“Contract for Deed” Housing Purchases are Predatory and Discriminatory

House and Money with Pad of Paper and Pen

Little Rock   Reports indicate that more than three million people have bought houses under “contract for deed” purchases. Since many, if not most, of these kinds of housing purchases are not recorded, who really knows what the real numbers might be. The one thing that can be certain, is that the happy buyers, meaning the precious few that ever actually end up with a deed, are the very rare exceptions proving the rule that this is a gray, desperate part of the housing market founded on predatory practices and discrimination.

I’m always surprised this part of the housing market is not either strictly regulated or banned. I first encountered such “contract for deed” purchases in Little Rock, Arkansas in 1972 as ACORN mounted its “Save the City” organizing drives neighborhood by neighborhood in the central and eastern parts of the city. Six years before the passage of the Community Reinvestment Act banning lending discrimination based on race among other reasons, it was very difficult for many African-Americans to get mortgage financing historically. On the doors we would regularly run into people involved in “contract for deed” or “rent to purchase” agreements with landlords or absentee owners because of their inability to get bank loans or FHA guarantees in previous years to acquire the home outright. We heard one story after another from older members about either having lost houses or almost lost houses because of some snafu or crisis when their payment was a day late or lost in the mail or whatever. Some were just plain robbed, having paid in cash with no recourse in courts or often even a paper trail. How do you prove the existence of a paternal handshake over a piece of real estate you’ve lived in for 15 or 20 years? We tried to get such sales banned in Little Rock, despite the fact that the real estate industry was the most powerful force in the city.

Many states allow “contract for deed” transactions though they are lightly regulated with almost nonexistent oversight by strapped city housing departments. The Times recently did a piece that highlighted a Dallas-based slumlord named Charles Vose, III, who owns Harbour Porfolio Advisers and has been one of the largest purchases of distressed properties from the government. They reported that,

…Harbour has bought more than 6,700 single-family homes in Ohio, Michigan, Illinois, Florida, Georgia, Pennsylvania and a handful of other states since 2010 — most of them from Fannie Mae, according to the mortgage finance firm and the foreclosure research firm RealtyTrac.

One tale followed another including onerous requirements to repair a home in 4-months or default on the contract purchase, more than 100 times that the company has sued in bankruptcy court, hiring a captive firm to appraise the houses condition sometimes indicating no repairs being needed, all in the service of swindling a lower income family wanting to realize their dream of home ownership but not having the credit under current standards to enter the standard housing mortgage market. We could say that there “ought to be a law,” but in fact there seem to be plenty of laws, including housing code requirements, but nothing stout enough to stop the predatory cycle where a Vose lives in a Dallas mansion by stealing the homes of poor, usually minority families, and everyone else tries to turn a blind eye and shift the problem houses off of their books and onto someone else’s until the exploitative music stops.

The government at all levels shouldn’t allow it and should do the right thing upstream by funding rehab or demolition, rather than allowing the swindlers to operate downstream, hurting even more families and damaging communities, already beleaguered and often blighted, even more so.

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Supreme Court Sinks More Homeowners into Permanent Debt

dead_economy-300x199New Orleans    In a startling unanimous decision, the US Supreme Court overturned an 11th Circuit Court of Appeals decision finding in favor of Bank of America that even bankruptcy protection does not allow underwater homeowners the ability to escape the obligations of second mortgages.  The impact of the decision allows zombie banks to continue operating on the basis of balance sheets reflecting virtually lifeless real estate holdings and makes these beleaguered homeowners into walking dead debtors with virtually no hope of a second chance.The Supreme Court once again reminds Americans that the Constitution is fundamentally about property rights and that the sanctity of a contract trumps all vestiges of common sense.

Generally speaking, a home is commonly classified as “underwater” if the value of the outstanding mortgage is 25% higher than the current market value of the home.  Remember the mortgage we are talking about here is the first mortgage.  The second mortgage is satisfied after the first is fulfilled.  Many of these second mortgages are home improvement loans.  Others arose from the need to finance children’s education or medical emergencies by attaching what has historically been the primary asset creating citizen wealth for the vast majority of low and moderate income families in the country.   Bank of America in their court filings estimated that there were 2.1 million underwater homeowners with second mortgages at the end of 2014.   Others like Zillow estimated that there are still 8 million homeowners who are underwater and most real estate experts estimate that it is likely that half of them have some kind of “second” on their homes.  This is not an insignificant problem in either the economic recovery or the hope for narrowing the equity gap.

Of course not all of these families had declared bankruptcy, partially because banks and others have done an amazing job over recent years with Congress in making bankruptcy both harder to achieve for desperate families and less valuable as a chance for a clean slate and a second chance.  Filing for bankruptcy does not allow someone to wipe out a mortgage debt or a student loan debt for example.  The mortgage obligation is what forces an underwater homeowner into foreclosure.  The best hope for the debtor is that surrendering what used to be an asset to the bank, calls quits to that debt.  In 2007 and 2008 when ACORN was negotiating with big banks and mortgage loan servicers as the implosion began, I was at some of those meetings.Executives then believed that they would just have to wipe out their second mortgage portfolios as worthless.

