Private Equity Sabotaging Working Communities

lone-star-foreclosures

the map is a few years old

Madison   Auction off tens of thousands of homes during the housing crisis to private equity companies without rules or wherefores other than to offload the problems, despite knowing that private equity operations only care about their bottom line, what could go wrong? Not surprisingly, it turns out, just about everything, and nowhere is this truer than when the private equity bunch is led by Lone Star and the robber baron of our time, John Grayken, the American-born pirate who renounced his citizenship in order to pay less taxes, and now pretends to live in Ireland.

The New York Times is finally taking a look at the disaster that has followed the government’s policy of cut-and-run on the housing crisis and found the biggest culprits were Lone Star and its servicer, Caliber, Nationstar, also with Texas roots, and of course Blackstone, which has come out of this bottom feeding crisis as the largest private landlord in the country. Private equity firms are money machines and make it clear that if they make more money foreclosing, they won’t hesitate. Most hardly participated in the HAMP, housing modification program, to try to allow families to keep their homes, and because the government turned the whole modification process over to banks and financiers, there was no requirement that they do so.

Neither of course was there any obligation under the Community Reinvestment Act to benefit lower income, racially diverse communities and not discriminate in lending. As the Times reports:

But much of this investment has not benefited poor neighborhoods. Banks are expected, under the Community Reinvestment Act, to help meet the credit needs of low-income neighborhoods in areas they serve. Private equity has no such obligation. The idea is that banks should follow an implicit social contract: In return for government loans and other support, they are expected to serve a community’s needs. Private equity, which unlike the banks does not borrow money from the government, is answerable to its investors. Those investors include some of the nation’s largest pension plans, whose members — teachers and police officers among them — may support improvements to such lower-income areas.

And, that’s putting it mildly.

Private equity makes no bones about any of this either.

 

Lone Star explains to investors one way it profits from delinquent loans. Lone Star’s mortgage subsidiary will lower a borrower’s monthly payment if “the net present value of a modification is greater than the net present value of a foreclosure, loan sale or short sale.” Translation: If foreclosing on a homeowner is the most profitable option, Lone Star is likely to foreclose.

Not surprisingly, the new bosses for the housing market are much like the old bosses, except worse. Paperwork is misplaced or disappears. Homeowners can’t get responses or assistance. Modifications come too late to prevent foreclosures, and the beat goes on.

Pretty simply when you turn over the chicken house to the fox, you don’t just have a problem, you have no chickens, and in this case all of us, especially in low-and-moderate income communities are the chickens, clucking all the way to the slaughter.

Think I’m exaggerating? Here’s a perfect example from the Times on the vicious circle of predatory exploitation that Nationstar is able to practice directly and through its subsidiaries:

The whirl of transactions illustrates how Nationstar can control nearly every stage of the mortgage process, posing potential conflicts of interest as it earns fees along the way. Nationstar collects bills and, when people don’t pay, can foreclose on homes. Nationstar earns fees auctioning those homes through Homesearch. Ads on Homesearch, which is now known online as Xome.com, direct bidders to Greenlight. Nationstar can then collect on the new mortgage, bringing the process full circle.

As banks have pulled out of housing and private equity has swooped in, low and moderate communities are also being starved of needed investment, which also feeds into yet another cycle or deteriorating conditions for our communities. What’s the government doing about all of this? Not much. There’s talk of some new regulations by HUD, but who knows at this point, that may be too little and it’s definitely too late. Some Congressmen are moaning about their folks and foreclosures, but most of this is wishing-and-a-hoping. Looks like we’re headed for the wall again, unless there’s big change in the relationships between Washington and Wall Street, and that’s not looking so good this minute either.

Source: The New York Times

Source: The New York Times

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Buying, Rather than Building, Affordable Housing

demo3-460x250Ottawa   In one city after another we’re getting closer to winning landlord-leasing rules, some rent controls, and inclusionary zoning programs. But, even as victories come closer to hand, the scale of the need for affordable housing is overwhelming our capacity to deliver change. It is not that our eyes are bigger than our stomach anymore. Our stomachs are ravenous and are outstripping the vision we can see with our eyes.

Social Policy does a trade-out with Shelterforce, and I happened to have a recent copy in the stack of things I brought to read on the plane and started flipping through it over breakfast at Carleton University before the beginning of the ACORN Canada national board and annual general meetings. Some of the pieces were a bit out of my league. I wasn’t sure what to make of something called “trauma-informed community building” or TICB, as they proceeded to call it, but I knew I was uncomfortable having poverty medicalized, no matter how good the intentions

On the other hand there was a fascinating piece by Alan Mallach, a senior fellow at the Center for Community Progress and the National Housing Institute that looked at a different direction that the French had taken to developing affordable and mixed-income housing. They were buying it, rather than building it. Mallach discussed the disastrous and well-documented French housing policy in the 1970s when many projects were built on the outskirts of the city and went down from there. The good news, according to Mallach, is that the French learned something from the experience that might teach us something in the United States and Canada as well.

