Rising Rents are Squeezing Low-and-Moderate Income Families

New Orleans   The National Low Income Housing Coalition released its 2017 annual report, “Out of Reach,” looking closely at the impact of rising rent throughout the country and how it is pushing lower income and working families into untenable situations because the gap between rent and wages is widening. Millions of families are joining the great poet Langston Hughes by living his haiku: “I wish the rent were heaven sent.”

The gut punch of the report is plain and simple:

The 2017 national Housing Wage is $21.21 per hour for a two-bedroom rental home, or more than 2.9 times higher than the federal minimum wage of $7.25 per hour. The 2017 Housing Wage for a one-bedroom rental home is $17.14, or 2.4 times higher than the federal minimum wage.

State by the state, county by county, the story of this growing crisis is stark. The gap is the largest in a bunch of overwhelmingly “blue” states, which may be one of the reasons Congressional representatives are not running up the aisles and going from desk to desk with a Paul Revere warning call to “Help, the Landlord is Coming!” Those states with the largest gap between wages and what it cost to rent the average two-bedroom house are led by Hawaii, then Maryland, California, New Jersey, Vermont, Connecticut, Massachusetts, Maine, New Hampshire, and then Washington, D.C. I don’t need to tell you that this is aggregate data because you were already scratching your head when you didn’t hear New York, so yes, thanks to lower average rents upstate that offset the New York City metro area, they didn’t make the ten.

Sure enough when you look at the data even states with relatively lower rent still find that urban metropolitan areas like New Orleans, Houston, Miami, Salt Lake City, Dallas, Seattle, San Antonio, Anchorage, Chicago and elsewhere would require a minimum wage worker to labor 80 hours a week to find a one-bedroom place where they could live. And, yes, the Coalition’s point is not that everyone is working 80 hours to do so, but that if they were able to swing a place that is what it would take. The cold, bitter truth on the ground is that they cannot, which leads to overcrowding, homelessness, and embracing rent-to-own predatory contracts or whatever is available until the eviction notice comes.

Even the states where the average wage required to rent a two-bedroom house is relatively low, it’s still astronomical in terms of a family budget. Want a two-bedroom in Arkansas, then you need to make $13.72 per hour, the lowest wage to rent ratio in the country. Neighboring states are a good comparison with Mississippi at $14.84, Louisiana at $16.16, and Texas at 18.38. The lowest wage required after Arkansas is Kentucky at $13.95. The problem is obvious though. Wages are pretty much stuck at $7.25 in those states and too many of the big whoops in these states are fighting to keep wages that way.

As the report makes clear, it’s not for lack of working or lack of looking. Other “key findings” include:

Six of the seven occupations projected to add the greatest number of jobs by 2024 provide a median wage that is not sufficient to afford a modest one-bedroom rental home.

An extremely low income (ELI) household whose income is less than the poverty level or 30% of their area’s median cannot afford the average cost of a modest one-bedroom rental home in any state.

In no state, metropolitan area, or county can a full-time minimum-wage worker afford a two-bedroom rental home. In only 12 counties can a full-time minimum-wage worker afford a modest one-bedroom rental home.

It’s easy to see where this is going: bad to worse to crisis. I’m seems like we’re already there.

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Hammer and Tong Fights Over Rent Control – Look at Santa Rosa and Scotland

New Orleans   With rents soaring and evictions rising in cities all over the US and the world, the real estate interests are finally facing their worst boogeyman: rent control! Rather than responding to the affordable housing crisis worldwide with new and innovative plans to provide additional housing, they are mainly digging in their heels and going deep in their pockets to fight even the most moderate proposals for market regulation or modifications.

Cases in point pop up everywhere. In Scotland, ACORN affiliate Living Rent, took advantage of devolution to win some introductory steps toward controlling spiraling rents, as the number of private tenants soars in a landscape that used to be heavily invested in public housing schemes. As an introductory step, there are now a series of thresholds that trigger the creation of “rent pressure zones,” which could cap rent increases in areas of Edinburgh, Glasgow, and Aberdeen. An extremely modest proposal to mandate inclusionary zoning for new housing developments in the City of New Orleans narrowly avoided overturn with state legislators tried to pull the rug on it.