The Supreme Court’s decisions says, “no way, you’re stuck.”Hey, some day in the by and by, real estate values may go back up, allowing the loan to be collected.  Some of these properties are so far underwater that it won’t be a year but a generation for that to happen.  For the banks paying a dollar on that loan every 90 days allows them to still call it a performing loan, helping their zombie balance sheets, and leaving the debtor, desperate for a clean start, carrying even more weight. The Justices say, “dude, it’s a contract, didn’t you get that?”  The debtors, like millions of others, were on the merry-go-round being pushed by these same bankers and promoters in the real estate bubble into these sucker bets.  These weren’t contracts as much as cons.

Only death relieves some of these debts.It’s already legal for 25% of someone’s social security to be attached.  Now the Supreme Court has just locked another ball and chain onto untold numbers of families with little hope for the future but dragging the weight behind them, sentenced to a life as walking dead, not in debtors’ prison, but in a permanent debtors’ probation of sorts with little or no chance of escape.

***
Johnny Cash – Folsom Prison Blues (Live)

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Bank Mortgage and Foreclosure Problems Won’t Go Away

zombies1-300x237New Orleans  No matter how many billions banks pay to try to whitewash their devastatingly destructive behavior in milking home owner mortgages and turning homeowners every way but loose, they can’t make the mess go away.  The stains and scandals are indelible and their refusal to change their culture or their standard operating practices guarantees that no matter how much they run, the stench – and headlines – will surely follow.

            Here are yet more recent examples.

·      A judge has refused to allow Wells Fargo to offload $49 billion worth of home mortgage servicing to Ocwen Financial of Florida, because the judge is not convinced that Ocwen will not make a mess of it.

·      A nonprofit, public interest group called Better Markets, Inc. sued the Department of Justice claiming that the $13 billion with JP Morgan Chase, just doesn’t get it.  Better Markets argues that there should have been criminal charges and the bill of particulars should have been presented in court where everyone could view the full range of conduct. 

But, my favorite is the action being taken by New York’s Attorney General, Eric Schneiderman, who has signaled that he is going after banks for their failure to take responsibilities for what the industry affectionately calls “zombies.”  So what are zombies in this modern banking nightmare of the walking dead?   After banks foreclose and push a family out of their homes or a family just realizes there is no hope and abandons the property, the banks don’t do what it takes to maintain the property, thereby extending the damage past the affected family to the entire community.  Numerous studies have found that an abandoned house can lower the property values in an entire neighborhood from 1 to 2% if such a house is located within blocks of your home up to a half-mile away. 

The response from bank spokespeople?  The long whine!   They claim they do their best.  They claim that they keep boarding up, but it is those damn vandals.   But, who believes this?  It is well established that the maintenance and security of a property can cost a bank $50,000 or more, and in negotiating with banks about modifications, we were always careful to remind them that pushing a family out of their home was not a free ticket to ride.  They know there are costs, but here’s rooting for New York, and then all of the rest of states to make them pay.

The real reason we have zombie properties rather than homes where families live, is because we still have ghost banks protecting the inflated values of their supposed assets on home values before the recession rather the reality of the market now.  But in the land of the walking dead, where ghosts and zombies are now part of American communities, banks need to learn that there is no running from them or themselves, until they finally, simply do right.

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Brokers Gone Wild Again! This Time Reverse Mortgages

Tokyo  We have been a broken record about the fact that not only did Wall Street largely get away with their shenanigans the precipitated the US and worldwide housing crises in 2008, especially for their subprime fast dealing and dodging, but so for the most part did the wheeling and dealing mortgage brokers.  Over and over again we documented cases where the mortgage simply lied to borrowers about the nature of their subprime loans.  Over and over again from New Century to Ameriquest and Citi, Wells, and the rest, it was clear that in many cases there was simply no management oversight on brokers at the street level or in fact the brokers were given financial incentives to lie in order to run-and-gun and make more money for themselves.

Now it is clear that the same thing – not surprisingly – is happening with reverse mortgages, a product designed purportedly to allow seniors to stay in their houses without selling by pre-promising the properties to mortgage companies in order to be able to “cash out” while still living in the home during their lifetimes.  The Times ran a story this morning about elderly people being bamboozled, and damned if it’s not some of the same subprime mortgage brokers back with a new scam.

Pitifully, their industry spokesman claimed that they were already heavily regulated, but of course that’s not true at all.  Most of the regulations are weak, and exist on a patchwork basis state by state with no federal regulation really even though a lot of the mortgages are guaranteed federally.  The National Consumers’ Protection Bureau (NCPB) also predictably said they were working on more disclosures, but those are always fairly toothless for people in predatory situations.

This is just plain theft, and we continue to let the criminals get away by turning a blind eye to the mortgage brokers and their tactics.  How many more times are we going to allow this?

