Week of 2.6.09
Transcript: Help for the Homeowners?BRANCACCIO: Last fall's federal law bailing out banks to the tune of hundreds of billions of dollars is over 300 pages long - but it's worth looking closely at section 109. That part specifically calls for the government to encourage banks to modify loans to prevent foreclosures. Words, however, are often cheap. What was missing was much in the way of dollars to help homeowners, even as hundreds of billions went out the door to the banks. The situation is so desperate that some cities around the country are coming back swinging. Brenda Breslauer produced our report, the first in a new beat we call "Out of the Woods: Rebuilding after the Great Collapse".
Steve Lockwood is a housing renovator who for twenty years made a living buying, fixing up and selling houses.
Today he runs a community organization that works to revitalize a neighborhood called Frayser in Memphis, Tennessee.
LOCKWOOD: It's green, and beautiful, and rolling, and—it's been the worst neighborhood in Tennessee for this entire decade for—foreclosures.
I'm gonna go have a look at this house that just came on the foreclosure list.
BRANCACCIO: Lockwood's non-profit, the Frayser Community Development Corporation, counsels struggling homeowners and buys distressed houses, spruces them up. And then sells them at an affordable price to middle and lower income families.
LOCKWOOD: Everyone of these houses is a failure. Somebody went bankrupt. Somebody got sick. Sixty percent of the people that we run into are losing their houses—have been ill. Broke a leg. Had a heart attack. Something. And it—it suspended their income.
BRANCACCIO: Each of the personal tragedies behind foreclosure has a ripple effect on neighbors, neighborhoods and surrounding cities and towns. That means this is your problem too, even if you're doing fine with your own mortgage at your own bank. Across the country, the foreclosure crisis is draining government coffers, and straining local government services. Crime is up, home values are down.
But some cities are pioneering an innovative way to fight back. Memphis...and Birmingham, Cleveland, and Baltimore are all filing lawsuits against banks and lenders for creating the foreclosure mess and seeking damages for the havoc left in their communities.
Welcome to Shelby County, a region that includes Memphis. Here in the Frayser neighborhood, the foreclosure wave has been the financial equivalent of a neutron bomb. People disappear but the structures are left standing.
LOCKWOOD: It's interesting how somebody stole all the doors. But this is still a pretty good house. Sound floors. Needs paint. Windows aren't broken yet
BRANCACCIO: "Yet" is the key word. Another house where he takes us has no back door. And it's still full of the stuff of a life left behind.
LOCKWOOD: The presence of this house knocks the—the value of—of every house around for 200 yards several percentage points down.
The lady across the street is collateral damage, too. Her house is worth less, and who wants to live across from this?
BETTS: This is a map of Memphis and Shelby County. Every dot on this map represents a completed foreclosure for 2008.
BRANCACCIO: Phyllis Betts is the director of the Center for Community Building and Neighborhood Action... a research center at the University of Memphis. Over the past nine years, she says, foreclosure hit nearly one in ten households in the county.
Think about it, all these red dots represent real people, displaced families. And there are costs to the county as well.
BETTS: These clusters of dots represent a lost tax base. Clusters of dots represent lower property values for remaining home owners. Foreclosure just isn't a private trouble. Foreclosure really is for Memphis and a lot of other cities—a public issue, a public policy issue.
BRANCACCIO: No one knows that better than Earnest Dobbins. He is Director of Community Enhancement, the division that enforces housing codes, for the city of Memphis.
With foreclosures on the rise so is the cost to his department...which cuts overgrown grass and hedges so the property isn't so much of an eyesore. Crews put up plywood boards to keep out squatters and Dobbins' people call in the wrecking crew when the houses are beyond repair.
DOBBINS: All this takes additional personnel and additional manpower
BRANCACCIO: So, there is a government interest, a public interest in keeping an eye on these properties.
DOBBINS: Yes, sir. Although the homeowner here a foreclosure, this citizen here still—lives in his property. He still want his property value kept up and he still want the yard and everything here maintained, to keep up his property value.
BRANCACCIO: But nothing is free. If the city or the county has to do it, it's gonna cost some money.
DOBBINS: Yeah, it's gonna cost money.
BRANCACCIO: A thirty-three year veteran of the Memphis police department, Dobbins is also worried about vandalism, fires, and other things you don't want happening next door.
EARNEST DOBBINS: Vacant houses breed crime. It breeds crime. Vacant houses. That's where—a lot of prostitutes, when I was on the police department, hung out. That's where a lot of the drug dealers hung out. So, and—we work in conjunction with the police department trying—we're not only trying to—board up these vacant houses and to get rid of dilapidated houses, we're trying to do the same thing in getting rid of crime.
