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NY Times, Nov. 7, 2019
Two Histories of Financiers Profiting From Real Estate While Homeowners
Go Belly Up
By Jennifer Szalai
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
By Aaron Glantz
Illustrated. 398 pages. Custom House. $27.99.
Race for Profit
How Banks and the Real Estate Industry Undermined Black Homeownership
By Keeanga-Yamahtta Taylor
349 pages. The University of North Carolina Press. $30.
Aaron Glantz knows that he’s living the dream — the good guy who does
well in the morality play of American real estate.
A journalist and a third-generation San Franciscan, Glantz has been able
to live affordably in the outrageously expensive city of his birth by
dint of a savvy investment in a foreclosed home 10 years ago, after the
housing market went bust. You don’t even have to feel too sorry for the
tenants he evicted from the house, which included the previous owner who
was foreclosed on; they turned out to be grifters, having spent years
flipping that house and others between themselves, defaulting on the
mortgages and then selling to one another to reap the windfall of
inflated prices. Glantz and his wife, then pregnant with their first
child, received an $8,000 check as part of the Obama administration’s
stimulus package; they used the money to remodel their new home,
effectively putting people to work while building their nest egg.
It’s a simple tale with a happy ending, but in “Homewreckers,” his new
book about the aftermath of the 2008 financial crisis, Glantz skillfully
tells a bigger story about American housing that’s tortuous, confounding
and ultimately enraging.
Along with “Race for Profit: How Banks and the Real Estate Industry
Undermined Black Homeownership,” by Keeanga-Yamahtta Taylor,
“Homewreckers” shows what happens when private speculators get buoyed by
government largess while non-tycoons are largely left to fend for
themselves.
Taylor and Glantz focus on different eras, decades apart, but in a way
that’s the point: When it comes to doling out public money to private
business with the hope that it will inevitably trickle down, the
American government is like the Bill Murray character in the first half
of “Groundhog Day”: making the same mistakes over and over again,
without ever seeming to learn.
“Race for Profit,” which was longlisted for this year’s National Book
Award, covers the few years in the late ’60s and early ’70s, when the
Fair Housing Act of 1968 nominally ended the government’s longstanding
practice of redlining. Ever since its inception during the Great
Depression, the Federal Housing Administration had insured mortgage
loans made by private lenders for purchases in white neighborhoods;
purchases in or even near black neighborhoods were generally ineligible.
The benefits of homeownership swelled the ranks of the postwar middle
class, transforming the economy while entrenching residential segregation.
President Lyndon Johnson promised to change these exclusionary practices
and extend opportunities for homeownership. Taylor says that the
pressure was coming from all directions. Cities like Detroit and Los
Angeles erupted in violent unrest, sparked in part by the explosive mix
of high prices and inferior housing imposed on black people, who,
confined by racism, redlining and restrictive covenants, couldn’t move.
Even the real estate industry, which had long predicated “value” on how
white a neighborhood was, realized that white suburban home buyers were
becoming a saturated market. Much of the existing housing stock in the
cities was considered cheap or even worthless; the enterprising investor
could buy it and flip it for enormous profit, as long as he could find a
buyer.
Taylor’s book meticulously documents what happened next, as the federal
government partnered with a real estate industry enthusiastic about
exploiting a new market but refusing to bear most of the risk. She
details bungling mismanagement, gross corruption, distorted incentives,
civil rights regulations that went unheeded and unenforced — what Taylor
calls a system of “predatory inclusion” that was distinct yet not
entirely free from the racist system of exclusion that preceded it.
A number of the home buyers who later brought these abuses to light were
poor black women, whose experiences resembled something out of a horror
movie — pressed by aggressive lenders into buying a house that,
unbeknown to them, had been previously condemned and slated for
demolition, disguised with a paint job and a “windshield inspection”;
only later did they learn that something was terribly amiss when rain
started seeping through the walls and raw sewage filled the basement.
Taylor says that mortgage bankers valued these women as customers not
despite their poverty but because of it. If they fell behind on payments
and defaulted on the mortgage, so much the better. The mortgage lender,
whose losses were backstopped by the government, had already made money
on commissions and fees; the house could be put into foreclosure and
flipped again.
Glantz mentions some of this history, but there’s also an overwhelming
sensation of déjà vu that hovers over the more recent story he tells. In
“Homewreckers,” he explains how a cadre of billionaires — a number of
them living in the same Park Avenue apartment building in New York City
— figured out a way to take advantage of another government program in
order to profit from people’s misfortune.
After the housing bubble burst, the government was desperate to get
lending banks off its books, and so it offered a sweet deal to
prospective buyers of the banks: Those private investors could keep the
gains on any loans held by the bank, but if the loans lost money, the
government would bear most of the cost.
It was like a mutant version of the subprime bubble that led to the
financial crisis: Rather than renegotiate the loans, the new owners of
these lending banks found there was more money to be made in foreclosing
on the properties and becoming “a class of landlord that had never been
seen before,” charging rent and fees to tenants — not infrequently the
previous owners who were foreclosed on — while hoarding the equity for
themselves.
Corporate landlords are partial to shell companies with boring,
antiseptic names, like ColFin AI-CA5 LLC, which Glantz traces back to
Colony Financial, owned by the billionaire Thomas J. Barrack Jr., a
stalwart supporter of President Trump’s. Another shell company, by the
name of SPMK IV NY LLC, was traced to the Fox News personality Sean
Hannity. Corporate landlords, Glantz says, are also more likely to buy
properties in neighborhoods with large concentrations of
African-American and Latino residents, who end up paying “higher and
higher rents that ultimately transfer wealth from their communities to
investors far away.”
What often does trickle down to ordinary people is the risk — the risk
of enormous liens placed on their homes by financial entities that use
bundles of properties as collateral; the risk inherent in becoming just
another part of someone else’s newfangled mortgage-backed security. It
all sounds terrifyingly familiar — and now the person in the highest
office is Donald Trump, who has surrounded himself with the figures in
Glantz’s book.
These billionaires haven’t just settled on a way to make money from
people’s misery; they’ve benefited politically, too. Steven Mnuchin,
Trump’s treasury secretary, is one of the main characters in
“Homewreckers,” heading an investment group that bought the remains of
IndyMac bank out of the rubble of the financial crisis and started
foreclosing on people’s homes. Glantz finds a woman who lost her home to
Mnuchin’s bank and voted for Trump before realizing that Mnuchin would
be part of his cabinet.
“We voted for Trump because we’re fed up — like most of America — with
the politics as it is,” she tells Glantz. The anger is more than
understandable, but the misplaced faith is truly mystifying. Even a
mortgage-backed security might be less opaque than this.
Follow Jennifer Szalai on Twitter: @jenszalai.
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