New Orleans Ann Carpenter works with the Federal Reserve Bank in Atlanta. Her work in understanding the challenges and predation for lower income families trying to buy homes has been outstanding. Almost exactly two years ago, the ACORN Home Savers Campaign met with her in a conference room at Georgia State University in an amazing meeting in which she shared her insights from the data research, and we shared what we had learned on the doors as organizers with the help of GSU social work students. We have eagerly awaited seeing her full report which has now been released with co-authors Taz George of the Fed in Chicago and Liza Nelson with the Cleveland Fed.
In their report, entitled “The American Dream or Just an Illusion? Understanding Land Contract Trends in the Midwest Pre- and Post-Crisis,” they invaluably look at the prevalence and impact of land contract sales by individual families rather than institutional investors in communities of color, low income communities, and distressed housing markets. Accessing a huge database, they were able to focus on the years since the recession in six states: Michigan, Ohio, Wisconsin, Minnesota, Indiana, and Iowa.
You’re not going to read their full report, but here are the highlights:
Land contracts are still the wild west where families without access to other credit sources have little protections. They found that Florida, Maryland and Oklahoma have protections equivalent to standard mortgages, while Texas, Illinois, and Ohio offer some level of protections after a certain percentage of the contract is fulfilled including return of down payment and repair investments in some cases.
Their database showed that 69% of land contracts were in these six states with Michigan holding 25%, Ohio 13%, and Wisconsin 11%.
They caution that though these states require recording, this data likely understates the level of land contract activity, reflecting perhaps at most only 25% of actual transactions.
The median level for land contract sales was $74,000 with more than 70% at less than $100,000.
45% of the sales were less than half of the price of standard mortgage sales in these markets after the recession.
In Wayne County, containing Detroit, 49% of the contract land sales were less than $53,000 in 2005 and increased to 57% in 2016, and credit narrowed. A report chart showed that contract sales where overwhelming compared to banks’ sales under Home Mortgage Disclosure Act (HMDA) reporting.
The report shows that land contract sales are dominating the market for $50,000 or below sales price homes.
You get the message. This is bad business. Carpenter and her co-authors were Federal Reserve careful in coming to rash conclusions, but even the most cursory reading underscores the fact that lower income families trying to access home ownership at the lower end of the market that they can afford are still being deserted by the banking and normal credit system and herded into land contract sales lacking better, cheaper, and more secure options.
Houston Seven years after the wheels started coming off the bank’s mad money train, it seems clear that settlements for mortgage abuse, which is euphemism for fraud, Dodd-Frank legislation, and what should have been the awesome weight of having collapsed the US and world economy and upended the lives of millions, have essentially been water off a duck’s back for the banking industry and Wall Street.
Let’s just tick off a few recent cases in point.
The City of Los Angeles, yes, not the Justice Department, SEC, or Federal Reserve, sued Wells Fargo for pressuring employees in its retail bank with sales quotas to fraudulently enroll people in new customer accounts without their approval. Plain and simple, shake and bake, no permission needed.
Two big banks rather than settling for some hand slaps and big fines, Nomura, a Japanese bank, and the Royal Bank of Scotland, both presumably figuring their home country customers probably didn’t give much of a flip about whether or not they had packaged bad mortgages in the USA, went to trial claiming the dog-ate-their-homework, the economy did it, not them. The judge found against these miscreants and essentially said their behavior was disgusting.
And of course there is the whole cabal of banks that engaged in price fixing and chicanery to fudge the LIBOR rate for interbank and corporate lending including HSBC, JP Morgan Chase, Citi, and a rogues’ gallery of the biggest banks in the world. Their fines are in the billions, and reportedly they are going to finally have to actually plead guilty as institutions.
Many have argued that part of the problem was the legal double standard that found law enforcement playing paddy cake with the criminal enterprise that banking has become rather than prosecuting them aggressively from the top down. If anything was administered more than simple detention, it was from the bottom-up. The bigger the guy at the top of the bank, the bigger and more obscene the paycheck continued to be.
More proof that bad behavior and thuggery is the norm in banking is emerging in a new study as well. According to the Andrew Ross Sorkin at TheNew York Times,
“...about a third of the people who said they made more than $500,000 annually contend that they ‘have witnessed or have firsthand knowledge of wrongdoing in the workplace.’ Just as bad: ‘Nearly one in five respondents feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.’”
Such statements take your breath away. Not only has it not gotten better, it may have gotten worse! And, the President wonders why Senator Elizabeth Warren is willing to go to the wall on a trade bill that had hardly interested her until she noticed the language leading her to believe that it would allow even more transnational banking criminality?
There oughta be a law, but there probably are plenty of them, just no one seems to care, and the party goes on, and we all pay for it.