Stabilized neighborhoods

Aaron Glantz wrote the book Homewreckers, How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream. Glantz wrote a summary as a guest editorial in last Sunday’s Detroit Free Press.

Alas, the summary, close to a whole newspaper page, didn’t say much about those Wall Street kingpins. hedge fund managers, crooked banks, and vulture capitalists. His ire was focused on former President Obama. Though there are a few references say that Bush II is partly to blame. Alas, again, there are real reasons to blame Obama.

Most of the article is a comparison of how Roosevelt handled the mortgage default crisis that was a part of the Great Depression and how Obama handled it in the Great Recession.

Roosevelt’s New Deal included the Home Owner’s Loan Corporation. The HOLC bought bad loans off banks for their true value, created new mortgages, and worked to keep borrowers in their homes, including holding off foreclosure up to a year when borrowers could not pay. The HOLC employed inspectors and contractors to fix the 200,000 homes on its books. They rented the houses to keep them occupied until new buyers could be found. The system kept speculators out and stabilized neighborhoods. Taxpayers eventually got their money back.

As great as the HOLC was it had one big flaw – it was racist. It used “redlining,” the practice of drawing lines around neighborhoods that were “too hazardous” to lend in because they were “infiltrated” with blacks or “threatened” with the possibility of blacks moving in. So this wonderful stabilization force was reserved for only white neighborhoods.

In the recent financial collapse the government again owned about 200,000 properties, this time 240,000. And this time the owners were Fannie May and Freddie Mac, mortgage companies chartered by the federal government.

Alas, Fannie and Freddie had no interest in doing the work of neighborhood stabilization. Yeah, they were given in $1 billion to maintain properties, but with that many properties that much money paid for little more than boarding up windows and disposing of junk cars.

Fannie and Freddie wanted to keep things simple. And simple meant selling properties to Wall Street.

Consumer advocates and realtors had good ideas of how the gov’t should unload all those houses, ideas to help stabilize neighborhoods. Obama even endorsed the idea. The ACLU and others had an alternate proposal that the houses could be used as affordable housing for the poor.

In spite of Obama’s words, his actions were quite different. His administration sold the houses in bulk. Taxpayers lost money. The contracts for these sales stipulated the buyer would manage the property and engage with the community. But those requirements were ignored.