A Worrying Cycle of Housing Exploitation

New Orleans   I can’t exactly prove this yet, but the pattern is pretty gross already, and if I were a bettor, I would lay odds on the outcome. This is about housing and how things slide downhill when no one is watching and no one really cares. This sad story starts with the foreclosure crisis triggered by sloppy, scandalous, and speculative banking practices and may end in even more exploitation when some of these same houses end up almost a decade later deteriorating neighborhoods and in even more exploitative contract for deed “sales” in the credit desert for lower income communities still lingering in the wake of the Great Recession.

Ok, everyone knows that millions of homes ended up in foreclosure when the residential real estate market crashed in 2007-2008. Banks were over-leveraged in securitized loans heavily populated with mortgages that unsupervised brokers had patched together, often in a mixture of fact, fantasy, and falsehood. The government bailed out banks to the tune hundreds of billions, including taking over quasi-public FNMA and other government insurers of these mortgages. The homeowner, trying to hang on, got precious little help because the government allowed banks to administer the modification and forbearance programs, giving financial institutions little incentive to write down the mortgages to post-recession market prices which would have allowed some buyers to hang on, but would have weakened the balance sheets of the banks.

Although there is still outrage that none of the top dog bankers were really held accountable, the Justice Department and other agencies and some states have won multi-billion dollar settlements from the banks for their irresponsibility. Most of the settlements required them to pay fines to the government, but also required them to modify mortgages more extensively. Critics of the settlement terms always raised the fact that allowing the banks to use some of their penalty money to write down mortgages, essentially was giving them permission to move money from one pocket of their pants to another, which counts as a reward, rather than a punishment.

It is now clearer in reporting done by both the New York Times and the Wall Street Journal that another big loophole, especially for big Wall Street financial titans like Goldman Sachs, allows them to satisfy the terms of the settlements by purchasing foreclosed properties from FNMA and flipping them for a profit. Goldman successfully scooped up two-thirds of a recent FNMA auction which translated into 8000 homes with unpaid balances of $1.4 billion costing Goldman $5.7 billion. The settlement requires they provide $1.8 billion in relief so by their reckoning this transaction could get them close.

Overall the Journal reports that Goldman has acquired 26,000 homes from Fannie and more from Freddie, private sellers and others. Rather than modify or repair, many end up in another foreclosure and are sold off in bulk as well through a subsidiary, MTGLQ Investors LP. I would bet a bunch of this inventory is also being off loaded to other bottom fishers, hedge funds, and shady operators to then be recycled through predatory contract for deed and rent-to-own arrangements at high interest and no equity to continue the vicious cycle of exploitation and neighborhood destruction. The surest bet is that none of these financial institutions are offering standard mortgage loans in these low-and-moderate income communities given the higher credit scores and other lower loan levels required.

I’d like to be proven wrong, but this is where the trail is leading, and none of the paths are pretty.

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Vision Property Management: Exploiting Lower Income Home Buyers as a Business Model

New Orleans   In writing about Vision Property Management, the predatory and unscrupulous rent-to-own real estate company, reporters for The New York Times obviously struggled for a way to describe where to place Vision and other bottom-fishing realty companies that exploit lower income and working families’ hopes of home ownership. They ended up just talking a walk and euphemistically referring to these operations as operating in “this corner of the housing market.” If it’s a corner, it’s a very dark and nasty place.

Vision, based in Columbia, South Carolina, owns more than 6000 houses, many of them purchased at rock bottom prices from the foreclosure inventory dumped on the market “as is” by the quasi-governmental housing finance giants Fannie Mae and Freddie Mac. The Times described their modus operandi succinctly:

Vision markets its homes on a website, with most of the transactions taking place either over the phone or by email. Sometimes the photos of the properties are several years old and do not reflect what they actually look like.

