New Orleans In the early days of ACORN in Little Rock in lower income, largely African-American neighborhoods before the 1978 Community Reinvestment Act was passed forbidding racial discrimination in bank lending and outlawing redlining, the stories of families trying to rent-to-own their homes were legion. I read many of these documents carefully and knew families who had somehow managed to acquire homes this way somehow, but I also knew way more families who lived in these situations for decades, always failing to finally acquire the title.
The rent-to-own leases were masterpieces in exploitative fiction masked vaguely as legal. No matter how long someone had been paying, there was never any equity. In most cases, failing to pay rent for a month or two would forfeit the opportunity to own, but in some even being late by a day or two meant that years of prompt payments in trying to acquire the homes were wiped out in an instance. Some families would start over, having little choice. Under other landlords there would be a constant churn of wannabe owners, all of whom had the rug slipped out from under sooner or later. The press would write the stories as if it were a scandal, but it was just life on the streets.
In Little Rock, it was never clear that any of this was legal, and it was not hard to get it stopped at least technically, but most of these deals in the shadow of generations of racial discrimination were private arrangements in an unfriendly banking climate offering no other recourse for an African-American family wanting to be part of the American dream. Some of the ones I found doorknocking in the South and East Ends of the city were even verbal. Landlords not wanting to have it known that they were selling to blacks under any terms in a weird paternalism, and tenants caught between their hopes and predatory circumstances.
Now, incredibly, a story in the Times by Jesse Eisinger of ProPublica makes it seem like this is back, whitewashed by Wall Street. He reports on a housing finance conference where a “collection of investors described their innovative ‘rent-to-own’ products.” They called it a “yield enhancer” when they spoke of tenants paying extra fees for taxes and insurance in hopes of buying the home on a two-year lease to purchase. One company, Red Granite Capital Partners, confessed that, “Most times, given the reality, tenants do take… [the lease], but it’s hard for them to execute the option. Our experience is that most stay until the end and then they say they cannot come up with the down payment or decide not to stay in the property.”
Referring to these practices as a “small, grubby niche of finance” and a “dark corner” while calling on the underfunded Consumer Financial Protection Bureau to put their fingers in this dike is no comfort, especially if your memory goes back to the days before the CRA. Wall Street has proven time and time again that if it can make money taking advantage of a families’ hopes for homeownership, it will never hesitate doing so, laws and common decency be damned. Today the difficulty of getting credit and the high cost of housing in many markets is blocking a lot of aspirations for families achieving citizen wealth, but rent-to-own schemes should have money back guarantees and be heavily regulated and legislated or this is going to bring back the worst, darkest, and most evil parts of housing finance history.