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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Cash Flow is Huge for Low-and-Moderate Income Families

Money coins fall out of the golden tapNew Orleans   In reckoning with the daily, survival and success struggles of low-and-moderate income families given the myriad of challenges they face, sometimes the experts stumble over the obvious in one of those, “Oh, yeah!” moments that we all have. Reading a recent copy of Shelterforce magazine, there was an article called “Is Financial Unsteadiness the New Normal” by Jonathan Morduch and Rachel Schneider which offered a case study of just such a moment. They examined the demands of financial security for lower income families closely and argue that in addition to looking at income, especially annual income, and assets, as paltry as they are, we need to look at cash flow to understand the full dimensions of citizen wealth for such families. Now, we can all say together, “of course!”

In dealing with the crises facing such families in our increasingly inequitable society, economists have long noted that assets have fallen to hardly above zero for many families, especially in the wake of the clawback of home ownership for minorities. The Pew survey folks have found that 41% of all households have less than $2000 in liquid savings. Other reports have noted that many families do not have the liquid resources to deal with a financial crisis of even $400 without help from family, friends, or lady luck.

The authors point out that looking at their US Financial Diaires Study Households of about 235 families in California, Mississippi, Ohio-Kentucky, and New York City they found some discomforting information,

“…we found…evidence of a lot of volatility within the year. On average, families in the study had more than five months a year when income was 25 percent above or below their monthly average. For example, a household making $36,000 a year isn’t necessarily making $3000 a month. Based on our data, for more than five months a year, that family will earn less than $2250 or more $3750.”

All of which makes it hard to save and hard to spend and contributes to the problem. The irregularity of a families’ income stream means the issue for many is more “illiquidity than insolvency.”

The issue is so severe that the author’s cite a report from the Consumer Financial Protection Bureau and Pew people that 85% of the 2000 households surveyed would prefer financial stability over “moving up the income ladder.” In essence, people are voting give me stability rather than stress even if it means less cash and a lower lifestyle: a good bird in hand, rather than who knows what in the bush.

The authors found that this illiquidity creates a snowball effect on other issues as well. These are not problems solved by the bankers favorite stopgap of “financial literacy” programs either. People are very well informed that they have irregular income, and given the rise of the contingent employment and informal employment economy, they know there are going to be ups and downs. When I was organizing hotel housekeepers and other hospitality employees, all of them knew they were going to be hurting for money in the New Orleans summer as well as over Thanksgiving and Christmas holidays when the room count was down, but that didn’t mean they could grow other dollars on different trees, though many tried, more fail.

The authors correctly point out that this makes budgeting horrific, and exacerbates the affordable housing dilemma for low-and-moderate income families. You can forget about home ownership if your income never gets to the point where you can create a down payment. Of course the home ownership model for citizen wealth for lower income families is already severely challenged, if not destroyed, but recognizing the role of cash flow puts another nail in the coffin of that dream rather than in the beams of a new house.

Representing school workers in Texas who have an option of choosing to receive their money year round rather than just during the school year, our union can see that some employers have long understood the simple facts of cash flow, but clearly as Morduch and Schneider point out, that’s not enough to start seeing a solution to the problem even if underscores the continuing crisis. This is a “new normal” or a clearer picture of the old normal hardly matters, it’s a huge barrier for millions of families and getting bigger, not smaller.

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Bank Redlining Increasing and Wealth Plummeting in Minority Communities

Seattle 1964

Seattle 1964

New Orleans        The Federal Reserve report on the continued decrease in lending to African-American and Hispanic families is unambiguous.  In 2013, 4.8% of total home loans were to African-Americans, 7.3% were to Hispanics.  In 2012, the numbers were only marginally better at 5.1% and 7.2% respectively.  As recently as 2006, before the real estate meltdown the numbers were almost 50% higher when combined, exceeding 20% of the total loans.

