New Orleans A couple of years ago I wrote a book called, Citizen Wealth: Winning the Campaign to Save Working Families. It was commonly known that for low-and-moderate income families the largest index of any wealth they possessed was based on whether or not they had managed somehow to become a homeowner. At ACORN we had fought that battle for years in order to get banks to fairly offer mortgages to lower income families so that they could acquire single-family homes or coops, and in those fights had won billions allowing millions to own their own homes. It was certainly not enough to achieve any semblance of equity, but it was a good step forward, particularly increasing the home ownership percentages of African-American and Latino families to record levels, although almost all of those gains were wiped out by the 2008 Great Recession.
In doing the research for the book, I was shocked that the largest so-called social program in the nation’s budget, dwarfing direct welfare, food stamps, and all other housing benefits, both singly and collectively, was the mortgage interest deduction, which now totals more than $70 billion annually. As disturbing was the degree to which the mortgage interest deduction was largely not a social program which benefited the citizen wealth of lower income families but was disproportionately benefiting middle class and wealthy families. After all, at the threshold where such an income tax deduction had real financial weight and meaning, a family had to be in an income bracket high enough to justify itemizing their deductions.
As the Home Savers Campaign this year has visited with families in a number of cities in the Midwest and South, it has also struck all of us that as blatantly predatory as many of these contract for deed and rent-to-own scams have been to the families victimized by them, many of these families have accepted the risks even accepting the dangers and the deceit, simply because they were desperate for housing they could afford, no matter its condition. For the same reason, the reaction of many victims when they realize they have been swindled has often been as much anger as it has been resignation, and a feeling they should walk away, rather than fighting for justice for their investment, all of which speaks to the crisis in affordability.
Reading “House Rules” by Matthew Desmond in the New York Times there were more facts and figures that underlined the affordable housing crisis which is driving income and racial inequality throughout the country. Some facts:
The average homeowner boasts a net worth ($195,400) that is 36 times that of the average renter at $5400.
With rising housing costs the housing standard where 30% or less of a family’s income equals affordability, half of all poor renting families spend more than 50% of their income on housing costs and 25% spent more than 70%.
In 2011, the median white household had a net worth of $111,146, compared with $7113 for the median black household and $8348 for the media Hispanic household. If black and Hispanic families owned homes at the same rate as whites, the racial wealth gap would be reduced by almost a third.
There was much more, but you get the point. Worse, the consensus is that there is no political constituency for reform of the mortgage interest deduction, nor in the absence of reform an equivalent program or benefit that would help renters or bring balance to this wealth and racial inequality.
New Orleans Survey after survey indicates that Americans believe that a huge percentage of the US budget and their tax money is spent on foreign aid. The Kaiser Family Foundation in a survey found the average respondent thought that more than a quarter of the national budget – 26% – was spent on foreign aid and therefore more than half felt it should be cut back.
In truth, only about 1% of the annual budget is spent on foreign aid of all types and that number relative to US Gross Domestic Product and the level spent by other countries is relatively low. Furthermore, in a detailed analysis of the foreign aid budget done by the Washington Post in late 2016, foreign aid is absolutely not some kind of welfare handout to other governments. Of about $42.4 billion in total aid, in fact almost $17 billion, in the broad category of “security” include supporting the training and development of both Afghanistan and Iraq military forces, where the country is still actively at war. Other big piles are spent to support counter terrorism, drug control, international narcotics and law enforcement and the like. Hard to believe the same American tribes that back more military expenditures would begrudge these expenditures of aid.
The other $25.6 billion falls under Economic and Development with more than half spent on global health projects, where Americans received direct benefits, and economic support, where we receive indirect benefits. In these polarized times, many get their heads screwed on wrong thinking much of it is going to help the global poor who should be bootstrapping their way forward on their own or some such. It’s actually even less. A billion goes towards the Millennium fund where the UN and a number of countries are trying to end poverty. Less than $2 billion goes to Food for Peace. $3 billion is development assistance. And, where the rubber hits the road, $2 billion is for disaster relief and $2.8 billion is for international migrants and refugees. In a $4.15 trillion budget, relatively speaking, that’s chump change.
