Citizen Wealth in Home Ownership is Becoming Citizen Inequity

New Orleans   A couple of years ago I wrote a book called, Citizen Wealth: Winning the Campaign to Save Working Families. It was commonly known that for low-and-moderate income families the largest index of any wealth they possessed was based on whether or not they had managed somehow to become a homeowner. At ACORN we had fought that battle for years in order to get banks to fairly offer mortgages to lower income families so that they could acquire single-family homes or coops, and in those fights had won billions allowing millions to own their own homes. It was certainly not enough to achieve any semblance of equity, but it was a good step forward, particularly increasing the home ownership percentages of African-American and Latino families to record levels, although almost all of those gains were wiped out by the 2008 Great Recession.

In doing the research for the book, I was shocked that the largest so-called social program in the nation’s budget, dwarfing direct welfare, food stamps, and all other housing benefits, both singly and collectively, was the mortgage interest deduction, which now totals more than $70 billion annually. As disturbing was the degree to which the mortgage interest deduction was largely not a social program which benefited the citizen wealth of lower income families but was disproportionately benefiting middle class and wealthy families. After all, at the threshold where such an income tax deduction had real financial weight and meaning, a family had to be in an income bracket high enough to justify itemizing their deductions.

As the Home Savers Campaign this year has visited with families in a number of cities in the Midwest and South, it has also struck all of us that as blatantly predatory as many of these contract for deed and rent-to-own scams have been to the families victimized by them, many of these families have accepted the risks even accepting the dangers and the deceit, simply because they were desperate for housing they could afford, no matter its condition. For the same reason, the reaction of many victims when they realize they have been swindled has often been as much anger as it has been resignation, and a feeling they should walk away, rather than fighting for justice for their investment, all of which speaks to the crisis in affordability.

Reading “House Rules” by Matthew Desmond in the New York Times there were more facts and figures that underlined the affordable housing crisis which is driving income and racial inequality throughout the country. Some facts:

  • The average homeowner boasts a net worth ($195,400) that is 36 times that of the average renter at $5400.
  • With rising housing costs the housing standard where 30% or less of a family’s income equals affordability, half of all poor renting families spend more than 50% of their income on housing costs and 25% spent more than 70%.
  • In 2011, the median white household had a net worth of $111,146, compared with $7113 for the median black household and $8348 for the media Hispanic household. If black and Hispanic families owned homes at the same rate as whites, the racial wealth gap would be reduced by almost a third.

There was much more, but you get the point. Worse, the consensus is that there is no political constituency for reform of the mortgage interest deduction, nor in the absence of reform an equivalent program or benefit that would help renters or bring balance to this wealth and racial inequality.

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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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