FNMA Opens a Crack in the Predatory Land Contracts Wall

New Orleans   Fresh off our meeting and work in Detroit, the Home Savers Campaign got a break. In response to Baltimore Congressman Elijah Cummings complaints about Vision Property Management, the national rent-to-own operation’s lack of cooperation with him and his committee, symbolized by the lead poisoning of children living in one of their contracted properties, FNMA banned VPM from participating in further purchases of foreclosed properties in REO auctions. Vision of course cried foul, but there was finally a crack in the wall that Vision and hundreds of other companies have built through impunity and predatory practices.

What was less clear about FNMA’s response was whether they were just trying to get the Congressman off of their backs or whether this is a real change of heart. Although in their announcement they indicated to the New York Times that they had investigated the various claims, the nature of their investigations and the standards they used to bar VPM were not disclosed. It was also unclear that they were looking past VPM to the other companies that are bleeding lower income and working families in the same way. Furthermore, while Fannie Mae has stepped up, Freddie Mac is still cowering in silence even though they were also asked by the Congressman to ban Vision.

The Home Savers Campaign is drafting a letter to demand that FNMA bar any company from their auctions that relies on “as is” contracts for contract land sales or rent-to-own agreements. In Pittsburgh, Akron, Youngstown, Detroit, Memphis, Philadelphia, and other cities, we have found that this “as is” language is a license by not only Vision, but all of the companies in this sector to push properties into the hands of families desperate for affordable housing on any terms. Many times the companies are relying on the gray area of whether they are contracting with families who can claim to be tenants and access some rights available to them as tenants, depending on the city or state, or whether the families are now putative “owners-to-be” and allowing them to escape the strictures of local and state regulations.

The Toledo, Ohio ordinance makes it clear that such families in any manner of contract land purchases have to have a warrant of habitability before any contract can be validly signed and the family allowed to move in. The devil is in the details though when it comes to enforcement. Lawyers and tenant advocates told the campaign in Detroit that there is also a similar warrant of habitability required in that city, but there is no enforcement so it’s a dead letter.

The Home Savers Campaign intends to demand that any company operating with “as is” language in their agreements should be barred from accessing any property through auctions or sales foreclosed or delinquent homes in order to dam the flow of properties upstream to these predators. Enforcement or no, that will ensure in the future that companies have to ensure at least that minimum standards have been met in these homes, before desperate families are allowed to live in them. Additionally, any work done by the families before they receive the deeds should be reimbursed for out-of-pocket expenses directly or be discounted in the sales price.

Families desperate for housing cannot be the ATM for predatory housing schemes and the companies, big or small, that are running these scams.

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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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Predatory Lenders Making American Nightmares From American Dreams

Greenville   Here’s a guest blog run on the workingclassstudies.wordpress.com blog for Working-Class Perspectives shepherded by Professors Sherry Linkton of Georgetown University and John Russo, Visiting Scholar of the Kalmanovitz Initiative for Labor and Working Poor at Georgetown, and formerly of Youngstown State University in Ohio.

Posted on May 1, 2017 by Working-Class Perspectives

Yes, Donald Trump is President, and he accomplished this upset in part by shattering the working-class firewall in long time Democratic, heartland strongholds of Pennsylvania, Michigan, and Ohio. We cannot respond only with resistance.  An effective defense, in the Rust Belt or anywhere else in the country, requires a deeply rooted offense focused on the traditional Democratic working-class base, and that requires organizations and organizers who will to listen and offer meaningful responses to real pain being felt by so many at the grassroots level.

Amid repeated promises from the White House and Republicans to cut from healthcare, Medicare, and other elements of the already tattered safety net, there are few issues so stark, or so predatory, as the credit desert that keeps working families from securing decent and affordable housing. This is a problem the Real Estate Developer-in-Chief should well understand.

Since the 2008 Great Recession, the devastation of foreclosures, for individuals and communities, has become well-known.  Less appreciated has been the banks’ response. As the subprime market ended, many lenders now demand higher credit scores, larger down payments, and higher minimum loan levels for mortgages.  Marginal financial institutions, specializing in predatory products, moved in, reviving instruments that had largely disappeared from urban home ownership markets with the Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977, laws that also ended redlining in minority communities.  Contract-for-deed, installment land purchases, rent-to-own, lease purchase, and other deceptively-named transactions lured families into hoping for affordable housing and home ownership into agreements that exploited them instead.

Worse, much of the housing stock involved was had been acquired from Federal National Mortgage Authority (“Fannie Mae”) auctions of foreclosed properties by hedge funds, Wall Street, and vulture financiers pyramiding one injury on top of another.  Companies like Harbour Portfolio embraced contract “sales,” while others, such as Vision Property Management, repurposed thousands of homes using rent-to-own scams.  More well-known operators, like Goldman Sachs, bought more than 26,000 homes to satisfy securitization settlements with the government, while Apollo has specialized in similar flip-and-trick in Memphis and other cities.  The National Consumer Law Center estimates that there are more than six million contract buyers in the United States now.  More shockingly, more contract sales were recorded in Detroit last year than traditional mortgage transfers.