When you look closely at those kinds of expenditures handled by outfits like the US AID, Agency for International Development, it turns out a lot of the delivery of aid has been privatized and subcontracted as well. The Economist in a study found of a half-billion in aid contracts, 70% had been handled by private companies. Nearly a quarter of all USAID spending in 2016 went to for-profit firms, two-thirds more than was the case in 2008 when Obama was elected. Most of these firms are getting their jobs at auctions, rather through grants. Much of their work is through subcontracts rather than having boots on the ground. The Economist also found that of 4500 subcontractors, a third of them were for-profits and the rest were nonprofits and governments. At the bottom line even the “softer” part of our foreign aid is often supporting American companies and nonprofits and not foreign governments, and under any circumstances its pretty miserly compared to the riches of America and a long way from a handout or welfare.
New Orleans Throughout the country parents, teacher unions, and community groups have been opposing the viral spread of privatization of public school systems and the efforts of charter school operators to expand their footprint in school districts. Perhaps the most controversial maneuvers are the state takeovers of local public school districts by removing duly elected school board members and replacing them with unaccountable managers.
The most famous was certainly the post-Katrina usurpation in New Orleans which has now led to all but four of the more than 100 schools in the district being run by charter operators. School districts have also been taken over in Indianapolis, threatened in Buffalo, in some California districts, and others as well. Despite only a small number of poorly performing schools of the forty-eight in the Little Rock School District, the state of Arkansas asserted control seemingly triggered by outside donors and advocates of charter expansion being opposed by the Superintendent, who was immediately replaced.
These fights have sharp dividing lines, but increasingly the claims of private and charter operators of improved education and test scores has not been proven by the actual results. Advocates of vouchers to accelerate the process of moving students out of public schools have also made progress in more than half of the states in the country and now have a staunch advocate as head of the Department of Education, but recent studies are indicating that students are falling behind in many of these private and parochial facilities. Claims from New Orleans and New York that such programs would decrease racial and ethnic segregation in public school systems are also achieving the opposite outcomes.
In the tug of war over school control, which is often cultural and ideological, the voice of protests have often been simply ignored by state governments and others. Events in the ongoing fight in Little Rock may have found a way to force authorities to hear their opposition using the ballot box to express their anger when presented with a school bond issue. A wide coalition of groups, including Local 100 and Arkansas Community Organizations, the former Arkansas ACORN, opposing the bond issue for new school construction and other programs in the district united under the banner of “Taxation without Representation,” made their protest of the state takeover clear.
Despite a united business community and being outspent by a ratio of ten to one, opponents smashed the bond issue by a margin of almost 2 to 1, 65% to 35%. The district is 70% African-American now and in many African-American precincts the margins against the bond issue ran 90% to 10%. Normally liberal districts in middle-income, hipper Heights area also defeated the bond issue strongly. The turnout was the highest for a bond issue in 17 years. The Governor Asa Hutchinson, whose administration was responsible for the takeover, campaigned for the measure and was embarrassed by the results. The state appointed Superintendent was forced to concede the loss even before balloting ended.
Bond mileage increases on property taxes funding school districts are usually the lifeblood of public schools. Often the district needs the money as much as the taxpayers do in these tough financial times, but even if this is playing with fire, there is no denying the power of the protest when a community unites to oppose privatization, charter expansion, and undemocratic takeovers of local districts. Little Rock protesters and voters may have shown others around the country the path to take to force their voices to be heeded.