“Now, when French developers build subdivisions or condo projects, nonprofit housing corporations enter into turnkey contracts with the developer to buy blocs of apartments or houses, up to a maximum of 50 percent of the units in the development. Based on those contracts, the nonprofits apply for a package of government loans, grants, and tax breaks so they can both buy the units and make sure they remain affordable. When the projects are completed, the nonprofit buys the units and operates them as affordable rental housing.”

In transferring the French lessons to the USA, Mallach made a couple of comments that made sense in many cities. First, he noted that “most parts of the United States have large inventories of good-quality existing housing available.” If Low Income Housing Tax Credit (LIHTC) funds could be utilized by nonprofit housing developers to buy blocks of these houses either from developers or on the market and convert and manage them as affordable housing, it would both save money, and immeasurably diversity communities, benefiting our families, and potentially serve as a bulwark against blight as well by keeping the housing maintained, viable, and affordable. He also made the case that private sector market developers can create reasonably good quality housing for a price point that is often significantly lower than nonprofit developers utilizing LIHTC monies. Maybe so? Maybe no? I haven’t really looked at that closely, but where I think he is absolutely right is that buying existing housing stock or buying into developments already in motion, drastically reduces the lead time and opportunity cost, meaning more affordable housing is developed now. And, now is when we need it!

This is worth a good look in a lot of places.

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Please enjoy Eric Clapton’s Alabama Woman Blues. Thanks to KABF.

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Gentrification Assault, Oakland Housing Market Out of Control

DARWIN BONDGRAHAM - Martin and activists outside of Community Realty's offices in April after delivering a letter requesting a meeting with Marr.

DARWIN BONDGRAHAM – Mr. Martin and activists outside of Community Realty’s offices in April after delivering a letter requesting a meeting with Marr.

Vicksburg, Mississippi   It was hard to believe a friend’s claim that Oakland, California has now become one of the three most expensive cities in the country in no small part because the housing market has gone berserk. He said that Oakland now only followed New York City and San Francisco, and had bypassed Seattle, San Jose, and other famously, exorbitant cities. What happened here? Oakland used to be where people moved for affordable housing who couldn’t afford to live in San Francisco, famous for its port, industry, and blue collar grit, and Jack London. The city where Gertrude Stein famously stated, “there’s no there, there.”

But, now they are all coming there. Suddenly, it is also one of the most diverse cities in the country with the population almost evenly split between Latino, African-Americans, whites, and Asian-Americans, so much so that one controversy, when I recently visited, had to do with racial profiling of neighbors in the Nextdoor.com application that is used by one-third of this highly connected city, exposing the well-known, little discussed racism that stalks almost all of these sites with their constant alerts of anyone with a hoody and a tan.

Not without a fight though. Visiting the weekly paper, the East Bay Express, I picked up a recent issue featuring a cover story on one of Oakland’s biggest landlords, Michael Marr, who had specialized in vulture investing of foreclosed properties after the 2008 real estate crash, ending up with 333 houses and apartment buildings in the city with 1300 rental units under management. Now he’s in federal court though for what the FBI characterized as a conspiracy to “rig foreclosure auctions” along with eleven other East Bay real-estate investors who “made a pact not to compete with one another at foreclosure auctions.”

Marr is letting his lawyers handle that mess and meanwhile is trying to jack rents in some cases by more than $1000 per month. Rent controls in Oakland only cap increases for homes built before 1983, as the impact of such increase would cause massive displacement of many long term residents. It was good to see that standing in the way and organizing the tenants was the Alliance of Californians for Community Empowerment, known as ACCE, and formerly California ACORN. The tenants and the organization have demanded a rent freeze while the court case is pending, a sale of Marr’s ill-gotten properties to the Oakland Land Trust, and action on lingering issues with mold, bedbugs and other problems. ACCE is not only fighting these issues in Oakland either. Fighting a foreclosure with a late night rally at a vulture investor’s house in Los Angeles has found them defending their free speech and association rights in Los Angeles as well.

ACORN has recently won rent controls in Edinburgh and throughout Scotland with the Living Rent Campaign, and more landlord accountability in Toronto and Bristol, but there is little in any of our arsenals to prevent sweeping gentrification without a public and governmental commitment to diversity and affordability in a city. Oakland could become the battleground where we have a chance.

