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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Has Community Reinvestment Become the Ghetto of the Banking Industry?

12.12.12-HousesNew Orleans   Since the financial crisis many of us who believe in decent and affordable housing have spent time making sure the Community Reinvestment Act (CRA) didn’t become the goat for the financial meltdown and banking scandals. And, don’t get me wrong, that’s important!

In a 2015 Federal Reserve study the conclusion was clear: CRA was blameless. Only 6% of loans by banks in CRA-qualified census tracks would have qualified as high risk. The repayment rate for CRA-based loans was equal or better than other loans in banking portfolios.

Nonetheless recently I finally felt like I might have stumbled on a disturbing pattern when I started thinking about the array of CRA officers populating various banks and I then started to worry that there might be another side to the CRA story that needs attention, and that’s whether or not it has become a banking ghetto populated more by politicians and promises than real efforts to move families into housing and desperately needed resources and loans into lower income communities.

For example, the National Community Reinvestment Coalition claims that approximately $4 trillion in CRA commitments was promised between 1997 and 2005. And, that’s good news and ACORN’s experience was that much of it was delivered on our agreements, as I detailed in my 2009 book, Citizen Wealth. On the other hand the word “promised,” when it comes to minority lending and lower income communities always makes you wonder. The Federal Reserve report for example quoted testimony given by JPMorgan Chase to the Financial Crisis Inquiry Commission that “less than one-fourth of the loans pledged in the largest-ever CRA commitment ($800 billion by JPMorgan Chase) were to the lower-income borrowers and neighborhoods targeted by the CRA.” When forced to fess up, Chase essentially was admitting that their pledge was a scam. They also quoted a “Citigroup managing director… that most CRA commitments ‘would have been fulfilled in the normal course of business.’” Having dealt with Citigroup for years, that’s simply a lie. Nonetheless, it’s worrisome that these big hitters in the CRA lending world are essentially saying they were playing all of us for fools. Admittedly, they were also trying to save their skins before the Commission, but I’m afraid the truth may also have been slipping out.

And, then there’s a pattern I started to wonder about when thinking about the CRA officers we run into from bank to bank these days. There’s a high incidence of what seem to be political appointees rather than real bankers who might be able to move money rather than simply bring calm to stormy seas. On the local scene just to think about a random selection, there were several current African-American legislators still in office, a relative of a former Mayor, and a social friend of the CEO…are you starting to see the picture? Nationally, I remember dealing with an African-American former mayor of Minneapolis and the scion of a long standing black political powerhouse family from Buffalo.

Maybe we need some solid research of our own on whether or not big and little banking is really committed to CRA objectives and non-discriminatory lending in minority and lower income communities, or whether or not we’re being played by politicians in banker’s suits making promises while continuing to grip the money with an ever tightening fist?

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Housing Discrimination is Back! Did it Ever Leave?

hudson-city-savings New Orleans      The Community Reinvestment Act (CRA) was passed in 1978 banning racial discrimination in lending.  The Home Mortgage Disclosure Act (HMDA) was passed as well, forcing banks to supply the data on where they approved mortgages and the racial and ethnic information on the borrowers.  Reporting and enforcement is under the jurisdiction of the Federal Reserve banking system.

            This is called redlining.  There have been recent settlements in this area in Buffalo, Milwaukee, Providence, Rochester, and St. Louis.  Hudson City Savings Bank, the 7th largest savings bank in the US and the largest in New Jersey with offices in New York and Connecticut as well, and a merger candidate for the larger M&T Bank Corporation, settled a case with the Department of Justice and the Consumer Financial Protection Bureau without admitting guilt but by agreeing to a fine of over $30 million for discrimination.  The New York Times reported that that “In 2014, Hudson approved 1886 mortgages in the market…federal mortgage data show.  Only 25 went to black borrowers.”  Hudson claimed innocence, arguing that it bought mortgages on the secondary market, that the bank felt was sufficient to satisfy its CRA obligations.   Attention to the discrimination was brought to the authorities by New Jersey Citizen Action and that’s about the only good news in any of this.

            The bank’s argument is perverse.  They seem to believe that racial discrimination can be handled like climate change with a “cap-and-trade” type agreement where it is alright to discriminate in your home markets, just like you can pollute in your home countries, as long as you purchase an offset in some other way by buying mortgages or helping protect a rain forest.  What a load of hooey!  I’m also troubled about the non-existent role of the Federal Reserve in the Hudson story, especially because any pending merger like the one playing out with M&T would have triggered a review by the Fed on the CRA banking record and requirements.  Without a doubt the CRA has been steadily weakened over the last almost forty years, but has the Federal Reserve decided to be completely derelict in their duty and shuffle this over to no one or by luck have some other agencies like the CFPB and the DOJ pick up the slack.  This is not reassuring.