New Orleans In the 2008 Great Recession, fingers pointed wildly in all directions and in some cases in little Taliban caves around the country they are still doing so, and trying to play the blame game at the expense of the victims. One of the more troubling terms to emerge from those terrible days for borrowers trying to stay in their homes was the notion of “liar’s loans,” as the subprime industry called some of these mortgages. The haters tried to claim the borrowers were the liars, though our work repeatedly found that the culprits – the big liars in the affair – were almost invariably mortgage brokers channeling huge volumes of paper to subprime lenders and blowing up the numbers on “stated” income mortgages.
ACORN understood the value of stated income mortgages because many of our lower income families worked in contingent employment that was impossible to verify because of cash transactions without social security statements. Tipped employees were just one of the examples. As we met with subprime company after subprime company (four in one wild day in Orange County, California, the subprime ground zero!), we raised our concerns about the supervision of brokerage networks accounting for much of the loan volume in the portfolios they were assembling and the incredibly high percentage of stated loans, often approaching or exceeding 50% of the lending they were making and packaging. They would then flannel-mouth something about a risk algorithm that was protecting them and assure us they were on top of it all, when in fact as it developed, they were doing the happy dance to bankruptcy and blindsiding our members, many of them whom had no idea what numbers brokers had claimed to be their income, often without so much as a wink-and-a-nod, and were shocked to find in some cases that their social security income had now been converted to six figures.
All of ACORN’s fights against predatory practices by subprimes came roaring back to mind when ACORN Canada shared an article with me about the cash-crunch and turmoil that ousted the top officials and plummeted the share price of Home Capital Group, a leading company in what the Financial Post called the “alternative mortgage lending” space, which is just another name for subprime loans. The problem was simply described:
Home Capital’s current crisis began on April 19, when the Ontario Securities Commission accused the company and some of its officials of misleading disclosure. The OSC alleges that the company misled shareholders because it knew there was fraud in its broker channels before July 2015, when it announced the findings of its internal investigations and disclosed it had cut ties with 45 brokers as a result.
The Post commentators were aghast that regulators were investigating Home Capital for what they viewed as dated and minor problems with the company’s brokerage channels and accused the OSC of what Republicans in the US would now call “regulatory overreach.”
How quickly people forget! The Ontario Securities Commission fortunately had some memory cells left from watching the real estate American meltdown a decade ago, and recognized what US regulators have still failed to grasp in the patchwork quilt that regulates and licenses brokers in this country on a state by state basis. Broker fraud is inevitable in the mortgage supply chain whenever brokers are substantially paid by commissions based on closings, rather than standards that include buyer affordability. We always demanded, and often won, though sometimes too late, agreements that US-subprimes not allow mortgage brokers in their networks to be paid that way. Given the hammering of stock prices for all the companies in the Canadian subprime industry, smarter investors must suspect that all of them are only loosely supervising brokerage networks, and that’s scary.
Low-and-moderate income families need a subprime market so that they can access mortgages for houses and apartments, but they also have to demand that the companies not be predatory and that they work as hard to keep their acts together as families do who are busting their butts to pay their bills and their house notes. Let’s hope Canadians are coming to grips with these companies and have learned the lessons that Americans are living in denial and still trying to forget.
Greenville Here’s a guest blog run on the workingclassstudies.wordpress.com blog for Working-Class Perspectives shepherded by Professors Sherry Linkton of Georgetown University and John Russo, Visiting Scholar of the Kalmanovitz Initiative for Labor and Working Poor at Georgetown, and formerly of Youngstown State University in Ohio.
Yes, Donald Trump is President, and he accomplished this upset in part by shattering the working-class firewall in long time Democratic, heartland strongholds of Pennsylvania, Michigan, and Ohio. We cannot respond only with resistance. An effective defense, in the Rust Belt or anywhere else in the country, requires a deeply rooted offense focused on the traditional Democratic working-class base, and that requires organizations and organizers who will to listen and offer meaningful responses to real pain being felt by so many at the grassroots level.
Amid repeated promises from the White House and Republicans to cut from healthcare, Medicare, and other elements of the already tattered safety net, there are few issues so stark, or so predatory, as the credit desert that keeps working families from securing decent and affordable housing. This is a problem the Real Estate Developer-in-Chief should well understand.
