Predatory Contract-for-Deed Sales Cast a Long Shadow in Chicago

Picture featured in the December 1968 edition of the Jesuit Bulletin.

Picture featured in the December 1968 edition of the Jesuit Bulletin.

Chicago  Sometimes it felt like fifty years ago.

That’s only partially because sometimes the conversation would toggle back and forth to the work the Contract Buyers’ League did on Chicago’s West and South Sides decades ago from 1967 to 1972 or so, as strategies and tactics that would address the current, horrid, predatory comeback of contract-for-deed purchases were compared to the old campaign in a day long and continuing conversation between CBL veteran organizers and leaders, contemporary activists, and concerned community and clergy. It is also because we were literally sitting among the remaining survivors of the ghettoization and depopulation of North Lawndale and Austin as we met in beautifully paneled rooms in one rectory in Lawndale and slept in the former rooms of long reassigned priests in the empty floors of another rectory in Austin managed by one priest now, where eight had once lived.

Real estate manipulation, financial exploitation, and banking and institutional abandonment and racism built these 21st Century neighborhoods, even as we examined the great battles 50 years ago that were heroic without being a turning point and sat among the beautiful architectural and institutional ruins of that time. Contract-for-deed purchases are a way that a seller buys distressed property and then exploits a buyer, a family, almost invariably low-and-moderate income and too often minority, by flipping the property without making repairs while extracting predatory payments at huge premiums almost hoping for a default since there is no equity and a quick eviction process, since there was no actual property transfer, allowing the seller to sell again to another victim or another greedy seller, and keep the cycle going again.

The Contract Buyers League was a campaign, spearheaded by Jack Macnamara, a former Jesuit seminarian then, who sat with us today, and a steady stream of almost eighty college students who did stints in summers and school semesters off-and-on for years as volunteers to staff the research, hit the doors, and help the members put together the weekly Wednesday meetings and constant diet of pickets, actions, and events. Around the table were some of those former students, including by old friends and comrades-in-arms from ACORN, the SEIU, and AFL-CIO Mike Gallagher from Boston and Mark Splain from the Bay Area as well as Jim Devaney, a former volunteer from Cincinnati. A former Black Panther from those days and other community leaders now tried to puzzle out how, with the reemergence of contract-for-deed activity now in the wake of the foreclosure crisis and home lending desert for lower income and working families, we might be able to refashion a Contract Buyers campaign that could work and win now.

It goes without saying that today is different than 50 years ago. Rather than being concentrated in neighborhoods like Lawndale and Austin in Chicago and other cities with large minority populations then, today the victims are spread throughout the metropolitan area. We looked at a sample list of contract buyers acquired by two vulture hedge fund operators and there were few in Chicago itself compared to working class suburbs and developments like Homewood, Hoffman Estates, and Orland Hills. How would we get the density that put hundreds in a room on a weekly basis 50 years ago? Estimates are as high as 7 million families who are under contract-for-deed agreements now nationally, but putting them together wouldn’t be easy. We were all veteran door knockers, but we talked about how to use data files, voter lists, robo-dialers, social media, and other tools to flush out the victims and leverage the public policy and political space to create change.

There’s more work to be done in coming days, but two things kept returning us to the task of today. One was hearing our new friends from these communities where we were meeting talking about how their father’s and grandmothers had bought and raised their families in contract houses. Another woman speculated that the mystery of how her sister had lost her house might have been through a contract-for-deed rip-off, and she left at the end of the day to call her and finally ask. And, then there were the stories of the actions, lawsuits, and even some victories of 50 years ago to continue to remind us that we could only really lose, if we refused to fight this plague once again.

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Predatory Home Buying through Contract-for-Deed is Increasing

780c1b060773287590e252e572a03ba3New Orleans   Every report indicates that predatory practices are spreading when lower income families are trying to acquire homes in the current real estate market where banks have cut back on small loans, the subprime lending market has virtually disappeared, and vulture investors are trying to exploit the situation. The terrible result has been an increase in contract-for-deed purchases, if you call them that, of houses throughout the country.

RealtyTrac estimates that since 2009, there are at least 20,000 homes being purchased annually through contract-for-deed understandings and the number is rising. The National Consumer Law Center in a report published in July of this year called “Toxic Transactions,” estimates the number of contract-for-deed purchases at 3.5 million homes, but carefully argued that the number was likely much higher. Other experts have placed the figure higher than 4.1 million. This level of exploitation is a national crisis.

Several reports in the New York Times and the Washington Post have documented the increase of these kinds of transactions, particularly noting the fact that several hedge funds have swooped in to make bulk purchases of thousands of foreclosed homes in order to flip them into contract-for-deed agreements to drastically increase their return. Harbour Portfolio Advisors from Dallas was most notorious for purchasing 6700 homes from Fannie Mae in this way for an average of less than $10,000 per property and working with its servicer, National Asset Advisors of Columbia, South Carolina has been in the process of flipping them. The Consumer Finance Protection Bureau has reportedly stepped up its investigation of complaints on these home contracts, and not surprisingly both Harbour and National Asset have thus far refused to comply by providing documents. The NCLC report argues heavily for action by the CFPB to rein in the abuses common in contract purchases.

Contract-for-deed purchases have a sorry history that dates back to the racist government approved redlining of minority and low income neighborhoods before the passage of the Community Reinvestment Act in 1978. Little has changed though since many of these land installment purchases are opaque and outside of the reach of most federal protections currently and often totally unregulated in states as well.

The NCLC report is clear about why the odds are against the lower income buyer in every situation:

 

These land contracts are built to fail, as sellers make more money by finding a way to cancel the contract so as to churn many successive would-be homeowners through the property. Since sellers have an incentive to churn the properties, their interests are exactly opposite to those of the buyers. This is a significant difference from the mainstream home purchase market, where generally the buyer and the seller both have the incentive to see the transaction succeed.

