Unlearning the lessons of the housing crisis

Originally published in Curbed on January 19, 2017.
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Nearly six million American families lost their homes to foreclosure between September 2008 and September 2015.

This unprecedented housing crisis, promulgated by well-documented Wall Street fraud and predation, led—eventually—to government action, culminating in July 2010, when President Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act into law.

Dodd-Frank outlawed some prominent forms of predatory lending and established a new agency—the Consumer Financial Protection Bureau—whose primary mandate is to aggressively penalize firms for fraudulent and shady business practices. Three years after its launch, the CFPB had addressed more than 400,000 consumer complaints concerning issues like unauthorized credit card fees and ballooning mortgage payments, and distributed more than $10 billion in settlements back to consumers.

Another three-odd years later,  Donald J. Trump’s surprising presidential victory has sent a deep chill down the spines of housing and civil rights advocates across the country. In his capacity as a developer, Trump was a defendant in one of the largest cases ever brought by the federal government for housing discrimination against African-Americans. In his short political career, he has pledged to deregulate the housing and financial sectors, and his early cabinet appointments have close ties to Wall Street.

“We’re about a decade out from the housing crisis, and it’s important that we don’t succumb to this collective amnesia about what happened,” says Sarah Edelman, the director of housing policy at the Center for American Progress. “We’re at real risk of returning to predatory lending and losing the protections Congress put in place to make sure nothing like that ever happens again.”

The Fair Housing Act of 1968 bars landlords, lenders, and sellers from discriminating based on race, sex, religion, or national origin, and requires recipients of federal funds to proactively promote housing integration. In 2015, under Obama, the Department of Housing and Urban Development released a new federal rule—known as the “Affirmatively Furthering Fair Housing Rule”—to provide communities with new tools to ensure they meet their fair housing obligations.

At the time, Republicans decried the AFFH rule as government overreach. Trump’s now-nominee for HUD secretary, Ben Carson, called it a dangerous “social engineering” scheme in an opinion piece published during his 2015 primary run. And while campaigning for president, Trump said he’d rescind the rule.

Already active litigation regarding violations of housing and civil rights law would also likely be stymied by a motivated Trump administration. For context, the civil rights division of the Department of Justice filed more than 100 lawsuits between 2012 and 2015, with a majority of those casesconcerning housing and lending discrimination. Former DOJ officials predictthat Trump’s administration will not be as committed to enforcing fair housing laws, especially if the Senate confirms Alabama Senator Jeff Sessions as the incoming attorney general.

Sessions allegedly railed against the NAACP and the ACLU for trying to “force civil rights down the throats of people,” according to testimony at his 1986 confirmation hearing for a federal judgeship (he was ultimately denied the position because of such remarks). If Sessions brings this point of view to his new role, Justice Department lawyers working on fair housing cases could be reassigned, and Trump’s team could simply avoid pursuing similar suits in the future.

Stuart Rossman, a staff attorney at the National Consumer Law Center, raises several additional concerns for fair housing advocates. For the past few years, two homeowners’ insurance trade associations have been challenging a 2013 HUD rule that formalized how housing discrimination cases could be tried under the so-called “disparate impact” standard, which lets individuals allege housing discrimination without having to prove that someone intentionally sought to discriminate.

The Obama administration has vigorously defended the rule in court. “Will the [Trump] government now throw up their hands and send their lawyers home?” asks Rossman. If the rule is thrown out, individuals may find it more difficult to bring fair housing cases forward.

And then there’s the matter of proving these cases once they’re on the docket. At present, the federal government collects detailed demographic data from banks under the Home Mortgage Disclosure Act, including price data for loans and information about who has been denied service. “Banks very much want to keep this information private, because they know when it’s collected it will be scrutinized,” Rossman explains. By evaluating HMDA data, lawyers can assess if banks are treating some groups of people differently than others.