BRANCACCIO: And there's another cost to cities and counties. As home values go down, so does the amount of property taxes coming in.
A.C. Wharton, a former law professor and public defender, is Shelby County's chief executive, which comes with the title of mayor.
MAYOR WHARTON: Perhaps, on a national level, folks would say, "Well, God, why are they whining so?" Well, in Shelby County, 70 percent of our revenue—comes from the property tax.
BRANCACCIO: The mayor told us the drop in tax dollars has meant cutbacks in county services.
MAYOR WHARTON: When we don't get those dollars, we can't repair the schools that need repairing. We can't buy the equipment we need at the med. We can't hire the nurses that we need at that safety net hospital there. Then, as crime rises—we're looking at a new jail now, we are—yes, we are struggling. And I'm just looking for some—some relief.
BRANCACCIO: So how can you, as a city, fight back?
MAYOR WHARTON: Well—going to court. I'm a lawyer—and I've gotten to the point where I'm just saying, "Hey, I gotta sue somebody."
BRANCACCIO: Politicians in charge of Shelby County and the city of Memphis have now voted to sue roughly a dozen big banks and mortgage lenders for lost tax revenue and the other costs of the mortgage mess. The suit, which is set to be filed in federal court this month, alleges "unlawful, irresponsible, unfair, deceptive and discriminatory lending practices."
MAYOR WHARTON: This is the city of Memphis and Shelby County, roughly one million people, saying collectively, from their conscience, that a wrong—just an egregious wrong has been done.
BRANCACCIO: What are you going to accuse the banks of doing that they should not have done?
MAYOR WHARTON: Extending credit in many instances in which they knew full well that you were doomed to fail. Taking advantage of ill-informed people with a low level of financial literacy. They knew that. Keep in mind, the people working in these banks go to school. They're trained. They learn how to do this. So they knew what they were doing. They would do it because it's, "Get the money quickly turn it over; get it off of your books; get it onto somebody else's books. And it blends in and nobody know who—knows who's gonna take the loss on it.
BRANCACCIO: The lawsuit takes aim at a new mutation of an old form of discrimination called redlining.
MAYOR WHARTON: Usually, "redline" means a—a place where, "We just ain't goin' in there", excuse my grammar.
BRANCACCIO: We're not gonna lend to this area.
MAYOR WHARTON: We're not gonna lend to this area. I happen to live in a part of town—I'm south of the railroad tracks, so the pizza company will not deliver pizza. I can't even get the New York Times at my house. They've redlined me out. I —I live in the wrong part of town.
BRANCACCIO: But the lawsuit alleges that "reverse redlining" took place. In other words, banks and lenders specifically went after these minority neighborhoods.
MAYOR WHARTON: When you reverse redline, you say, "Boy, we're glad to get in here. Because we know you are necessitous. "We know you're so hungry we can give you anything". Why? Because you don't have any choices. You can't go anywhere else.
BETTS: Reverse red lining is a business model that says, "We can target this neighborhood to strip wealth out."
BRANCACCIO: Phyllis Betts is a local expert on foreclosure patterns and her data is cited in the lawsuit.
BETTS: Old fashion red lining was we're not going to do any lending in this neighborhood because it's too risky. Reverse redlining is the long term risk doesn't matter because we've passed along the paper. The business model is do we make our money up front. And can we make more in this kind of a neighborhood.
BRANCACCIO: And the worse the terms of the deal for the home buyer, the bigger the profit for the bank.
BETTS: Some folks who could have gotten a better deal and been a successful home owner are going to fail.
BRANCACCIO: And you think you'll be able to show that it was, in large part, black people that were targeted by these practices?
MAYOR WHARTON: Absolutely. And—and they—you know, they—they didn't have to wake up every morning and say, "Hmm. I don't like black people. Let me see if I can go out here and find some of them that I can take advantage of today." A—wait—nothin' that malignant. But the—the effect was the same. Where do you put your offices? Where do you advertise? This was not by—not by accident—that this—happened.
BRANCACCIO: Steve Lockwood says he's seen reverse redlining here in Frayser, the foreclosure capital of Memphis.
He points to this house where the mortgage rate started at 9 and three quarters percent and then shot up. And this home, another veteran of foreclosure, also started out with a mortgage of nearly ten percent and was set to jump even higher.
LOCKWOOD: The reason why we have this high foreclosure rate is because this neighborhood, by no coincidence—had the highest rate of high cost, dangerous loans made over the last number of years.