All of these high pressure affordable housing contests are knife fights, and right now the sharpest blades drawing the most blood are in Santa Rosa, the smallish 175,000 county seat of Sonoma County, legendary mainly for being the heart of California wine country and northern suburbs of San Francisco. There is an election scheduled for June 6th on whether to implement a rent control ordinance approved narrowly on a 4-3 vote by the city council earlier in the year. Real estate interests quickly mobilized petition signatures, many claim under dubious conditions, sufficient to force the issue to the ballot. Veteran political professionals all agree on only one thing – this is the most expensive election of any kind in Santa Rosa, totally almost $1 million on both sides.

On one side the Chicago-based National Board of Realtors recently dropped over $300,000 into the fight as part of the more than $800,000 raised by the ordinance opponents. On the “yes” side one of the key players is the Gamaliel network affiliated community organization, the North Bay Organizing Project, a well-regarded dynamic and effective coalition of 22 faith, labor, and immigrant organizations. I got to know Davin Cardenas, the lead organizer, on the Organizers’ Forum Dialogue in Bolivia, where his work and contribution created a fan club of me and our entire delegation.

The election is too close to call, but the irony again is how moderate the proposal really is, especially in the face of the apocalyptic arguments of the realtors. The city has an estimated 11,076 apartments that would be affected, or about 18 percent of the city’s 67,000 housing units. With an average household size of 2.6 residents, that’s about 26,400 people. The provision excludes single family houses, duplexes, triplexes that are owner occupied, and condominiums. The ordinance only takes rents back to January 1, 2016 which was at the tail end of a 5-year surge that pushed rents up 50% with a vacancy rate of 1% in the city. There are also a number of exceptions that allow rents to be increased, including a virtual communistic guarantee of profits for the landlords. This ordinance is decidedly not the revolution.

Perhaps the real stickler is that the ordinance is not solely about rent regulation, but also establishes in this growing wave of tenant evictions nationally, that separation can only be for “just cause.” And, if established that there was no just cause, there is a real penalty: landlords would have to pay for the tenant’s relocation! That actually sounds fair, but the numbers on average rents in Santa Rosa mean it could cost the landlord $6000 on the average. Winning the vote might not do everything needed to curb rents sufficiently, but the fact that it might seriously reduce the number of evictions may be the real battle cry being shouted around the country by the realtors once the doors are closed.

This is one local election worth following closely, because winning might be the ripple that could start a tidal wave.

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Assembling the Facts on the Ground about Land Contracts in Detroit

Oakland   The back of the envelope figures from three days on the doors, based on reports logged into the database by our teams in Detroit, indicate that of more than 125 doors hit, half of the properties are abandoned. That’s not good for neighborhoods, the City of Detroit, or the future prospects of building viable communities there. We increasingly began to question how good this level of abandonment of land contract and rent-to-own properties is even for the companies that specialize in this seamy side of the housing market in urban areas.

As a business model that fits snugly in the category of what a reporter for the New York Times termed the dominant modern “flagrant exploitation economy,” the companies operating within this most predatory segment of the housing and rental market face challenges. By process of elimination of usual factors, an economist speculating on principal cause of the 2008 real estate collapse is now arguing that there was an irrational psychology that almost spread virally that vast sums were to be had by “flipping” real estate, which like the tulip craze in Holland and so many other bubbles of the previous centuries, led to the unsustainable inflation of prices until the crash. Detroit Property Exchange is still pushing that myth in lower income communities with its signs that urge potential customers to call 888-FLIP to connect with the company.