“I’m not saying there’s not overt discrimination cases out there, but the systemic, institutional type of cases which affect a broad range of individuals are far more likely to [fall under] disparate impact,” Rossman says. “The banks, auto lenders, and insurance companies are far too sophisticated to engage in overt sexism, racism, and ageism. If you can’t get that aggregate analysis to make a disparate impact claim, you’re in a really bad spot to sue.”

Since the HMDA’s passage in 1975, each administration has had a fair amount of discretion to interpret the law. If, say, Trump’s team decides they don’t need to require banks to report as much information as they do now, changing HUD’s disclosure requirements, lawyers could find themselves locked out from the sort of aggregate data needed to prove housing discrimination in court.

Rossman also points to a tactic taken by George W. Bush’s administration, which used the Office of the Comptroller of the Currency to protect banks from civil rights suits initiated by state attorneys general and private lawyers. That means there are multiple strategies the Trump administration could pursue to avoid fair housing litigation at both the federal and local levels.

On the finance side of the equation, Trump’s nominee to lead the Treasury Department is Steven Mnuchin—a Goldman Sachs veteran of 17 years. Mnuchin founded and ran a mortgage lender, OneWest Bank, that was recently accused of housing discrimination in a federal complaint filed by two nonprofit groups. According to the complaint, OneWest (now a subsidiary of CIT Bank), was far more likely to foreclose on black and Latino homes than to lend to those owners, and neglected to maintain foreclosed homes in black and Latino neighborhoods, hastening their decline, while it actively maintained foreclosed homes in majority white areas.

“Mnuchin has a lot of rhetoric about his interest in protecting working families, but that’s not what his record has shown,” says Paulina Gonzalez, the executive director of the California Reinvestment Coalition, one of the groups to lodge the complaint. “The evidence speaks for itself.” That evidence now includes a newly disclosed 2013 memo from the California attorney general’s office alleging that OneWest repeatedly flouted a variety of foreclosure laws.

Mnuchin isn’t the only Goldman alum lined up to set financial policy in the Trump era. The president-elect has also named Gary Cohn, the president and COO of Goldman Sachs, to direct the National Economic Council, the president’s main forum for economic policy advice. Likewise, Jay Clayton, a Wall Street attorney whose firm has long represented Goldman Sachs, was recently nominated to lead the Securities and Exchange Commission. During the last administration, SEC regulations were key to holding banks accountable for bad behavior that led to the mortgage crisis, but the New York Times calls Clayton’s appointment “a strong signal that financial regulation in the Trump administration will emphasize helping companies raise capital in the public markets over tightening regulation.”

Trump will also have the ability to appoint leaders to all three of the major financial regulatory agencies: the Federal Reserve, the Federal Deposit Insurance Corporation, and the OCC. “Though the good news is we now have legal standards that prohibit irresponsible lending, it only underscores how important those regulatory agencies are, and their leadership,” says John Taylor, the president and CEO of the National Community Reinvestment Coalition.

“These appointments are critical,” Taylor continues. “Is [Trump] finding people whose first obligation is to ensure that average working class Americans are treated fairly, or is he looking out primarily for the businesses and agencies that might be affected by regulation?”

Ultimately, housing advocates worry about what will happen if Trump and congressional Republicans deregulate the housing industry and repeal the young Dodd-Frank law. Trump’s transition team has already said it’s looking to “dismantle” Dodd-Frank and Mnuchin has said targeting it would be a top priority for him. Many experts have suggested that rather than go through the trouble of repealing Dodd-Frank entirely, Republicans may look for ways to starve it, rendering it ineffective.

David Dayen, journalist and author of Chain of Title, a 2016 bestseller on the foreclosure crisis, says Trump may even be motivated to “weaponize” Dodd-Frank—using it to selectively advance his personal goals.

For example, Obama’s Justice Department has been pressuring Deutsche Bank to pay billions of dollars for its malfeasance during the housing crisis. Trump owes Deutsche Bank $364 million. Similarly, the FDIC and the Federal Reserve have been investigating Wells Fargo for anti-consumer practices. Donald Trump owes $410 million to Wells Fargo. Dayen sums up Trump’s fiscal conflicts of interest: “Trump may find it very appealing to be able to prosecute some financial institutions and not enforce rules at others.”