You’re wondering how that would not run afoul of truth-in-advertising laws aren’t you? I thought the same thing, but to the degree that state and federal laws do not seem adequate to regulate operations like Vision, this dark corner of the real estate market, whether called contract-for-deed, rent-to-own, lease purchase, or whatever, is based on transactions where the “looks” of the place may be the least of the problem. No inspections, no appraisals, and agreements based on condition “as is,” make it easy to hide problems as severe as lead poisoning and roof leaks in Baltimore, lack of water, heat and good sewage in Arkansas, and unaddressed code violations and thousands of dollars in fines in Cincinnati, all of which reporters were able to document from disgruntled and exploited wannabe home buyers. Even a recent photo on the Vision website would not have revealed the horrors that awaited these families – and thousands of others.

As we’ve noted over recent months, contract for deed land purchases, like a bad weed, have grown in the credit desert since the Great Recession for lower income families still hoping to own their own homes. In the wake of these horrible stories of exploitation, some states are finally looking to tighten up regulations. A bill in Illinois is progressing that would give buyers some additional rights, especially once they have paid more than 10% of principal and interest. A bill proposed in Maryland had less luck, as the real estate industry muscled up to prevent reform even in the wake of lead paint poisoning in some of the homes, arguing that over worked and undermanned city inspection teams needed to do better. The Uniform Law Commission is evaluating whether to draft model legislation on contract for deed purchasers in the wake of all of this shame and scandal, but that will also take years.

Exploited home buyers shouldn’t have to crouch in this dark corner of the market waiting for relief. Signing light on the problems is valuable, but this is a situation that cries for action, since the words aren’t working.

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Foreclosure Bonds

decline of some foreclosed homes in Detroit

New Orleans   This is such a short limb, I don’t mind crawling out on it: every community needs a foreclosure bond. OK, I’ve said it, now what am I talking about?

I interviewed Gary Davenport on Wade’s World who now works for the Mahoning County Land Bank, which is an interesting operation itself, based in Youngstown, Ohio, one of the many ground zeros in the deindustrialization in the Rust Belt. Gary and I had met briefly four years ago when I was visiting the Youngstown State University and its Center for Working Class Studies and met with community organizers there. When we were talking recently, he had told me about some interesting campaigns that the MVOC, the Mahoning Valley Organizing Collaborative, had won when he was working as a community organizer there.

Here’s what it says in the city codes now:

Foreclosure Bond Requirement. Any owner of a property which files a foreclosure action against such property, or for which a foreclosure action is pending, or a judgment of foreclosure has been issued shall, in addition to all other requirements of this Section, provide a cash bond to the Deputy Director of Public Works or his or her designee, in the sum of ten thousand dollars ($10,000.00), to secure the continued maintenance of the property throughout its vacancy and remunerate the City for any expenses incurred in inspecting, securing, repairing and/ or making such building safe by any legal means including, but not limited to, demolition. A portion of said bond to be determined by the Deputy Director of Public Works shall be retained by the City as an administrative fee to fund an account for expenses incurred in inspecting, securing, repairing and/ or marking said building and other buildings which are involved in the foreclosure process or vacant.

Yes, it’s a city ordinance and that’s how city lawyers write, but you get the point. Past the problem of foreclosures themselves and the tragedy they bring to families is the attendant devastation they bring to communities, often because the bank and its servicers have limited incentives to take care of the property and the upkeep while they are trying to get it off their books. This is a problem is all communities. In neighborhoods where there is already depopulation due to deindustrialization, natural disaster, or changing demographics, houses can sit vacant for long periods, pulling down values throughout the neighborhood and posing safety hazards and attractive nuisances. Budget strapped cities are forced to step in to cut grass, trim trees, and sometimes to demolish the structure, and left footing the bills. The bond simply forces the mortgage holding institution driving the foreclosure to put their cash down, and do the job, so they can get their money back, and if not, the requirements of the full code give the city a way to deduct the money from the bond to cover their costs of doing the job for the bank and its servicers. Other than the fact that maybe the bond should be higher, this should be standard in every city of any shape and size!

Gary said they had picked up the idea from another community organization, ADT, in Springfield, Massachusetts, and it had now been enacted in several other Ohio cities as well.

Here’s a shout out to community organizers and, what the heck, to city officials: let’s get a foreclosure bond campaign in gear!