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Is Squatting Back? No, It Never Stopped!

HomeSweetHome2New Orleans   There was a breathless article in the New York Times with a Las Vegas dateline purporting to have found something new under the sun, at least the desert sun, and the discovery was squatters. The sources attesting to the fact that the sky was falling and the horror of it all were, unsurprisingly, the police and neighbors.

The Vegas police began counting statistics several years ago of complaints being filed with the department alleging that there were squatters in the neighborhood. According to the report, “… there were more than 4,000 complaints last year, up 43 percent from 2014 and more than twice as many as in 2012.” Numerous neighbors were interviewed, particularly in high-end neighborhoods where squatters had taken over houses pushing the million dollar mark complete with swimming pools. Oh, my!

The one side of the story missing was of course any discussion from any of the actual so-called squatters. The police couched their side of the story in lurid tales of drug dens, counterfeiters, burglars, and the like. One story felt to be especially poignant was a confrontation with children of one family where a child produced a copy of a lease and the police wove a tale from the family of paying someone in cash monthly at a casino. The whine here was that it takes the police time to investigate whether the lease is valid and so forth and so on.

Where in the world are people imagining that families whose homes were foreclosed by the tens of thousands and even millions went? Is there a fairy tale somewhere that they all just got a U-Haul and moved happily ever after to affordable housing on the other side of town? Poppycock! The reporter also added in the story that squatting was also a common problem in places like Florida and Detroit. Who are we kidding? People have been squatting in houses in Detroit for decades for goodness sake.

They have also been squatting in the foreclosure “zone” of America in high numbers ever since the financial crisis and the housing meltdown. Five or six years ago in Phoenix, I stood with a couple in front of the house they thought they were renting and preparing to buy as they surveyed the block in a neighborhood of low-slung brick houses in the city. They pointed from house to house the ones that were vacant, the ones where families were living after the house had already been foreclosed, the ones where families were living waiting for foreclosure, the ones that new families were trying to occupy to buy, and the minority that tended to be older families that were stable. In their case they were later evicted after it turned out that the money they were paying to secure the house in lieu of a deposit was being collected by someone who was not in complete possession of the house. Where they squatters or just suckers desperate to believe a story perhaps too good to be true? Well, yes, in the eyes of the police maybe, but what were they really other than victims of a triple scam of sorts at the end of the line of multiple foreclosures.

What’s the beef here? Would these homes in Florida, Arizona, and Nevada and similar foreclosure zones be better off boarded, vacant, and deteriorating and duplicating too many abandoned areas in Detroit, Buffalo, Philly, and elsewhere? Or would they be better off with families trying to make them homes again? Are the cities of the South and Southwest going to learn a different lesson than the cities of the Midwest and Northeast? Vacant houses in sufficient number will be vandalized. There’s a guarantee that comes with those homes.

There’s nothing new about squatting and scams, but there would be something new with public policy that matched houses that need people with people that need houses. Learning that lesson would be big news everywhere!

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Home Stealing Swindles and Similar Crimes

$_72Baton Rouge   For years I’ve seen these almost handmade looking signs on street corners in our neighborhoods in various cities in the USA that say something on the order of “We Buy Old Houses, Call XYZ” or “No Matter What Condition, We Buy Houses” and so forth. In New Orleans it seemed part of the post-Katrina landscape, just like other signs that say, “I’ve Got a Backhoe, Call Me” or “House Gutting, Call Me.” Seeing those signs in other cities made me scratch my head but not hard enough to dent the brain until recently I read about several home stealing swindles preying on the elderly, uninformed, and lower income families.

The simplest swindle was a straight up proposition to buy a home with some age on it and some repairs needed and offer a hefty price, get the owner to sign over the documents based on a front end payment of a couple of thousand dollars, flip the house, and then stiff the original owner for a sucker. Invariably, the owner was desperate for money because of medical bills, payday loans, or whatever so overlooked the simple logic and fine print in order to get some real money in their hands while the swindler saw the switch as a down payment worth tens of thousands in their pockets. Worse, it’s horrifying how many get away with this swindle, much like a couple of years ago when shady mortgage brokers would dupe the elderly especially into refinancing their homes just to pocket the fees and points.