Since the 2008 Great Recession, the devastation of foreclosures, for individuals and communities, has become well-known. Less appreciated has been the banks’ response. As the subprime market ended, many lenders now demand higher credit scores, larger down payments, and higher minimum loan levels for mortgages. Marginal financial institutions, specializing in predatory products, moved in, reviving instruments that had largely disappeared from urban home ownership markets with the Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977, laws that also ended redlining in minority communities. Contract-for-deed, installment land purchases, rent-to-own, lease purchase, and other deceptively-named transactions lured families into hoping for affordable housing and home ownership into agreements that exploited them instead.
Worse, much of the housing stock involved was had been acquired from Federal National Mortgage Authority (“Fannie Mae”) auctions of foreclosed properties by hedge funds, Wall Street, and vulture financiers pyramiding one injury on top of another. Companies like Harbour Portfolio embraced contract “sales,” while others, such as Vision Property Management, repurposed thousands of homes using rent-to-own scams. More well-known operators, like Goldman Sachs, bought more than 26,000 homes to satisfy securitization settlements with the government, while Apollo has specialized in similar flip-and-trick in Memphis and other cities. The National Consumer Law Center estimates that there are more than six million contract buyers in the United States now. More shockingly, more contract sales were recorded in Detroit last year than traditional mortgage transfers.
Organizers with ACORN and the Home Savers Campaign have spoken with lower income working families in Philadelphia, Pittsburgh, Youngstown, Akron, Detroit, and other cities as diverse as Memphis, Little Rock, and New Orleans. These conversations reveal huge issues that bring this emerging housing crisis into tragic relief and demand action and response. The stories are heartbreaking.
A Harbour Portfolio buyer spoke to us from her couch, where she was recovering from a fall on a faulty stairway in Pittsburgh. In Akron, another Harbour Portfolio purchaser told us about the ceiling in the shower falling on his sister, leaving her unable to work. A Vision Property Management family in Pittsburgh told us of moving into a house after signing the papers only to find that it had no plumbing or electricity. They were forced to “camp” in their house for six months. Vision’s callous indifference to the deplorable condition of the housing stock meant that one Youngstown family had been forced to move to a second Vision house because their first was ordered demolished by the city! Many of the buyers were on Social Security or Veterans payments. Meanwhile, one Harbour buyer was having problems getting the contract in his name — even though the payments were made from his pension.
Sadly, this story from Philadelphia is typical, as the organizing team’s notes reveal:
Maria Rodriguez and her husband “purchased” the house at 917 Sanger St., in the Frankfort section of Philadelphia for $65,500, almost 4 years ago. They both worked: he as a landscaper and she worked at a hotel doing housekeeping. . . . They put down $2000, plus $465 as the monthly lease payment, $105 for real estate taxes, $30 for general liability insurance, or $2600 as an initial payment and $600 a month. The contract runs until August 2020. $57.06, +2000 initial option, of the monthly payment is credited toward the purchase price. Maria and her husband have put about $25,000 in the property because of huge issues like unpaid water bills, no heating or electrical system. They believed that at the end of the contract, in 2020, they would own the property and get the deed. Instead, they will have paid $6,793 toward the $65000 house price. On Aug 30, 2020, they have 3 options: give Vision a check for $58,206, walk away, or convert to seller financing with a new contract for the remaining $58K. Like all the Vision properties people we’ve talked to, this was a total surprise.
At the end of our visits with working families, we often left people enraged by anger salted with tears.
Laws to protect would-be buyers vary state-to-state, and many are weak. Are these “buyers” tenants, or are they owners without a deed? Many they cannot connect utilities or get contractors to work on their houses because of the confusion. Although contracts are required to be filed, they usually are not. In Green Bay, Wisconsin Vision whistleblowers told television reporters that they were instructed not to pay sales taxes or transfer fees. The city of Cincinnati sued Harbour for $335,000 of uncollected fines and penalties.