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Not the Doctor to Fix America’s Housing and Urban Issues

558New Orleans  It is hard to escape the feeling that the only reason that President-elect Trump is preparing to recommend Dr. Ben Carson as Secretary of the Department of Housing and Urban Development (HUD) is because he is an African-American, and that somehow aligns with Trump’s view of those parts of urban America where he doesn’t have any financial interests in golf courses, hotels, or casinos and are too far to be seen from any of his towers. I can almost see his gears grinding as he comes to the conclusion that urban means crime means black, so let’s tweet!

Carson might argue, as undoubtedly he will, that he’s “good to go” in this job because he lived in public housing in Detroit. If that’s a qualification for running the immensely important HUD operation, then there are several million residents of public or subsidized housing that would arguably be more able to make that case for their own candidacy than than the rich, right neurosurgeon, Ben Carson. Paul Newman was probably Trump’s first choice to run HUD, because after all he starred in a movie called “Hud,” so that probably would have been perfect in Trump-tweet-world, and he probably was disappointed when someone told him that Newman was now dead.

Carson is wrongheaded, but that is not to say that he’s not a smart man, which is why he dillydallied around for weeks after his name first surfaced, probably hoping that he would be offered something different where he wouldn’t have had to buy a clue. Bromides about bootstraps are not really a plan for fair housing or urban development. Retooling Community Development Block Grant money, specifically designed for lower income communities into some kind of pretzel-shaped monstrosity that funds real estate developments and hotels and other stuff that the boss in the White House might embrace, is hardly a fix for anything other than some developer’s profit-and-loss statement.

The only thing that emerged clearly from Carson’s campaign was his interest in increasing his book sales. Even if he cajoles every housing authority in the country into buying a copy, someone needs to tell him that most housing project residents are not going to be running over to make sure one of his volumes is in their libraries. The campaign was recent enough that most of us can recall that in the debates, Dr. Carson was pretty much lost at sea on both domestic and international issues, none of which will make anyone who cares about the desperate needs of urban America sleep better knowing that he is running the show.

The fact that Carson has no experience in running anything doesn’t matter to Trump and almost seems like nitpicking for us to point out since almost none of Trump’s other appointees have much of any experience with the content of their coming portfolios either. I would hate to pick on Carson for that, because it would seem like I was discriminating. Nonetheless, former Philadelphia Mayor Nutter may have said it best in talking to a Times reporter about the likely incoming HUD Secretary:

“I’m proud that I had seven years with President Barack Obama, who actually knew about community development because he was a community organizer,” Mr. Nutter said. “To the Philadelphia city government: Good luck dealing with the Trump administration.”

And, good luck to the rest of us and the country!

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Bottom Feeders, Home Dreamers, and Big Time Realty Schemers

foreclosureChicago     When neighborhoods are wracked by foreclosures and the abandonment that accompanied the 2008 Great Recession and financial chicanery that popped the real estate bubble, significant studies have documented the loss in value experienced not only by houses on the block, but also houses within a mile away that also lose value. Put enough abandonment together and there is a tipping point that can change the reputation and economic reality of an entire neighborhood. It’s what blockbusting, real estate speculation, federal financing restrictions, and legal segregation did to thousands of urban neighborhoods fifty years ago. It’s also what inadequate foreclosure relief and similar speculation, credit deprivation, and legal indifference has the capacity to do now in thousands of communities not only in urban areas, but also suburban and exurban developments where a lot of the foreclosure crisis was centered.

Working with former ACORN organizers in the Phoenix area in 2009 and 2010 on an anti-foreclosure strategy in close-in Phoenix neighborhoods that had been working and lower middle income, brick, one-story houses, some even with small swimming pools, the foreclosed houses at 35 miles per hour wouldn’t look much different from those that were occupied, but slowing down or walking by, we could identify one in three that were clearly somewhere in the foreclosure process or already vacant. Houses that could have been valued at $150 to $200,000 in 2006 could be had for as low as $25 to $50,000 if a family would have been able to get credit, which was increasingly difficult under the tighter lending standards that accompanied the subprime lending market. The new suburbs of $250 to $400,000 houses 20 miles and more from the city center in the farther edges of Maricopa County were even in worse shape. We had meetings on some blocks where half to two-thirds of the streets were in some process of foreclosure.