The other thing that is clear in the total failure of the Obama Administration to provide any real relief to so many homeowners is that citizen wealth for these same families has plummeted, putting more families underwater, owing more than the value of the loans in black and brown communities. While home values have declined about 10% in white communities, values have dropped by 20% in predominantly African-American neighborhoods and 26% in Hispanic-majority communities. It is virtually impossible not to conclude that banks are neither loaning, nor are they providing relief in such communities. If that’s not redlining, then let’s come up with a new name for it, because whether you say tomATo and I say toMAto, it’s all the same thing.

Reading the Wall Street Journal on this issue the only other thing that is crystal clear is that everyone responsible wants to point the finger somewhere else, usually at the government, rather than their own behavior, and muddy the water as much as possible, rather than moving to fix the problem with more rational policies and programs. The banks want to claim that they are raising credit scores higher than required because they don’t want to pay billions of penalties for their criminal behavior in robbing and fleecing both rich and poor. Does that sound like taking responsibility for your crimes and endeavoring to do better? Hardly!

And, how can blaming the lack of lending or relief to minority neighborhoods on these homeowners when every indication is that the roots of the securitization scandals were deeply set in speculation and largely white, middle-income and suburban communities? Count on the head of the Mortgage Bankers’ Association to voice the racism inherent in these new, whitewashed policies. David Stevens, their CEO, says the hammering of minority communities is “just simple math…tightening the credit has an unusually high impact on minority borrowers.” Stevens and the MBA are the lobbyists for bankers and banking in Washington, DC, so this is scary. They seem not to have gotten the memo that underlies the Federal Reserve report required by the Community Reinvestment Act and Home Mortgage Disclosure Act, which is the fact that they are supposed to be proving that they are doing better and doing everything possible to increase lending in minority areas, not just show up, and sign the attendance list.

Home ownership for lack of any better plan in place is still the largest source of wealth for lower income and minority communities so this level of inaction, blame shifting, and rationalizing puts the heavy fist of bankers on the scale to further increase the shift of inequality between the rich and poor, towards the rich. The underlying racism insures that lower income, minority communities by damn stay that way.

It’s not simple math. It’s simple racism, and that’s what the Federal Reserve is supposed to be stopping, not enabling, and it’s what these reports are supposed to be exposing for action, not simply noting in passing.

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For Tenancy to be an Alternative, Renting Has to Work

indexNew Orleans   One of the many unresolved issues from the Great Recession, still painfully winding down, is whether or not it is time to call the dream of home ownership for low-and-moderate income families a tragic mirage.  Having wiped out a generation of increased ownership among African-Americans and Hispanic families, and lacking a concerted funding stream, credit and lending standards, federal policy and national consensus on this goal, this is likely to end as a toothless debate.  So maybe it’s time to more seriously look at what it might take to make tenancy a stable, long term alternative that works to build citizen wealth.

            Looking at the “healthy homes” and landlord licensing campaigns being waged by ACORN Canada in Toronto, Vancouver, and Ottawa as well as ACORN’s EPTAG affiliate in Edinburgh, Scotland organizing among private tenants and ACORN Bristol in Easton, it is clear we still have a long way to go.  There are thousands of landlords obviously in the atomized real estate market and the rental business is overwhelmingly local, giving real estate interests an outsized voice in local politics, yet it is city councils that continue to be where real standards with solid, sharp teeth must be won. 

            It’s no wonder that this is becoming a bigger issue.  The Financial Times found in the United Kingdom that private renters had increased from 1980 to 2013 from 11.9% of English households to 18% in 2013, while social or public housing households had plummeted almost in half from 31.4% to 16.8%.   In the USA, these issues are becoming lightning rods in San Francisco where tenants are organizing against the gentrification being triggered by the growth of the high-tech industry.  In New York City, the new government is pushing for more affordable housing from new developments.

            Obviously for renting to work for tenants, it cannot be a good deal only for the landlords.  There have to be minimum standards, but more than that the standards have to be enforced, widely and firmly, which happens pretty much nowhere.  It is also hard to avoid the fact that rents have to be affordable while also guaranteeing landlords a fair return on private investment, which means that both tenants and landlords need to be subsided.  That is the theory behind the section 8 program, but the waiting list is huge and the program just isn’t adequate at the level required.  In England, where 4 million household are now in private tenancy, 25% of these households are subsidized through the country’s housing benefit, which far exceeds the USA.