            Nor is it uncommon.  Without data or taking the time to collect and study it when it is available, it becomes easy to simply say with the banks that there is no discrimination.  I heard that repeatedly in the United Kingdom when discussing the need for a CRA and HMDA for British banking.  Data now exists that allows some evaluation of credit, mortgage, and small business loans in the UK, but the initial reactions have been ho-hum, indicating no surprise that there is more action on lending in higher income areas than lower income ones.  The finer data is not available, and the raw data is deliberately opaque.

            As long as there are bankers that will welcome deposits from lower income families and minorities and still maintain that they have no community responsibility, even though they are chartered with such obligations, and justify their practice based on aversion to risks rather than embracing more robust and generalized rewards, there will be discrimination. There’s always smoke, we just need to make sure that many are still also continually looking for the inevitable fire hidden beneath the smokescreens.

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RushCard and United Kingdom Lending to Lower Income Families

rushcardLondon   The Community Reinvestment Act (CRA) in the USA is pushing 40 years old, and even in its relatively weakened state, there is no question that joined with the Home Mortgage Disclosure Act (HMDA) it has been for most of its history a huge tool for opening increased financial opportunity to lower income families and reducing discrimination in lending. It is surprising that this kind of financial supervision and protection for low-and-moderate income families has not been widely duplicated elsewhere around the world. I recently talked to Kent Hudson in France who has made this is personal crusade for many years and now more recently Jennifer Tankard and Daniel Pearmain in London with the Community Development Foundation that maintains a robust advocacy program trying to increase transparency for financial institutions in the United Kingdom particularly around lending products to lower income families.

Tankard, just back from a meeting in Brussels where she had been pushing for more European Union action in this area, told me a huge recent stumbling block in expansion of these kinds of lending reforms had come from the right wing arguments trying to blame the 2008 financial crisis, claiming that the subprime collapse was triggered by CRA lending standards to the poor in the United States. This limp argument in the US has been widely discredited and tens of billions of dollars of fines paid by a wide array of banks for sloppy procedures, unsupervised broker networks, and fraudulent practices have made it clear that it was pure and simple greed and lack of regulation that were to blame not the fact that home ownership rates increased among lower waged families especially in African-American and Latino communities.

It was fun comparing notes with an organization involved in dealing with payday lending and other financial justice issues. Tankard was easily as angry about the cost of remittances as we have been, partially from her own personal experience with some of the transfer channels. At the same time it was disconcerting that many of the handles we have had at the state and local level to win reforms in location and practices seem largely unavailable in the UK given the national control of banking processes in Westminster and the iron grip that the City of London financial barons seem to have on the process and the politics.

Reading about the meltdown of the RushCard in the United States, a popular prepaid card touted by Russell Simmons, the hip-hop entrepreneur, where suddenly thousands in recent days have not been able to access money on their cards, that obviously was there, because it was prepaid, was yet another example of the woeful alternatives offered to lower income families as banks have almost totally deserted the low income market leaving millions unbanked in a credit card world. A decade ago Simmons had stalked our New York office trying to get ACORN to endorse and partner with him on the RushCard, but any analysis of the card made it clear it was way beneath ACORN standards as a non-predatory financial product. Simmons is silky and persuasive, and always promised, and in fact did make, some improvements, but we fortunately stayed away from it. Watching the current problems, I should add, thankfully!

But, since financial institutions are clear that they are willing to exploit lower income families rather than serve them like others, these problems are unavoidable given the lack of choices. According to the Times:

In 2012, the most recent year available, prepaid cards held $65 billion, more than double the amount from just three years earlier, according to a survey by the Pew Charitable Trusts. Nearly a quarter of these cardholders earn less than $15,000 a year.

Another recent report found that families without access to banks are forced to spend between $500 and $1000 per year in order to transact their daily lives in money orders, transportation, payday loans and the like because they don’t have ready, secure access to their money through banking.

Looking the other way is not a plan for reform, but globally and domestically, it seems to be all that is offered for lower income families and the odds of reform are currently disappointing.

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Predatory Rent-to-Own Scams Hark Back to Discriminatory Schemes

Rent-to-own-adviceNew Orleans               In the early days of ACORN in Little Rock in lower income, largely African-American neighborhoods before the 1978 Community Reinvestment Act was passed forbidding racial discrimination in bank lending and outlawing redlining, the stories of families trying to rent-to-own their homes were legion.  I read many of these documents carefully and knew families who had somehow managed to acquire homes this way somehow, but I also knew way more families who lived in these situations for decades, always failing to finally acquire the title.