Some cities have taken action. Toledo passed an ordinance requiring contract sellers to obtain a certificate of occupancy and habitability before a contract was executed and a potential buyer allowed to move into a property. Lorain, Ohio, required the same, but only at the point of sale, which sadly may never happen. In Pennsylvania, lawyers believe there is an “implied warrant of habitability” that should force sellers to make repairs before occupancy. Other lawyers argue that none of these agreements can be valid contracts because their terms are “unconscionable” on their face. The Uniform Code Commission is debating offering state legislators a model law to clarify some of the mayhem.
As the Home Savers Campaign and partner organizations get their arms around this issue, one thing is clear: these contracts are misrepresented and rarely understood by working families desperate to obtain affordable and decent housing with the opportunity of home ownership. Millions of families are now caught in this dilemma. For them, the American Dream turns out to be an American Nightmare.
As our campaign against these predatory practices gains traction and the raw exploitation involved becomes even clearer, and as more working families demand justice, it will be harder for anyone or anybody to deny the exploitation at the root of these transactions.
Real estate is perhaps one thing that President Trump does understand. The fight needs to move from these houses to the White House.
Wade Rathke is best known as Founder and Chief Organizer of ACORN from 1970-2008, and continues to serve as Chief Organizer of ACORN International working in 13 countries.
Special thanks to Gary Davenport, former community organizer and currently with Mahoning County Land Bank for assistance in Youngstown work. We’ll have more to say about Youngstown as we assemble the data later this summer!
New Orleans In a rare surprise over the dozen years that conservative US Supreme Court Chief Justice John Roberts has run the nation’s highest court, he joined the four more liberal justices on an issue, delivering a 5-3 vote. Even more shocking the decision was a slap in the face to big banks, in this case Bank of America and Wells Fargo, on a complaint brought by the City of Miami. The court ruled that Miami had standing to sue and to further pursue its claims concerning the discriminatory lending practices of these banks and their allegation that such practices led to decreased property values in neighborhoods, and therefore reduced property tax revenue to the city as well as increasing blight in the community.
This is big, really big, because it powerfully opens the door to a broader interpretation of the Fair Housing Act and its prohibitions against racial discrimination in preventing different standards between one neighborhood and another in cases like redlining, but it also speaks to differing and discriminatory standards in mortgage lending because of income as well, which was at the heart of broker driven exploitation that fueled abuse and outright fraud in the subprime market. There can’t really be too much doubt that Bank of America and Wells Fargo didn’t pause to even take a breath in lower income neighborhoods as they altered their supervision and standards willy-nilly to drive volume on refinancing as well as new purchases much as often as new purchases. Wells Fargo has already become poster child for not supervising its sales staff, but neither does the record of Bank of America and Wells improve when examining the way that they mishandled mortgages underwater during the Great Recession, exacerbating foreclosures.
There’s settled evidence that property values decrease when homes are abandoned in communities, and foreclosures in Miami and other cities led to increased abandonment. The scandalous disregard that big banks showed in refusing to modify the mortgage terms to prevent foreclosures as well as paying little attention to managing and maintaining the properties where they were foreclosing directly lowered values in those properties and whole neighborhoods. Miami has the lead role in proving this now that the Supreme Court has sent the case back down to Atlanta and the 11th Circuit Court of Appeals, and clearly the odds are still stacked against the city and favor the banks, but the door is open and common knowledge and a drive-by to any lower income community establishes the facts on the ground.
The banks are hoping they can prove that they were just one of many crooks, and not the ones pulling the trigger to rob the neighborhoods of their value. In criminal courts this might be a case where the banks might not get a sentence for murder, but they would definitely do time for manslaughter, because there is no doubt that they hurt these communities and the people who live there, whether they were driving the getaway car, acting as the lookout, or holding the gun.