23 years ago as an outreach to children and teenagers in a troubled and violent neighborhood. JPM still works with youth, but its greatest resources are directed toward a transitional housing program for families in need.

Several years ago, JPM bought 10 small apartment buildings directly behind its property and slowly began renovating the dilapidated units with volunteer labor. Soon, the first families moved in: The ministry welcomes single mothers with children or married couples with children from a wide range of circumstances. Some have lost homes, some have accumulated overwhelming debt, some are fleeing abusive relationships, others struggle with addiction.

The families may live in the furnished apartments for 12-15 months rent-free. (Families pay a small program fee based on income.) When they leave they may take furniture with them. But unlike the high-risk mortgages that deceptively offered low-income families something for nothing, JPM conditions are strict: For the first nine months, families turn over their paychecks to financial counselors who help them maintain a budget, pay bills, pay off debts, and save money.

Every Tuesday night, the 7-10 families gather in an upstairs dining room at JPM for a community dinner catered by local church groups. Afterwards, they slip into one of several small, private rooms to speak with a volunteer financial counselor about their financial goals and progress.

Since financial problems usually aren't isolated, the ministry addresses other issues as well: Families attend church and Bible-based parenting and marriage classes. Residents struggling with addiction must stay clean and attend recovery classes.

About half the families who apply don't enter the program when they learn about the rigorous requirements. About half who enter the program eventually graduate. "At times they don't like it," says Reid. "At times they resent it." But showing compassion doesn't mean making things easy, he says: "If you do that you're not helping them. You're putting them in deeper trouble."

As they counsel residents, Reid says JPM constantly has to fight the credit culture that helped cause the current financial crisis. "Everybody wants everything right now," he says. "We teach them you just can't do that."

Many mortgage companies didn't teach that to low-income families with subprime credit over the last few years. Instead, they made huge profits by telling borrowers that poor credit or low incomes didn't matter. Some borrowers were confused about the terms, and unwittingly agreed to mortgages they didn't understand. Other borrowers lied on mortgage applications about their income and assets, and some lenders never bothered verifying information.

Mike Garner, once an executive at Silver State Mortgage in Nevada, told This American Life that his company approved loans for borrowers listing no income: "All you have to do is state you have a certain amount of money in your bank account. And then, the next one is just no income, no asset. You don't have to state anything. Just have to have a credit score and a pulse."

Since the 1990s, Congress has encouraged more lending to more low-income borrowers through government-sponsored institutions Fannie Mae and Freddie Mac, hoping to boost home ownership among a group that often rents. After accounting scandals in 2003 and 2004, the companies accelerated their lending to low-income and subprime borrowers, sometimes to placate Congressional leaders. Legislators also benefited from the arrangement by bringing more loans to their local communities.

By June 30, 2008, Fannie Mae reported holding subprime or Alt-A loans worth a total of $619 billion, according to the American Enterprise Institute (AEI). Freddie Mac's reporting wasn't as detailed, but AEI estimated the institution carried at least $392 billion in similar loans. With default rates skyrocketing, neither group could manage the losses without massive government intervention.

The federal government took over Fannie and Freddie in early September in what financial investors predicted could be one of the costliest financial bailouts in history. Less than three weeks later, President Bush proposed a $700 billion Wall Street bailout that dwarfed the Fannie and Freddie intervention.

When Congress initially balked at the enormous package, Treasury Secretary Henry Paulson reportedly told a private meeting of legislators: "Heaven help us all." Federal Reserve Chairman Ben Bernanke spoke of "an uncertain fate" without the bailout.

After failing in the House, legislators added a package of tax breaks and other programs to the bill to entice lawmakers to switch their votes. Rep. John Lewis, a Democrat from Georgia, switched with others to favor the measure saying, "I have decided that the cost of doing nothing is greater than the cost of doing something." The bill passed on Oct. 3.

Bush warned the bailout would take time to work, and international markets proved his point: Three days after the legislation passed, the Dow plunged, falling below 10,000 for the first time in four years as global investors fearing a worsening credit freeze in the United States began selling off stock.

Back in the United States, Heritage Foundation fellow J.D. Foster told WORLD the bill was "a vital measure to help our capital markets function properly." But he also predicted it wouldn't be a quick fix: "This bill affects the depth and length of a recession, not the reality of one."

For donation-dependent groups like Jackson Park Ministries in Charlotte, economic strain can mean strain on budgets to help needy families. So far, the ministry hasn't suffered, according to Reid, and he says he's not worried: "The Lord has always provided for us."