A more sophisticated swindle seems to take advantage of the modernization of county and parish property records on-line to speed transactions and increase transparency in the often burdened process of clearing titles and effecting sales at real estate closings. In some jurisdictions, virtually all of the records attending the sales are now visible online, often exposing not only a good facsimile of the owner’s signature for future criminal duplication, but also bank account numbers, social security numbers, and pretty much the whole package. Finding homes where there are absentee owners that rarely visit and inspect the property and often don’t have friends or neighbors keeping the extra eye out, allows the swindlers to come in, place the house for sale quietly, bring in a team of helpers to pretend to be the owners, and even con legitimate lawyers and title companies into handling the closing. The New York Times ran a story of an elderly woman who suddenly discovered a house she owned was sold out from under her for more than a half-million. She got lucky and the police did right, but we have to wonder how many times people get away with this kind of thing, and how many more may in the future. In red hot housing markets this may look like easy pickings.

Meanwhile, the big banks are still trying to muscle into the housing market to displace the federal lending authorities like Fannie Mae and Freddie Mac. Most of them have hardly paid off their billions in penalties and fines from their earlier crimes in crashing the housing market and now they think they should be trusted to control the whole shebang. Some reported the good news that homes that were underwater, where more was owed in mortgage than the value of the home in the market, had decreased from over 16% to only 13% and change in 2014. Some cities like Las Vegas, Chicago, and Atlanta are over 18% underwater in the market. Since 3 to 5% used to be the normal, and we are supposedly in recovery from the meltdown, it seems like we still have a long way to go with a lot of pain and suffering on the road.

Big swindles or small, no one can be too careful when there are so many vultures waiting to swindle homeowners on a regular and daily basis. Seems there’s always something.

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Supreme Court Sinks More Homeowners into Permanent Debt

dead_economy-300x199New Orleans    In a startling unanimous decision, the US Supreme Court overturned an 11th Circuit Court of Appeals decision finding in favor of Bank of America that even bankruptcy protection does not allow underwater homeowners the ability to escape the obligations of second mortgages.  The impact of the decision allows zombie banks to continue operating on the basis of balance sheets reflecting virtually lifeless real estate holdings and makes these beleaguered homeowners into walking dead debtors with virtually no hope of a second chance.The Supreme Court once again reminds Americans that the Constitution is fundamentally about property rights and that the sanctity of a contract trumps all vestiges of common sense.

Generally speaking, a home is commonly classified as “underwater” if the value of the outstanding mortgage is 25% higher than the current market value of the home.  Remember the mortgage we are talking about here is the first mortgage.  The second mortgage is satisfied after the first is fulfilled.  Many of these second mortgages are home improvement loans.  Others arose from the need to finance children’s education or medical emergencies by attaching what has historically been the primary asset creating citizen wealth for the vast majority of low and moderate income families in the country.   Bank of America in their court filings estimated that there were 2.1 million underwater homeowners with second mortgages at the end of 2014.   Others like Zillow estimated that there are still 8 million homeowners who are underwater and most real estate experts estimate that it is likely that half of them have some kind of “second” on their homes.  This is not an insignificant problem in either the economic recovery or the hope for narrowing the equity gap.

Of course not all of these families had declared bankruptcy, partially because banks and others have done an amazing job over recent years with Congress in making bankruptcy both harder to achieve for desperate families and less valuable as a chance for a clean slate and a second chance.  Filing for bankruptcy does not allow someone to wipe out a mortgage debt or a student loan debt for example.  The mortgage obligation is what forces an underwater homeowner into foreclosure.  The best hope for the debtor is that surrendering what used to be an asset to the bank, calls quits to that debt.  In 2007 and 2008 when ACORN was negotiating with big banks and mortgage loan servicers as the implosion began, I was at some of those meetings.Executives then believed that they would just have to wipe out their second mortgage portfolios as worthless.

The Supreme Court’s decisions says, “no way, you’re stuck.”Hey, some day in the by and by, real estate values may go back up, allowing the loan to be collected.  Some of these properties are so far underwater that it won’t be a year but a generation for that to happen.  For the banks paying a dollar on that loan every 90 days allows them to still call it a performing loan, helping their zombie balance sheets, and leaving the debtor, desperate for a clean start, carrying even more weight. The Justices say, “dude, it’s a contract, didn’t you get that?”  The debtors, like millions of others, were on the merry-go-round being pushed by these same bankers and promoters in the real estate bubble into these sucker bets.  These weren’t contracts as much as cons.

Only death relieves some of these debts.It’s already legal for 25% of someone’s social security to be attached.  Now the Supreme Court has just locked another ball and chain onto untold numbers of families with little hope for the future but dragging the weight behind them, sentenced to a life as walking dead, not in debtors’ prison, but in a permanent debtors’ probation of sorts with little or no chance of escape.

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Johnny Cash – Folsom Prison Blues (Live)

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