The rent-to-own leases were masterpieces in exploitative fiction masked vaguely as legal.  No matter how long someone had been paying, there was never any equity.  In most cases, failing to pay rent for a month or two would forfeit the opportunity to own, but in some even being late by a day or two meant that years of prompt payments in trying to acquire the homes were wiped out in an instance.  Some families would start over, having little choice.  Under other landlords there would be a constant churn of wannabe owners, all of whom had the rug slipped out from under sooner or later.  The press would write the stories as if it were a scandal, but it was just life on the streets.

In Little Rock, it was never clear that any of this was legal, and it was not hard to get it stopped at least technically, but most of these deals in the shadow of generations of racial discrimination were private arrangements in an unfriendly banking climate offering no other recourse for an African-American family wanting to be part of the American dream.  Some of the ones I found doorknocking in the South and East Ends of the city were even verbal.  Landlords not wanting to have it known that they were selling to blacks under any terms in a weird paternalism, and tenants caught between their hopes and predatory circumstances.

Now, incredibly, a story in the Times by Jesse Eisinger of ProPublica makes it seem like this is back, whitewashed by Wall Street.  He reports on a housing finance conference where a “collection of investors described their innovative ‘rent-to-own’ products.”  They called it a “yield enhancer” when they spoke of tenants paying extra fees for taxes and insurance in hopes of buying the home on a two-year lease to purchase.  One company, Red Granite Capital Partners, confessed that, “Most times, given the reality, tenants do take… [the lease], but it’s hard for them to execute the option.  Our experience is that most stay until the end and then they say they cannot come up with the down payment or decide not to stay in the property.”

Referring to these practices as a “small, grubby niche of finance” and a “dark corner” while calling on the underfunded Consumer Financial Protection Bureau to put their fingers in this dike is no comfort, especially if your memory goes back to the days before the CRA.  Wall Street has proven time and time again that if it can make money taking advantage of a families’ hopes for homeownership, it will never hesitate doing so, laws and common decency be damned.  Today the difficulty of getting credit and the high cost of housing in many markets is blocking a lot of aspirations for families achieving citizen wealth, but rent-to-own schemes should have money back guarantees and be heavily regulated and legislated or this is going to bring back the worst, darkest, and most evil parts of housing finance history.

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Too Much Data in Too Many Hands for Both Good and Evil

Word Cloud "Big Data"New Orleans      An observation decades ago always stuck with me. It was a comparison of Americans and people who live elsewhere. The point made by the author, whose name fittingly has long ago left me, is that we have too much information at hand and too little ability to process it. Ironically, that was then, and the observer would have been dumbstruck by the exponential increase of information now available to us and just about everyone else on the other end of hands pounding the keyboards, but some people have the ability to process it. What’s out there and who has the capacity to understand it though, still might leave us at the same point as a generation ago without the ability to use the tools effectively. Too many of us are at the Stone Age, while a few others are flying to the moon.

A case in point can be found with the new data on doctors and their paymasters, including and especially drug companies and others who would interfere with good judgment. Part of the Obamacare reforms are already tracking what various hospitals now charge for specific procedures, and starting in September, we will all have this information if we have access to a website. Excellent news! How many will be able to effectively access that data to make the choices that it promises and within the ACA, how many of the doctors a patient might want to avoid will be in or out of the network allowing the power of such information to give rise to voice and the threat of exit? Well, that’s a whole different question entirely, but today it’s safe to say, the information is more powerful as a selective threat from the government than a promise useful to many people.

More disturbingly is the availability of what some called “hyper-specific” community data. As the Times posed the question, if you…”Want to find a ‘family-friendly’ community within 20 miles of Boston with a high Asian population, a low poverty rate and a median home value of $400,000…” then there’s a bunch of websites for you! With some simple key strokes and a semi-passive real estate database and an agent steering you into its use, then you can effectively violate the Fair Housing Act and racially discriminate all day long. It’s not so much “redlining” anymore but it is a kind of data-mining discrimination that eviscerates Fair Housing, the CRA, and a host of other public policies.

We have police looking at broken windows in our cities as a deterrent, but no one should be able to look at personal computer screens due to privacy restrictions. Well not exactly, since a federal appeals judge just allowed federal prosecutors access to email and data records for a customer whose info was held at a Microsoft data farm in Ireland. We already knew there were no boundaries for the NSA, and it appears there are no foreign borders either.

It seems clear that the level of data now on everyone and everything and the ability of some, but not all, to access and process that data has outstripped our ability to regulate, legislate, protect privacy, establish and maintain rights and entitlements, and of course hold us safe and sound. We may not all be planning a trip to the moon, but we’re living on a planet and in an age that none of us truly understands anymore.

Just saying.

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