With the anniversary of the Lehman crash hard upon us, Laura Gottesdiener’s* new book is the perfect reminder that journalism is still just scratching the surface of the social catastrophe that is the mortgage crisis.
A Dream Foreclosed: Black America and the Fight For a Place to Call Home chronicles the lives of four families uprooted by foreclosure and other side effects of a housing system gone disastrously off the rails. As she puts it in her introduction, “The true scale of the crisis, which is still far from over, has not yet been fully understood.” Despite all that’s been written so far, this is indeed the case. She notes, for instance, that no government agency or private source has undertaken to quantify the number of individuals forced out of their homes from the crisis (and that’s already a problem) and comes up with a credible and conservative estimate of 10 million since 2007. She gets there using the two leading foreclosure data providers, CoreLogic and RealtyTrac, which both put the number of actual foreclosures at more than four million; the Center for Responsible Lending estimates that more than 80 percent of those homes were occupied; the National Low Income Housing Coalition has demonstrated that 20 percent of the foreclosed properties were multifamily dwellings. And using the 2010 Census average of 2.6 people per household, the already-executed foreclosures put the figure of the displaced already over 11 million, rounded down to 10, all meticulously footnoted.
As a matter of comparison, that’s four times the number of people who fled the Dust Bowl in the 1930s, and, as she notes, the Great Migration of blacks from the South to Northern cities after the war involved “only” six million people. It’s a giant, quiet upheaval that includes a stunning diminution of wealth in certain communities, the effects of which will not be known for some time.
And, as the Center for Responsible Lending, also quoted by Gottesdiener, remarked in 2011, the foreclosure crisis at the time was “not halfway over.”
So, Gottesdiener’s book is welcome, a mortgage-edition proof for Faulkner’s line that the past isn’t dead. It’s not even past.
Obviously, the crisis story transcends race—a majority of foreclosures involved whites whites were more likely to undergo foreclosure than blacks (Correcting: actually, blacks were statistically more likely to undergo foreclosure than whites) and abusive lending practices destroyed wealth across the board (and around the world). But, in the crisis, as in so many other matters, there’s no disentangling race from the broader theme. During the height of the mortgage madness, 2006, when subprime loans made up (an insane) 27 percent of the multitrillion-dollar mortgage market, nearly half went to African Americans. Nearly 8 percent of that community has lost their homes (along with 8 percent of Hispanics as well), compared to “only” 4.5 percent of whites, according to the CRL study linked to above.
And several studies have come out showing that, even controlling for income, loan-to-value and other variables, blacks were far more than likely to get a subprime loan than whites. This 2012 study published in American Quarterly, an American studies journal, puts the figure in 2006 at more than three times likely.
Conventional journalism actually got started on this subject early. Mark Whitehouse turned in a superb, early, and powerful 2007 piece in The Wall Street Journal on the wreckage of a Detroit neighborhood, and James R. Hagerty did one on another Detroit neighborhood in 2008. Michael Powell of the Times has done wonderful work in recent years, including this 2010 piece, “Blacks in Memphis Lose Decades of Economic Gains,” and this 2009 piece on the mortgage crisis and New York-area minorities, including a stunning foreclosure map of the tri-state area. That’s hardly an exhaustive list, of course, And still, the subject manages to surprise.
One of the characters Gottesdiener profiles, for instance, is from Detroit and the segments contain stunning reminders of how extreme that city’s experience has been on so many levels, certainly including the mortgage crisis. We learn that the character, a then-65-year-old grandmother, Bertha Garrett, is struggling to make mortgage payments of $2,500 a month when she learns that a house down the street had just sold outright for $3,500. In some cases, people found themselves not just underwater, but 20,000 leagues under the sea, owing 20 times the appraised value of their houses. Another interesting factoid: more than a third of African-American borrowers in Detroit had by 2011 already lost their home to foreclosure. Hard to believe, and yet the footnote leads to CRL’s seminal 2011 report, “Lost Ground,” which had the data all along.
The footnotes alone are worth the price of the book.
The book has nice vignettes showing the Kafkaesque experiences the characters go through in dealing with a mortgage industry unchecked by effective regulation. Here’s one involving a North Carolina borrower’s years-long struggle with lenders and servicers, including Fairbanks Capital Holding Corp., which ran afoul of the Federal Trade Commission back in 2003.
One of Fairbank’s favorite tricks, according to the Federal Trade Commission’s complaint, was to delay posting a monthly payment, only to turn around and charge a never-ending cycle of late fees. For Griggs, this deception wasn’t just an economic inconvenience; it was destroying his life. In 2002, Fairbanks began hounding him for a missing $680. He sent a check; it wasn’t posted. He drove up to Durham to pay in person, only to be told he was current on his bill. A few weeks later, Fairbanks once again demanded the money, saying his fees had finally been processed. Griggs sent a check, but he’d already been dismissed from Chapter 13 for failure to stay current on his bills.
And it usefully reprises material already in the public domain that demonstrates that it was no accident that African Americans, even creditworthy ones, found themselves in subprime loans in disproportionate numbers. The city of Baltimore’s suit against Wells Fargo, for instance, unearthed valuable discovery before it was settled last year as part of a larger deal with the other municipalities and the Justice Department.
Tony Pascal, who worked in Wells Fargo’s Baltimore branch, testified about the perverse incentives behind the numbers:
Because Wells Fargo made a higher profit on subprime loans, the company put “bounties “on minority borrowers. By this, I mean that loan officers received cash incentives to aggressively market subprime loans in minority communities. If a loan officer referred a borrower who should have qualified for a prime loan to a subprime loan, the loan officer would receive a bonus. Loan officers were able to do this because they had the discretion to decide which loan products to offer and to determine the interest rate and fees charged. Since the loan officer made more money when they charged higher interest rates and fees to borrowers, there was a great financial incentive to put as many minority borrowers as possible into subprime loans and to charge these borrowers higher rates and fees.
It’s been five years since Lehman, but as the book reminds us, this story is still unfolding.
(*Mortifyingly, I originally had the “e” before “i” in “Gottesdiener.” Sigh.)
Dean Starkman Dean Starkman runs The Audit, CJR’s business section, and is the author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.