Organizers with ACORN  and the Home Savers Campaign  have spoken with lower income working families in Philadelphia, Pittsburgh, Youngstown, Akron, Detroit, and other cities as diverse as Memphis, Little Rock, and New Orleans. These conversations reveal huge issues that bring this emerging housing crisis into tragic relief and demand action and response.   The stories are heartbreaking.

A Harbour Portfolio buyer spoke to us from her couch, where she was recovering from a fall on a faulty stairway in Pittsburgh.  In Akron, another Harbour Portfolio purchaser told us about the ceiling in the shower falling on his sister, leaving her unable to work.   A Vision Property Management family in Pittsburgh told us of moving into a house after signing the papers only to find that it had no plumbing or electricity. They were forced to “camp” in their house for six months.  Vision’s callous indifference to the deplorable condition of the housing stock meant that one Youngstown family had been forced to move to a second Vision house because their first was ordered demolished by the city!  Many of the buyers were on Social Security or Veterans payments.  Meanwhile, one Harbour buyer was having problems getting the contract in his name — even though the payments were made from his pension.

Sadly, this story from Philadelphia is typical, as the organizing team’s notes reveal:

Maria Rodriguez and her husband “purchased” the house at 917 Sanger St., in the Frankfort section of Philadelphia for $65,500, almost 4 years ago.  They both worked:  he as a landscaper and she worked at a hotel doing housekeeping. . . .   They put down $2000, plus $465 as the monthly lease payment, $105 for real estate taxes, $30 for general liability insurance, or $2600 as an initial payment and $600 a month. The contract runs until August 2020.  $57.06, +2000 initial option, of the monthly payment is credited toward the purchase price.  Maria and her husband have put about $25,000 in the property because of huge issues like unpaid water bills, no heating or electrical system. They believed that at the end of the contract, in 2020, they would own the property and get the deed.  Instead, they will have paid $6,793 toward the $65000 house price.  On Aug 30, 2020, they have 3 options:  give Vision a check for $58,206, walk away, or convert to seller financing with a new contract for the remaining $58K.  Like all the Vision properties people we’ve talked to, this was a total surprise.

At the end of our visits with working families, we often left people enraged by anger salted with tears.

Laws to protect would-be buyers vary state-to-state, and many are weak. Are these “buyers” tenants, or are they owners without a deed?  Many they cannot connect utilities or get contractors to work on their houses because of the confusion.  Although contracts are required to be filed, they usually are not.   In Green Bay, Wisconsin Vision whistleblowers told television reporters that they were instructed not to pay sales taxes or transfer fees.  The city of Cincinnati sued Harbour for $335,000 of uncollected fines and penalties.

Some cities have taken action. Toledo passed an ordinance requiring contract sellers to obtain a certificate of occupancy and habitability before a contract was executed and a potential buyer allowed to move into a property. Lorain, Ohio, required the same, but only at the point of sale, which sadly may never happen.  In Pennsylvania, lawyers believe there is an “implied warrant of habitability” that should force sellers to make repairs before occupancy.  Other lawyers argue that none of these agreements can be valid contracts because their terms are “unconscionable” on their face.   The Uniform Code Commission is debating offering state legislators a model law to clarify some of the mayhem.

As the Home Savers Campaign and partner organizations get their arms around this issue, one thing is clear: these contracts are misrepresented and rarely understood by working families desperate to obtain affordable and decent housing with the opportunity of home ownership.  Millions of families are now caught in this dilemma. For them, the American Dream turns out to be an American Nightmare.

As our campaign against these predatory practices gains traction and the raw exploitation involved becomes even clearer, and as more working families demand justice, it will be harder for anyone or anybody to deny the exploitation at the root of these transactions.

Real estate is perhaps one thing that President Trump does understand.  The fight needs to move from these houses to the White House.

Wade Rathke

Wade Rathke is best known as Founder and Chief Organizer of ACORN from 1970-2008, and continues to serve as Chief Organizer of ACORN International working in 13 countries.

Special thanks to Gary Davenport, former community organizer and currently with Mahoning County Land Bank for assistance in Youngstown work.  We’ll have more to say about Youngstown as we assemble the data later this summer!

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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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Predatory Home Buying through Contract-for-Deed is Increasing

780c1b060773287590e252e572a03ba3New Orleans   Every report indicates that predatory practices are spreading when lower income families are trying to acquire homes in the current real estate market where banks have cut back on small loans, the subprime lending market has virtually disappeared, and vulture investors are trying to exploit the situation. The terrible result has been an increase in contract-for-deed purchases, if you call them that, of houses throughout the country.

RealtyTrac estimates that since 2009, there are at least 20,000 homes being purchased annually through contract-for-deed understandings and the number is rising. The National Consumer Law Center in a report published in July of this year called “Toxic Transactions,” estimates the number of contract-for-deed purchases at 3.5 million homes, but carefully argued that the number was likely much higher. Other experts have placed the figure higher than 4.1 million. This level of exploitation is a national crisis.