BRANCACCIO: And Phyllis Betts sees a pattern when she studies all those dots in her foreclosure data.
BETTS: We're talking about people being targeted and then we're talking about neighborhoods being targeted for easy pickins', if you will. A disproportionate amount of the subprime lending went to African-Americans. Even when you compare similar income levels.
BRANCACCIO: Now, the banks will defend themselves and say, "No, no. We were the good guys here. We went into areas that were risky, where people are struggling, and we took a stand and tried to lend money so people could buy houses. And now you're suing us?"
MAYOR WHARTON: Yeah. Oh, how charitable. Look. They made money on it. They made quick money on it. So it didn't bring any—many tears from me. They went in a place where they knew people were not likely to complain and go file a complaint with the Better Business Bureau because somebody tried to force stuff on them. They made money on it. That's the bottom line.
BRANCACCIO: While Memphis is suing under the Federal Fair Housing Act using racial discrimination as a factor, other cities are suing using a different legal strategy to go after lenders. The city of Cleveland, for example, filed a lawsuit last year against 21 investment banks using a "public nuisance" argument. The city is seeking to recover what could be hundreds of millions in damages.
And in Baltimore, Maryland, the mayor and city council are also suing one of that city's largest lenders, Wells Fargo. The lawsuit alleges that white borrowers got a better deal than black borrowers, a violation of the Federal Fair Housing Act.
CUMMINGS: I don't like to talk about race. But race plays a very significant role here.
BRANCACCIO: Elijah Cummings, a Democrat, is the U.S. Congressman from the city of Baltimore.
CUMMINGS: We have a—a lot of African-Americans living in Baltimore, people who—got loans, when those loans should've been prime loans. They qualified for prime loans, and they were steered in the—the direction of subprime, which meant their rates were higher, but it also meant that everybody who was a part of that deal, the brokers and others, they got a bigger cut than they normally would've gotten with a prime loan.
BRANCACCIO: Cummings too says he's seen the effects of the foreclosure crisis on his home city, starting with the loss to its tax base.
CUMMINGS: No taxes. Then—and government has to spend to keep the property up, and the property value is going down. And the neighborhood—houses—other houses are going down. That is a disaster for any municipality, particularly now in our hard economic times.
BRANCACCIO: Wells Fargo told us it cannot comment on active litigation but said in a statement that it's "lending practices have not caused foreclosures or any of the many broad problems the city claims are impacting Baltimore's housing market."
So while so many families, cities and towns are struggling, let's remind ourselves that others are getting the big bailout.
CONGRESS: "The yeas are 263 the nays are 171, the motion is adopted."
BRANCACCIO: It's been four months since congress voted to rescue Wall Street. How much of the $700 billion bailout has gone to help troubled homeowners?
CUMMINGS: That's right.
BRANCACCIO: Not a penny?
CUMMINGS: Not a penny.
BRANCACCIO: While the bailout law did authorize the treasury to "facilitate loan modifications" and encouraged mortgage companies to work with existing programs to minimize foreclosures, the new money appropriated went to the banks bottom line. Cummings, who voted for the bill with reluctance, has been frustrated by its outcome.
What are you hearing from folks in your district about how this bailout is—is helping them?
CUMMINGS: They don't see it helping them. And the insult to injury is that it's their tax dollars that are bailing out Wall Street.
BRANCACCIO: On the streets of Baltimore, in front of the courthouse, it's a frigid January day. There is no bailout here. 100 foreclosed homes are being auctioned off. Each transaction the end of someone's American dream. The same scene plays out here day after day.
AUCTIONEER: Sold back to the lender
BRANCACCIO: Meanwhile, every day brings a new headline about how the people who run the companies that got taxpayer money are still living the high life: the outrage over executive bonuses at bailed out financial firms...the luxury retreats...Citigroup's planned $50 million dollar corporate jet....and so forth.
CUMMINGS: Let—let me tell you how I think about these things. I live on—in the inner, inner—inner, inner, inner city of Baltimore. Inner city. And I live in a block—on a block where there are people, who I'm sure, on my block have gone to prison perhaps for stealing a $300 bike. So then I come here to the Congress and I've got people who are getting billions—billions with no accountability? Give me a break.
BRANCACCIO: So far, a workable fix for the actual people losing their houses has been elusive. Last fall, the treasury defended the choice to start at the top rather than at the bottom.
KASHKARI: We've had numerous initiatives to try to get at the root of this problem, but the most important benefit, Congressman, for homeowners is that we didn't allow the financial system to collapse.