I can remember meeting African-American families on the doors with ACORN in the early 1970s in Little Rock who had been paying on contracts for decades, even starting over in some cases and losing homes they had tried to buy this way. We keep thinking that we have cut the head off of these snakes, but somehow they reappear and victimize more millions.

Real estate, hedge funds, Wall Street, a property-mogul president, racial and income discrimination across the country in the wake of the real estate crisis to me all adds up to a campaign dying for action, and something that we could absolutely win, if we acted together and did so now.

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Crisis in Home Ownership for Working Families and Minorities

San Jose much for sale but few are being sold (Karl Mondon/Bay Area News Group)

Much for Sale in San Jose   (Karl Mondon/Bay Area News Group)

New Orleans   Something big is happening in housing. Maybe big and bad. Maybe big and unknown, but scary in its uncertainty for the future.

Here are the facts that frighten.

Home ownership dropped again in the last quarter of 2016 and when it did so, it fell below 63% to the lowest level in 50 years.

Mortgage loans to African-American families fell in the review period between 2004 and 2014 from 7% of total mortgages for blacks to only 5% of mortgages issued. Hispanic families budged up slightly from 7 to 8%, Asian families stayed at 5%, and mortgages to white families zoomed up from 58% to 69%.

This analysis of Home Mortgage Disclosure Act data was done by the National Association of Real Estate Brokers. They argue in their report that this drop has to do with a tightening of credit standards after the 2007 housing meltdown. Couple that information with another recent statistic that prices in the housing market now are only 2% lower than their historic highs achieved in 2006 before the bubble burst. For the real estate brokers, it is in their interest to have their cake and eat it, too. A return of high prices means happy days for them. Claiming the decrease in much of minority-based lending is based on a change of standards, rather than a clearer manifestation of discrimination is also squarely in their interest.

The Wall Street Journal reported that one of the reasons that minorities are getting a smaller share of loans is the return of the jumbo mortgages to “more affluent borrowers with loans exceeding $417,000.” Mumbo-jumbo. Report after report also indicates with this surge in pricing what used to be “jumbo,” is now just standard operating procedure. Average housing prices have now hit $1 million San Jose for example. Meanwhile other reports speak to housing and income growth in center cities around the country, including in areas like Detroit and Philadelphia and deterioration of income and housing prices and values in working class areas of cities, along with the paradox of millennials wanting to live downtown which is pushing the prices up now, while Pew Research surveys are also saying they are only committed to living downtown for five or ten years. What then?

Anyway we shake-and-bake these figures, it is hard to maintain a belief that that part of the American Dream that included home ownership is still alive. We can’t have both stagnant incomes and rising home prices with narrower lending parameters and believe that home ownership can increase among low-and-moderate income families. The conservative blame-game that tried to saddle the housing collapse not on Wall Street recklessness but on lax lending standards has mutated into a form of de facto national housing policy.

Does that mean there will be more affordability in the rental market? There’s no indication of any new trend there, and in fact market-rate construction for the millennials is still the driver. Meanwhile neither political candidate has a program around housing, much less affordable housing, and if values are falling in low-and-moderate income communities that are not on the gentrification list, that also means that citizen wealth will continue to drop like a rock.

Housing is now on the trajectory from problem to issue to crisis, and the silence around solutions is depressing and deafening.

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HUD Finally Hand Slaps Housing Vultures

Daniel Vasconcellos

Illustration by: Daniel Vasconcellos

Madison   The Housing Urban Development (HUD) department needed a weatherman to see which way the wind was blowing, and, finally, years after hurricane level damage has been done to families and communities around the country and amid constant calls from housing advocates, they has finally put some restrictions on private equity and other investors who have vulture shopped through the housing crisis. We’ve talked about this recently. Lone Star, Nationstar, and Blackstone have been the worst of the lot, and in Blackstone’s case have emerged as the largest private landlord in the country, doing so by buying up properties on the cheap to get them off the federal books during the housing crisis of the Great Recession.

The new rules are good news, but inadequate, just as all of the foreclosure avoidance and modification programs have been nearly worthless, but up to now private investors in non-bank entities have been allowed to ignore any efforts to remediate loans, so this is one of those things we have increasingly been forced to accept in the age of neoliberalism, “something is better than nothing.” The new rules would require, as a condition of the auction, that buyers take some steps including reducing the value of the mortgage in order to modify the terms sufficiently to prevent foreclosure for some of the families.

This is a hand slap though rather than a reform. Not only is the gate being closed after more than 100,000 cows, I mean houses, have already been swooped up these vultures, but it also won’t take effect until the next auction in late September. The vultures could escape this poison pill by simply refusing to bid and hoping that people will take their eye off the ball or that the political climate changes in November. Sadly, this is the case where there is a desperate seller – the federal government – trying to offload troubled mortgages which is why the vultures are able to gorge at bottom feeding prices.

The private investors can also do pretty much what banks have done and continue to do, which is lose the homeowners’ paperwork, delay and obfuscate and whatever until the clock runs long and then take the home. None of that is against the rules, and the rules are fairly toothless even for banks, since it is a program run by the foxes who are feasting on the chickens with no supervision or penalties. For example, one well reported practice they have employed is lowering the monthly payments for five years and then moving the payments back to the level required in the original mortgage which triggers the foreclosure.

But, as I said earlier, it’s better than nothing, and some families with homes on the chopping block might get enough of a reduction or modification allowing them to save their home, so we’ll have to live with this lame placeholder until there’s enough pressure to finally force a real plan. In the meantime, Wall Street and its financiers will continue to use the housing crisis they created as their own private playground and ATM. Who’s to stop them?

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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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