Looking at the 153,000 properties in Michigan, Illinois, and Ohio on the RealtyTrac foreclosure list more closely, there were a lot of conclusions that became clearer with more attention. The Fannie Mae dump of these houses wasn’t for pennies in 2012, 2013, and 2014. These were not $1000 giveaways. Yes, many of them were likely substantially devalued from their original purchase price, and that information wasn’t available to us, but we could see that these were not giveaways for the most part, but more market-corrections that could have been achieved if banks had modified by reducing principal to market, rather than forcing foreclosure. Now, in many cases as the houses moved the ones getting to eventual resale often were returning to higher assessed valuations.

The other thing that was increasingly clear is that we were wandering in the land of hopes and perhaps shady dreams more than we were dealing with big timers. Of the 153,000 plus homes, almost 115,000 were acquired from FNMA by individuals, maybe folks hoping for a home, and maybe small timers thinking they might make a buck on the come. Another 9000 or so bought between two and five from FNMA, and they were surely small time speculators, often concentrating on one suburb or city and hoping for the market to recover so they could make a buck. About 60 outfits including the big timer, Harbour Properties, picked up 50 homes or more. It’s worrisome to believe that targeting the big boys might not be enough to catch the small fry and to sort out where the devil might be swimming in the deep blue sea on predatory contract-for-deed purchases as well.

The impacts of all of these real estate plays are somewhat off the radar now, but their impacts in communities, more of which are suburban and exurban that was imaginable decades ago, is going to be huge.

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Looking Under the Hood at the Tragic FNMA Foreclosure Dump

screen-shot-2016-12-03-at-9-18-38-amChicago   Foreclosures are terrible experiences for families and neighborhoods. More than 5 million homes were lost to foreclosures in the 2007-2008 housing crisis. Even today as home prices have largely moved back up to 2006 prices nationally, there are still more than 1 million foreclosures annually. As we all know, despite the numbers touted by big banks and government, the number of mortgage modifications was minuscule compared to the desperation and need of families, despite billions of federal dollars, because the banks drove the process, stuttering and stalling all the way while leaving millions under water, where many are still swimming.

After the pickup trucks, borrowed station wagons, and occasional moving vans pulled a family out of their home, sometimes with a sheriff pushing and real estate agent pulling them at the door, many of these homes ended up unsold and piled up in a heap at Fannie Mae, the Federal National Mortgage Association, the quasi-public-private guarantor of the mortgage. Finally, in the early evening, our team in Chicago, trying to get our arms around a campaign to stop the predatory practices of contract-for-deed sales, got a list of 153,000 names and addresses of foreclosed properties that FNMA had dumped onto the market when they couldn’t be sold. These were just the properties in three states with about 50,000 in Illinois, 60,000 in Michigan, and 43000 or so in Ohio.

Going through the list, name by name, was a little like walking through a graveyard and trying to read the tombstones. These are the properties FNMA couldn’t sell and ended up packaging in twos and threes to individuals, tens to real estate brokers and construction companies, and hundreds to investors, and thousands to equity hedge fund operators like Harbour out of Dallas. Looking at the list, Harbour had picked 2500 roughly of its reported 6700 in just these three states. The Detroit Land Trust ended up with a pile, as did the Wayne County Treasury Department, and a number of other city and county receptacles of last resort when even these tranche investors of foreclosed properties couldn’t off load them.

A column in the list was even more depressing in some ways because it indicated where the FNMA dump still stands smoldering like the trash fires of La Matanza outside of Buenos Aires. The columns noted whether or not the properties were owner occupied or not. Yes, meant, yes. Zero mean no. Any random grouping of 30 or so entries would find as few as 8 and as many as 10 or one-third occupied.

We are still trying to pull the information out of the data to determine where predation in the form of contract-for-deed purchases are being used to continue the pattern of destruction and exploitation. What is clear to me so far though, as my fingers walk through the columns in the foreclosures dumped by FNMA, is that this kind of FNMA garbage heap destroyed thousands of families and thousands of neighborhood, lowering values and leaving abandonment and vacant, now deteriorating homes.

No matter what campaign we outline by the end of these days of meetings, there is no escaping the human and community tragedy all around us.

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