Certainly the lease and contract documents starting from “as is” and including the company’s rights to evict the “buyer” immediately for even a single missed payment at any point in the term of the agreement, lead one to believe that these companies are making their money by flipping the contracts from one “sucker” to another, as an on-line Detroit magazine called the Bridge, writing about our campaign described the buyers. We are not convinced that theory translates into facts on the ground from our doorknocking. Additionally, Professor Josh Akers shared with us an overview of research he and a colleague are soon publishing on land contracts in Detroit over the 10-year period from 2005 to 2015. The largest dozen contract sellers were involved in almost 7500 acquisitions, which was less than 10% of the over 80,000 properties in Detroit that had been acquired through tax auctions or REO’s from various governmental foreclosures. In that period contract sellers had gone through eviction procedures for about 1 out of every 3 properties, but evictions with specific properties acquired by all buyers involved eviction procedures at the ratio of 1 out of every 4 properties, which is not a world of difference. Over a 10-year period that doesn’t translate into a constant churn, likely because there is tepid demands that these practices have inevitably created in these neighborhoods.

Because there is not a robust market for these properties from stories the Home Savers Campaign is hearing on the doors, it seems that tenants wanting or willing to stay in these properties are able to negotiate a fair amount of forbearance even when missing payments because the sellers realize there isn’t a line waiting to open the door behind them. It also explains stories we have heard from several buyers where they are able to negotiate shorter terms when they are willing to take over the properties.

One reason may be the fact that many of these companies are not forwarding payments made by the buyers to resolve tax payments nor are they disclosing past liens on the properties. Lawsuits like those filed against Harbour Properties and Vision Property Management in Cincinnati to collect back taxes, fines, and penalties for their properties in that jurisdiction reveal a business model of nonpayment that seems to typify this part of the industry. That’s a ticking time bomb for the tenant-buyer for sure, especially given the rigid collection and delinquency procedures of Wayne County, and we have heard cases falling into this bad basket every day in Detroit, but it also seems to be leading to shorter term contracts and more negotiating opportunities if the campaign could engage the parties successfully.

We’re finding the handles, but we are not convinced yet that people want to grab them, given that many still see themselves as renters, rather than potential owners. That’s the puzzle we still need to find, even as we are understanding more and more about the market and these companies exploiting it.

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Alternative Mortgage Lending Tiptoeing Around a Broker-based Implosion – Again!

REUTERS/Chris Helgren

New Orleans   In the 2008 Great Recession, fingers pointed wildly in all directions and in some cases in little Taliban caves around the country they are still doing so, and trying to play the blame game at the expense of the victims. One of the more troubling terms to emerge from those terrible days for borrowers trying to stay in their homes was the notion of “liar’s loans,” as the subprime industry called some of these mortgages. The haters tried to claim the borrowers were the liars, though our work repeatedly found that the culprits – the big liars in the affair – were almost invariably mortgage brokers channeling huge volumes of paper to subprime lenders and blowing up the numbers on “stated” income mortgages.

ACORN understood the value of stated income mortgages because many of our lower income families worked in contingent employment that was impossible to verify because of cash transactions without social security statements. Tipped employees were just one of the examples. As we met with subprime company after subprime company (four in one wild day in Orange County, California, the subprime ground zero!), we raised our concerns about the supervision of brokerage networks accounting for much of the loan volume in the portfolios they were assembling and the incredibly high percentage of stated loans, often approaching or exceeding 50% of the lending they were making and packaging. They would then flannel-mouth something about a risk algorithm that was protecting them and assure us they were on top of it all, when in fact as it developed, they were doing the happy dance to bankruptcy and blindsiding our members, many of them whom had no idea what numbers brokers had claimed to be their income, often without so much as a wink-and-a-nod, and were shocked to find in some cases that their social security income had now been converted to six figures.