Several reports in the New York Times and the Washington Post have documented the increase of these kinds of transactions, particularly noting the fact that several hedge funds have swooped in to make bulk purchases of thousands of foreclosed homes in order to flip them into contract-for-deed agreements to drastically increase their return. Harbour Portfolio Advisors from Dallas was most notorious for purchasing 6700 homes from Fannie Mae in this way for an average of less than $10,000 per property and working with its servicer, National Asset Advisors of Columbia, South Carolina has been in the process of flipping them. The Consumer Finance Protection Bureau has reportedly stepped up its investigation of complaints on these home contracts, and not surprisingly both Harbour and National Asset have thus far refused to comply by providing documents. The NCLC report argues heavily for action by the CFPB to rein in the abuses common in contract purchases.

Contract-for-deed purchases have a sorry history that dates back to the racist government approved redlining of minority and low income neighborhoods before the passage of the Community Reinvestment Act in 1978. Little has changed though since many of these land installment purchases are opaque and outside of the reach of most federal protections currently and often totally unregulated in states as well.

The NCLC report is clear about why the odds are against the lower income buyer in every situation:

 

These land contracts are built to fail, as sellers make more money by finding a way to cancel the contract so as to churn many successive would-be homeowners through the property. Since sellers have an incentive to churn the properties, their interests are exactly opposite to those of the buyers. This is a significant difference from the mainstream home purchase market, where generally the buyer and the seller both have the incentive to see the transaction succeed.

I can remember meeting African-American families on the doors with ACORN in the early 1970s in Little Rock who had been paying on contracts for decades, even starting over in some cases and losing homes they had tried to buy this way. We keep thinking that we have cut the head off of these snakes, but somehow they reappear and victimize more millions.

Real estate, hedge funds, Wall Street, a property-mogul president, racial and income discrimination across the country in the wake of the real estate crisis to me all adds up to a campaign dying for action, and something that we could absolutely win, if we acted together and did so now.

***

Please enjoy Timothy B. Schmit’s Red Dirt Road. Thanks to KABF.

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The Paradox and Problem of Payday Lending

A customer enters a Payroll Advance location in Cincinnati. (Al Behrman / AP)

A customer enters a Payroll Advance location in Cincinnati. (Al Behrman / AP)

New Orleans  Here’s an irony that is stark, yet impossible to really appreciate or enjoy. The Atlantic billed its most recent issue as “The Money Report.” The cover article was built around the premise that almost half of the American people have trouble coming up with $400, when there is a financial bump in their road. There was another article called “Loan Shark, Inc.” which was a probing and somewhat sympathetic article about the payday lending industry that mentioned that the average payday loan is $350, about the same number repeatedly cited in “The Shame of the Middle Class,” yet of all the tales of woe from its author, there was no mention of his ever going so low as walking through the doors of a storefront payday lender or the portals of one online.

Without a word of warning or explanation, it was assumed that clearly payday lenders were all about exploited lower income families, not the presumptuous middle class. The real line of demarcation they were unwilling to draw is that even if half of the middle class finds themselves in dire straits from time to time, it’s not catastrophic since they still have other informal places to go with family and friends or selling assets or reducing their footprint, while the poor are forced into predatory fringe financing once there is no place else they can go.

In the classic dilemma of neoliberalism, the payday lending article worried around the issue of alternatives between the devil and the deep blue sea. The polarity was presented as either payday lenders or worse, loan sharks, shysters, and gangsters. The role of government was limited only to regulation, and regulation was presented as problematic because when government stepped up to protect consumers from predatory practices, the marginal and inefficient payday lending industry shut its doors. In the USA New York and other states were given as examples of the industry fleeing when interest rates were reduced, and rather than applause there was handwringing. In Canada, where ACORN has been a dog on a bone chasing predatory lenders for over a dozen years, a 30% limit on interest rates in Quebec saw the payday people fleeing like rats on a sinking ship. ACORN has backed caps, though not that low, and industry record sharing that prevents multiple loans to one customer in the same period, as well as restrictive zoning limits in our neighborhoods among other reforms. ACORN also backs postal banking which The Atlantic gives short shrift.

Their best recommendation comes from what they admit are “more-modest reforms” in Colorado in 2010 that were achieved “by reducing the permissible fees, extending the minimum term of a loan to six months, and requiring that a loan be repayable over time, instead of coming due all at once.” Half the payday lending operations closed, but the ones that stayed open ended up with more than the average 500 annual customers and borrowers paid “42 percent less in fees,” and defaulted less “with no reduction in access to credit.” One hand clapping, I guess.

The author was right to understand that the real problem for families is desperately needing $350 with no other alternatives. Why are we wringing our hands about a predatory industry rather than stepping up and understanding that this is a collective responsibility? These are the kinds of problems that emergency assistance grants in welfare offices used to try to meet. The absence of a continued public response makes these private problems, increases hardship and inequality, locks people in a debt trap, and has led to the creation and growth of an industry where competition is irrelevant, inefficiency is rampant, and even reformers wring their hands and settle for sorry solutions.

Public welfare is exactly that, faring well for the public. When are we going to stop embracing the 19th century and start building the 21st?

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