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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Chaos in the White House Can’t Stop Progress in the Streets

Bristol ACORN

Bristol   Maybe President Trump needs to get out more? Perhaps there’s something in the air in the White House that is clogging up his so-called “fine-tuned machine” and bringing out the crazy? Maybe from the outside looking in, it would be easier for him to understand better why the rest of us are scared sillier every day?

Who knows, but for me it was relief to jump off the merry-go-round of the Trump-Watch and back onto a plane again. And, though sleepless and a walking-zombie imitation, sure enough it was possible to find signs of continuing progress away from the maddening vortex of chaos in Washington.

Visiting with the ACORN organizers in Bristol, the big problem of the day was one every organization likes to have. On the eve of ACORN’s first all-offices, national action scheduled only days away from Edinburgh to Sheffield, Newcastle, Bristol, and beyond against the giant multi-national bank, Santander, they threw in the towel and caved in. The issue was a requirement that Santander attaches on any loans in housing that tenant leases mandate rent increases. ACORN was demanding the provision be dropped from all leases, and Santander announced that it was doing so, and in a bit of dissembling claimed that they had never really enforced it anyway. Hmmm. I wonder if they had told any of their landlords, “hey, ignore that part, we don’t really want you to raise the rents, we’re just kidding, it’s only money.” Hard to believe isn’t it? And, we don’t, but a win is a win, and the action will now become a celebration and a demand that all other banks in the United Kingdom also scrub out any such language.

Back home, ACORN affiliate, A Community Voice, was front page news as they laid the gauntlet down once again around an expansion of the Industrial Canal that divides the upper and lower Ninth Ward in New Orleans. The expansion would dislocate homes and further bisect this iconic and beleaguered community.

Meanwhile, as we get closer and closer to being able to target big real estate operations and private equity that are exploiting lower income home seekers in the Midwest and South through contract for deed land purchasers, there was progress in the courts. A federal judge ruled that Harbour Portfolio, a Dallas-based bottom-fishing private equity operation with a big 7000-home play in FNMA, would have to abide by a subpoena from the much embattled Consumer Financial Protection Bureau and disclose information on its use high-interest, predatory contract-for-deed instruments in its home flipping. As we get closer and closer to having our arms around not only terms and conditions of these exploitative contracts, but also lists of potential victims in Ohio, Pennsylvania, and Michigan, this is good news, even though far from the relief and victory families will be seeking.

All of which proves that if we can keep our focus away from the chaos created in Washington and our feet on the streets, there are fights galore and victories aplenty to reward the work and struggle.

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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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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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Realtors and Redlining Destroyed Neighborhoods – Was Alinsky a No-Show?

redliningNew Orleans   Looking into the rising return of the family crushing and neighborhood killing predation involved in contract-for-deed property transactions being revived by Wall Street veterans and facilitated by weak regulations and federal off-loading of foreclosure inventory from the real estate bubble of 2008, I stumbled onto an interesting book, Family Properties:  Race, Real Estate and the Exploitation of Black Urban America by Beryl Satter.  Published in 2009, Satter is not only a historian and chairperson of that department at Rutgers University, but has skin-in-the-game, since she was driven to the subject to understand the conflicting family story of her own father who died when she was a child and whether he was a crusading civil rights lawyer and advocate in Chicago or a slumlord himself.  

            Being only half through the book so far, I can’t definitively answer her question, nor have I arrived in my reading to the sections on the Contract Buyers’ League, which was central to my motivation in uploading the book to my Kindle.  On the other hand, I’m knee deep in an excellent, well-written, and researched history that puts race and real estate speculation squarely at the heart of urban neighborhood deterioration from the post-war decades until our current times.  In Little Rock, where I first ran into contract-for-deed exploitation, it was always clear that if there was a power structure anywhere in the city it was centered in the real estate interests, and from our 1972 campaign to “Save the City” forward, including forcibly confronting blockbusting in the Oak Forest neighborhood, they were our main opponents.  In that sense, Family Properties was a deep affirmation and an extension of the argument and those experiences across the urban battlefield of America.

            Somewhat unexpectedly though, I’ve found nothing subtle in Satter’s critique, and condemnation of Saul Alinsky and his community organizing in Chicago during those years.  She bells him repeatedly, beginning with his antipathy for organizing the poor, who were most exploited by all of these practices, and for his inability to strategically and tactically embrace the reality of race in his organizing and the practices of the organizations they built in Chicago.  She doesn’t argue so much that the problem was direct racism, as more fundamentally a weakness in the Alinsky organizing model itself, saying that

“…ineffectiveness of the OSC [Organization of the Southwest] and TWO [The Woodlawn Organization] highlighted the two major flaws of Alinsky’s model of organizing:  his insistence that organizing efforts be fully funded before they could be launched, which left him vulnerable to pressure by the wealthy donors, and perhaps more serious, his belief that they should tackle only issues that were ‘winnable.’”

Sharpening her point she argues that, “Unfortunately, Alinsky’s insistence on fighting only for winnable ends guaranteed that his organizations would never truly confront the powerful forces devastating racially changing and black neighborhoods.”  Ouch!

            She piles on evidence to the extent that her arguments are almost irresistible, include his scolding of his lieutenant, Nicholas von Hoffman and others, for getting too involved in real estate issues when he was in Europe, that he thought were jeopardizing organizational funding, his opposition to fighting black displacement in Hyde Park, and his view that fighting “racial discrimination that lay at the root of community decay…was ‘too complicated.’”  Satter adds that,

“Alinsky often cast urban renewal as an ‘unwinnable’ issue to be avoided.  TWO’s attitude toward housing was similarly confused.  The group apparently felt that the redlining policies that forced black Woodlawners to buy on contract were too complex for effective community mobilization.”

Satter even cites Alinsky’s own biographer in the claim that killing the Square Deal campaign was done on a totally transactional basis,

“According to Alinsky’s biographer, the Square Deal campaign was ‘intentionally terminated by Alinsky and von Hoffman’ because TWO wanted the financial support of merchants when it turned to ‘larger issues such as urban renewal.” 

Twisting the knife, she adds,

“The net result was that, instead of blazing a new path for community activism, TWO became yet another demonstration of the perils of reformers’ financial dependence on the very people they needed to challenge.”

            Adding insult to injury she argues that the creation of the West Side Organization and its achievements were “an overt challenge to Alinsky, who had warned him against organizing the very poor – an action that Alinsky believed would divide the larger community.”   During the Southern Christian Leadership Conference and Martin Luther King effort to take the civil rights movement north, she includes an assessment from one of the movement’s legendary organizers that was equally devastating, quoting…

“…James Bevell, a charismatic Mississippi-born African American who had participated in virtually all of the major Southern civil rights crusades.  In Bevel’s view, too, Alinsky ‘simply taught how to, within the context of power, grab and struggle to get your share.’”


            None of this is definitive, but it’s a critique that has weight and can’t be ignored.  Having organized and fought redlining, realtors, and neighborhood deterioration for decades, as organizers we may have to confront whether or not Saul Alinsky, as a primary architect of community organization, was not only a no-show when it mattered in Chicago, but abetted the problem by skirting the battlefields that counted, by not using issues to build power for the bigger fights, but instead running from the fights themselves.  If that’s the case, the legacy of that shadow could still be crippling the work that needs to be done in addition to the way the work is done.

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