All of ACORN’s fights against predatory practices by subprimes came roaring back to mind when ACORN Canada shared an article with me about the cash-crunch and turmoil that ousted the top officials and plummeted the share price of Home Capital Group, a leading company in what the Financial Post called the “alternative mortgage lending” space, which is just another name for subprime loans. The problem was simply described:

Home Capital’s current crisis began on April 19, when the Ontario Securities Commission accused the company and some of its officials of misleading disclosure. The OSC alleges that the company misled shareholders because it knew there was fraud in its broker channels before July 2015, when it announced the findings of its internal investigations and disclosed it had cut ties with 45 brokers as a result.

The Post commentators were aghast that regulators were investigating Home Capital for what they viewed as dated and minor problems with the company’s brokerage channels and accused the OSC of what Republicans in the US would now call “regulatory overreach.”

How quickly people forget! The Ontario Securities Commission fortunately had some memory cells left from watching the real estate American meltdown a decade ago, and recognized what US regulators have still failed to grasp in the patchwork quilt that regulates and licenses brokers in this country on a state by state basis. Broker fraud is inevitable in the mortgage supply chain whenever brokers are substantially paid by commissions based on closings, rather than standards that include buyer affordability. We always demanded, and often won, though sometimes too late, agreements that US-subprimes not allow mortgage brokers in their networks to be paid that way. Given the hammering of stock prices for all the companies in the Canadian subprime industry, smarter investors must suspect that all of them are only loosely supervising brokerage networks, and that’s scary.

Low-and-moderate income families need a subprime market so that they can access mortgages for houses and apartments, but they also have to demand that the companies not be predatory and that they work as hard to keep their acts together as families do who are busting their butts to pay their bills and their house notes. Let’s hope Canadians are coming to grips with these companies and have learned the lessons that Americans are living in denial and still trying to forget.

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Cities and Neighborhoods Catch a Break in Beating Banks

New Orleans   In a rare surprise over the dozen years that conservative US Supreme Court Chief Justice John Roberts has run the nation’s highest court, he joined the four more liberal justices on an issue, delivering a 5-3 vote. Even more shocking the decision was a slap in the face to big banks, in this case Bank of America and Wells Fargo, on a complaint brought by the City of Miami. The court ruled that Miami had standing to sue and to further pursue its claims concerning the discriminatory lending practices of these banks and their allegation that such practices led to decreased property values in neighborhoods, and therefore reduced property tax revenue to the city as well as increasing blight in the community.

This is big, really big, because it powerfully opens the door to a broader interpretation of the Fair Housing Act and its prohibitions against racial discrimination in preventing different standards between one neighborhood and another in cases like redlining, but it also speaks to differing and discriminatory standards in mortgage lending because of income as well, which was at the heart of broker driven exploitation that fueled abuse and outright fraud in the subprime market. There can’t really be too much doubt that Bank of America and Wells Fargo didn’t pause to even take a breath in lower income neighborhoods as they altered their supervision and standards willy-nilly to drive volume on refinancing as well as new purchases much as often as new purchases. Wells Fargo has already become poster child for not supervising its sales staff, but neither does the record of Bank of America and Wells improve when examining the way that they mishandled mortgages underwater during the Great Recession, exacerbating foreclosures.

There’s settled evidence that property values decrease when homes are abandoned in communities, and foreclosures in Miami and other cities led to increased abandonment. The scandalous disregard that big banks showed in refusing to modify the mortgage terms to prevent foreclosures as well as paying little attention to managing and maintaining the properties where they were foreclosing directly lowered values in those properties and whole neighborhoods. Miami has the lead role in proving this now that the Supreme Court has sent the case back down to Atlanta and the 11th Circuit Court of Appeals, and clearly the odds are still stacked against the city and favor the banks, but the door is open and common knowledge and a drive-by to any lower income community establishes the facts on the ground.

The banks are hoping they can prove that they were just one of many crooks, and not the ones pulling the trigger to rob the neighborhoods of their value. In criminal courts this might be a case where the banks might not get a sentence for murder, but they would definitely do time for manslaughter, because there is no doubt that they hurt these communities and the people who live there, whether they were driving the getaway car, acting as the lookout, or holding the gun.

