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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