BRANCACCIO: Neel Kashkari, treasury's bailout point man, also emphasized a federal program to help folks refinance their mortgages called "Hope for Homeowners". But since it began this October, the program has only approved 25 new loans. Yes, I just said 25.
And then there is the government-backed program called "Hope Now"... an alliance of private lenders and investors trying to stop foreclosures... they modified nearly a million mortgages in 2008. Sounds good... But a huge number of homeowners again fell behind on payments. Critics point to these programs as merely band aids.
CUMMINGS: A lot of these people who are dealing with these issues don't have a clue of what regular, every-day Americans are going through. Don't have a clue of what it must feel like for somebody to come home to an auction. And for somebody to say, "Get the hell out of here—within the next 24 hours because you didn't make your payments."
BRANCACCIO: Cummings is on the House Oversight and Government Reform Committee.
CUMMINGS: Because my people don't believe that you all care about them. And I hate to tell you that, but they don't. And they're angry.
KASHKARI: Thank you Congressman. I appreciate and share your perspective. Let me say two things, please. One, the legislation that we asked for, we asked for it to try to stabilize and prevent a complete financial collapse of our financial system. And that was not to help Wall Street. That was to help every American. Please, sir, please.
CUMMINGS: No, no let me tell you something. I understand that. That's why I voted for it.
KASHKARI: Yes, sir.
CUMMINGS: But let me tell you, when we gave them money, when we gave the banks money, they still weren't loaning any money.
KASHKARI: Well let's talk about that because we are passionate about getting the banks to loan money in our communities to help our small businesses and to help our homeowners.
BRANCACCIO: But that isn't happening on the ground in places like Shelby County, Tennessee according to Steve Lockwood, the non-profit housing guy.
LOCKWOOD: We could buy this house, and put $20,000 in—in fix ups into it, and sell it to somebody for—for $45,000. Be a good deal.
BRANCACCIO: However, the bank won't lend money for repairs, he says. And, even if he could get the money, buyers can't get a loan to purchase a house. So everyone is stuck. Until credit unfreezes and until Washington gets its act together and sends money...money, for instance, to buy up distressed houses. Or money to help modify loans so people can keep paying and avoid foreclosure in the first place.
The federal government to the rescue. They're tossing around hundreds of billions of dollars. Some last fall; more to come. How much of that, as we're speaking now, has gotten to you and your constituents.
MAYOR WHARTON: Well, I—I—I tell you—it's not the same cavalry we had in the Revolutionary War—I've heard the cavalry's coming, but—it's a long time coming.
BRANCACCIO: The mayor took us to the steps of the county courthouse where just like in Baltimore foreclosed homes are auctioned off day after day. See how the auction takes place outside the courtroom with no judge involved. The lawsuit here in Memphis is trying to change that. It calls for a temporary stop to foreclosures like these until a judge gets in there to mediate.
MAYOR WHARTON: We'll seek that relief immediately.
BRANCACCIO: The lawsuit is the best Wharton has to offer the people of Shelby County pending large-scale federal help...the money that never seems to arrive.
MAYOR WHARTON: With all of my training and the law and respect for law and I'm suppose to tell them, hold on—everything's gonna be all right. I can't tell them that. I got elected to public office. And what in the world can I change?
BRANCACCIO: Mayor Wharton goes as far as comparing the foreclosure situation to the crisis further downriver from Memphis, when Katrina hit New Orleans.
MAYOR WHARTON: We have people knocked out of their—of their homes, not by a sea tide, but by an economic tide which is just as powerful as any ocean. They're wiped out overnight. They need a rescue, they're on the rooftops. They're waving white sheets saying, help us, get us out of here. We're just holding on. Come get us out of here. Rescue us.
BRANCACCIO: Of options and running low on patience, Wharton hopes the court action will offer some relief.
MAYOR WHARTON: I'm tired of waiting on the federal government to come in and do what's morally right. The government ought to have a sense of morality also.
BRANCACCIO: And he's hoping his lawsuit will get a vital message across, loud and clear.
MAYOR WHARTON: This is what we're trying to root out, those vestiges of an economic system that has relegated far too many people to an economy that's outside the mainstream. We have laws that say it's illegal. But now somebody has to step up and say, "Wake up, law. Where have you been?
BRANCACCIO: Is Washington getting the message from cities and from homeowners that help is needed? Learn more about the ideas being floated by Congressional Democrats, Republicans, and President Obama to provide direct relief to homeowners when they need it most. Its all on our website.
And that's it for NOW. From New York, I'm David Brancaccio. We'll see you next week.
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Coping with the Mortgage Mess
Help for Struggling Homeowners
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