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Harbour Portfolio Contract Purchase “Buyers” Are Either Mad or Scared

Akron   They may spell Harbour with a “u” in a head fake to make you think this is a high-class operation from London or something, but when you are dealing with Harbour Portfolio, it’s just a Dallas-based private equity operation with Wall Street roots, that leaped down into vulture financing to buy thousands of FNMA foreclosed houses. What makes them different though is that they have flaunted the fact that they were going to try to make their bucks by off-loading the homes using contract for deed land purchase agreements, which most people in Ohio and Pennsylvania just call rent-to-own, though they are a bit of a different animal.

The ACORN teams on a doorknocking blitz this week starting in Pittsburgh, then Youngstown, Ohio, finished with two teams hitting forty doors in a cumulative ten-hour sprint in Akron. Over the three days, we may have put the flesh to the wood on close to 100 homes. We wanted to listen carefully to what people were saying to understand how their experience with these high-risk and often blatantly predatory home purchase schemes were working out for them. We learned a barrel full and met some great people, and the week was invaluable in allowing us to finally get our arms around this campaign after surrounding it with almost four months of researching property records, looking at agreements, and getting a sense of the field and its cast of characters.

With few exceptions, people wanted to talk to us because they were as confused and uncertain about the fine print on their contracts and agreements as we were. They knew they wanted to buy a house and for the most part thought this was the only way they had a chance, so dove in and hoped they would never hit bottom.

One of our teams though talked about part of their conversation as the “angel of death” piece of their rap where they felt like they were giving people the news that they very likely would never going to own the house. My team was more gingerly, and as my doorknocking partner said to one Harbour Portfolio contract buyer with four years into the deal that we would like to go over the contract with them to make sure they would own the home at the end of their agreement, she looked us in the eye, and said that she also was scared that the contract would really never end up with a deed.

On one of our visit Harbour Portfolio visits in Akron, we started after identifying ourselves and asking the confirmation question about whether the man had a contract with Harbour. He quickly came to the steps saying, “You mean Harbour Portfolio!” He was mad about every part of his experience with Harbour. A bathroom ceiling had fallen down on his sister causing $1400 in repairs, and, worse, hurting her so badly she wasn’t able to work. On our first Harbour visit in Pittsburgh, we had been ushered into the living room to talk to the owner who was confined to the couch, recovering from surgery on a fused disc in her neck. Later in the conversation it turned out faulty steps in the house had caused the fall. To say some of these homes are unsafe for their new contract buyers is not speculation, but a statement of fact.

There was confusion about the contracts from start to finish. One owner noted that somehow they had allowed his sister to sign, rather than him, confusing the family and the potential ownership. Another was sure she had a mortgage despite the fact that she was paying National Assets, one of Harbour’s servicers, had only paid $1500 as a down payment on what she knew as a double-digit rate of interest and thought would cost her $100,000 before it was over on a home she knew Harbour had bought for $13,000. She finally agreed it was not a mortgage, when she recognized the term “contract for deed” was on her agreement after we mentioned that kind of instrument. Another had gone through three servicers already. None of the terms matched. One was paying insurance directly and having problems with Harbour telling her they were also paying for the insurance through them, and had been unable to stop the double payments.

None of this was “let the buyer beware,” so much as all of it was “make the buyer scared!” Every Harbour buyer we met was holding their breath that they would own these homes on a hope and a prayer without any real grip on their contracts and even a scintilla of belief that Harbour was dealing with them in good faith.

Several of our team were veterans of ACORN’s many anti-predatory lending campaigns so for some of them it seemed like déjà vu all over again. The only exception was that these contract purchase and rent-to-own schemes were so much worse. In those deals, most of the theft was on the level of the interest, points, and fees. Here it’s everyday pocket pinch on homes built on hopes and often crumbling around them.

Please enjoy Willie Nelson’s He Won’t Ever Be Gone.

Thanks to KABF.

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