            But, if the housing sucks, the divide just becomes an unbridgeable chasm and a trap without escape.

            At the same time under the current arrangements for lower income families, there is no way that renting builds citizen wealth or income security because without rent caps or more serious subsidies there is no incentive to savings.  Home ownership builds wealth and the wealth is generational.  If renting and tenancy are going to more and more be our future, there has to be a way citizen wealth is increased, and there’s no road there yet. 

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Foreclosure Settlement Fund Diversions are a Scandal except in Ohio

New Orleans   It is hard for me to believe that the Obama Administration will not finally address relief for the millions of homeowners facing foreclosure and are underwater across the country.  The slightly improving market for housing should help trigger some change, though many banks will no doubt continue kicking and dragging.  The relief will have to be direct though or the recent experience in most of the states on the distribution of the $2.5 billion in foreclosure settlement funds indicates that in the absence of strong community organizing around the issue, the states will simply divert the funds every which way.

Looking at a chart compiled by the Wall Street Journal several weeks ago, the track record is simply depressing compared to the states where the most dollars were distributed.  California got the lion’s share of the monies and shockingly diverted 100% of the dollars away from any housing relief and into the gaping hole of their general fund.  They weren’t alone.  Georgia and New Jersey did exactly the same thing.   All of this as pointed out by the Journal reporter, Nick Timiraos, was despite the fact that the settlement agreement clearly stated that the money was designated for housing relief:  “to the extent practicable…for purposes intended to avoid foreclosures….”

Other states were more mixed and in some cases there is still an opportunity for beleaguered victims of the housing crises because the states haven’t decided yet:

  • New York used most for housing and about one-third is still not allocated.
  • Florida used about 15% for the general fund and has not allocated about 85%.
  • Texas has not allocated any money so there is an opportunity there.
  • Illinois put about 20% into housing relief and has decided the rest.
  • Arizona split the pickle and put 50% in the general fund and 50% into housing.
  • Michigan did relatively well and put about 90% into housing relief and 10% into the general fund.

The only state that did the 100% right thing was Ohio!   A clue to what might make a difference in gearing up to fight for the rest of the foreclosure money that is undecided can be found in the critical organizing and role of the community organizations that make up the Ohio Organizing Collaborative, that made the use of this money for foreclosure relief one of their signature campaigns.

Thanks to their work, victims of the housing relief in that state have something to show for the future.  Maybe if community organizations involved with the housing issue in Florida, Texas, and Illinois move this fight up higher on their list, there’s a chance all of the money won’t go all California and end up in a budget rat hole somewhere?

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The Mortgage Blame Game Still Leaves Homeowners without Help

NHouse Lock Keyew Orleans Now the Federal Housing Finance Agency has indicated that it will file suit against a gang of giant financial institutions for their sloppy work and lack of “due diligence” in assembling securitization pools of home mortgages.  Their aim is to collect billions of dollars that were lost in this way by Fannie Mae and Freddie Mac to the tune of $30 billion or so and then covered by taxpayers of course.  Private investors who held significant positions in mortgage securitization pools are also trying to pinch big banks to cover their losses.

It has already become abundantly clear that no one in the banking and financial services industry will be held criminally liable for the millions of homeowners who have faced foreclosure and the millions that have lost their jobs due to this crazed housing bubble.  The money spent in the bailout, even if recovered, won’t be spent better to provide relief for homeowners or the unemployed, because the political polarization is so intense there is no doubt serious discussion among Tea-publicans about whether or not to sue American citizens for having wasted their own money by paying taxes.

The blame game just seems to go on and on while homeowners and the unemployed continue to receive inadequate aid.   In fact indirectly some of the homeowners who were hustled into these toxic mortgages are blamed for having been lured by banks and brokers into loans.  When they are called “liar’s loans” they are not referring to the bankers and brokers, but the homebuyers who had no idea their income was being misreported and the assurances were duplicitous.

The music keeps playing as the dance of denial goes on, but while communities shrivel and die, families and their futures continue uncertain and upended, the wicked get respite and court appearances, and there is still no relief in sight.

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