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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