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Bank of America’s Countrywide Ghoul Strikes Again

Nebank of americaw Orleans Reports from Bloomberg News and the Los Angeles Times are raising the specter of Bank of America filing for bankruptcy for its Countrywide mortgage unit detonating the “nuclear” option to save the parent company and run from the toxic mortgage load bought in 2008.  I wonder if this doesn’t finally give another explanation to Bank of America’s continued resistance to rational modification of mortgages to allow mortgage holders to stay in their homes.

According to these reports, Bank of America, its lawyers and strategists have spent time and money making sure that they contained the Countrywide operation as a separate entity.  The Bloomberg report notes:

“Countrywide has $11 billion in assets that could be depleted through demands to repurchase defective mortgages,” Jonathan Glionna of Barclays Plc said in an Aug. 31 note. After that, Bank of America may not have any obligation to pay claims from Countrywide’s creditors, he said.

Typically, a corporation that acquires another firm’s assets isn’t liable for the seller’s debts, unless the transaction is considered a de facto merger or there was fraud in the takeover, Robert M. Daines, a Stanford Law School professor, wrote in a legal opinion prepared for BNY Mellon, trustee for the Countrywide mortgage bonds. Daines analyzed whether Bank of America would have to pay bond investors if Countrywide couldn’t.

American International Group Inc. (AIG), the insurer that sued Bank of America last month to recoup more than $10 billion in losses on Countrywide mortgage bonds, argued that the bank is a legal successor to the unit. New York-based AIG cited a series of transactions by Bank of America in 2008 that “were structured in such a way as to leave Countrywide unable to satisfy its massive contingent liabilities.””

Obviously one reason all of the big whoops suing Bank of America from Freddie to Fannie are making sure in any litigation or settlement that BofA is on the hook for Countrywide is their fear that the company will finally jettison this toxic nightmare.  But for poor, working homeowners the problem in getting modifications and preventing foreclosure is that Bank of America clearly has to continue to play pretend and pump up the fake value of Countrywide mortgages that are still on the books at the loan terms rather than the underwater value.

In Phoenix where values have been halved and Arizona Advocates and Actions has been mired in the modification process with Bank of America few if any modification offers make financial sense for homeowners because the bank continues to pretend that houses now worth little more than $100,000 are still holding the $250,000 loan value of the original mortgage.  Restating the mortgage to the actual value would save millions of homeowners.  Unfortunately, injecting reality might bring the whole house of cards down, not just the Countrywide unit, but all of the nation’s largest financial institution, Bank of America.

What a mess!

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Come On! Private Banks Poaching Fannie Mae

subprime mortgage securitization

subprime mortgage securitization

New Orleans On ESPN’s Sportscenter during the seasons they have a feature called “Come on!” in which they feature unbelievable or bonehead plays.  We need that in other fields of public life and politics.  Reading about the efforts of banks like Wells Fargo and JP Morgan Chase along with the various trade associations to try to get their noses under the Fannie Mae and Freddie Mac restructuring tent to shill a profit by issuing government secured mortgages, I could only thing:  Oh, come on!  How ridiculous!!  These are the same banks that just brought us the Great Recession due to their irresponsible lending and securitization schemes, and now they should somehow be allowed to profitably issue government mortgages.  Though by now we all ought to be used to the way that Wall Street thumbs their nose at all of the economic realities that all of us face, this is wildly unbelievable.

Reading the New York Times article by Louise Story, it was clear this was another predator’s ball with not only Wells and Chase at the trough, but also Goldman Sachs, Credit Suisse, and Morgan Stanley.  All of this reminds me of the scam that the Obama Administration stopped in recent years of allowing private interests to wildly profit as the middle men brokers for federally offered student loans.  Banks were making out like, well how else can I say this, bandits.  Stopping this sticky fingered scandal saved huge amounts of money, but now they are baaaaccccckkkkk with something perhaps even more outrageous.

The other backassedwards part of this is the problem of misdirected blame that still falls in the direction of Fannie/Freddie for supposedly bringing down the house by loaning to lower income citizens without looking at affordability or sustainability.  I understand the ideological need to blame the poor, but it’s important to point out that there is still no factual evidence that these loans, that should have been encouraged by the government, had anything to do with the mess.    Not only would we be throwing out the baby rather than the bathwater, but it seems we would be institutionalizing the bathwater and leaving the baby homeless, so to speak.

There’s probably a debate worth having about how many and how much of the “middle class” need to have federally guaranteed mortgages through these vehicles, but it seems obvious the we will need even firmer support for working class families in the future to have a chance at home ownership in we ever get out of this recession.  We need to slap away the hands trying to pretend this is all a cookie jar, and tell them to not only mind their own business, but maybe even try to get better at it than they have been (let’s see banks portfolio more mortgages on their own before they claim to know how to issue others), and keep federal institutions trying to solve the puzzle of adequate and affordable housing for all Americans again.

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