The unraveling of post-housing crisis protections could be especially dangerous as Republicans talk animatedly about privatizing Freddie Mac and Fannie Mae, the quasi-public agencies that help stabilize the U.S. housing market by securing the insurance markets and keeping mortgage rates low. Mnuchin has already said the next administration will get the government out of Freddie Mac and Fannie Mae.

On top of housing discrimination fears, advocates worry about what Trump’s administration could do to exacerbate demand for affordable housing across strata: for homeowners and renters, urbanites and rural dwellers. “After millions had their homes foreclosed upon, and millions more millennials delayed homeownership due in part to crushing student loan debt, demand for rental units has reached its highest levels since the 1960s, resulting in skyrocketing rents,” explains Diane Yentel, president of the National Low Income Housing Coalition.

Between 2005 and 2015, roughly nine million households moved from owning homes to renting—the largest change over any 10-year period on record. As a result, Wall Street firms started investing more heavily in single-family rentals, and a recent report out of Atlanta found that these institutional landlords were more likely to evict tenants than mom-and-pop ones. “It’s really important to keep watching these companies as they develop, because many of them are not located in jurisdictions with strong tenant protections,” Sarah Edelman says.

The stakes are high, and the litany of housing risks is long. But, thanks to the progress made over the last eight years, advocates at least will enter the Trump years with language and policy proposals they lacked a decade ago when foreclosures hit en masse. “Back then, progressives didn’t have a shelf of ideas, or the architecture to actually make the system safer,” says Dayen. This anti-discrimination framework will be threatened, and in some cases dismantled, under Trump. But it can also be defended, and restored.

 

 

Redlining map project provides new way for researchers to rethink struggling urban areas

Originally published in the winter 2016 issue of Johns Hopkins Magazine
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After 25-year-old Freddie Gray suffered a fatal spinal cord injury in 2015 while in the custody of Baltimore police, the city erupted with protests, riots, and much subsequent soul-searching. Attention focused on Sandtown-Winchester, the neighborhood where Gray was arrested—one of the most impoverished and blighted areas in Baltimore. Local community leaders set up meetings to discuss what it would take to support and revitalize poor neighborhoods like Sandtown, where more than a third of the houses are abandoned and roughly 20 percent of working-age residents are unemployed. The subtext of these well-meaning conversations was that there must have been a time when these neighborhoods were more desirable, and that at some point, somewhere along the way, things went downhill.

In the mid-1990s, in what was one of the most ambitious neighborhood revitalization projects in Baltimore’s history, public and private sources poured more than $130 million into Sandtown-Winchester in a massive effort to transform it. Yet despite the influx of new housing, health services, and school enhancements, the investments were not enough to attract new businesses and jobs, or to suppress the flourishing drug trade.

Mapping Inequality, a new project created by three teams drawn from four universities, including Johns Hopkins, offers leaders and researchers a new way to think about persistently struggling neighborhoods like Sandtown. Launched in October, the project features unprecedented online access to maps and materials produced between 1935 and 1940 by the Home Owners’ Loan Corporation, a federal agency created as part of the New Deal. HOLC officials traveled to nearly 250 cities across America throughout the 1930s, developing color-coded maps to demonstrate each neighborhood’s risk and creditworthiness, factors that often reflected the community’s racial demographics. These influential documents helped standardize housing policy and real estate practices, and they were used by federal housing agencies until the late 1960s.

Sifting through Baltimore’s own HOLC map on the Mapping Inequality website, one can begin imagining how developers, bankers, real estate agents, and federal officials thought about each locality. Users can pore over the jigsaw puzzle–like breakdown of the city’s neighborhoods, clicking through to scans of each one’s “Area Description,” a document that includes information on the terrain, detrimental influences (“Obsolescence” and “Negro concentration,” for example), and racial makeup of residents. Each area was assigned a letter grade: A-rated neighborhoods, colored green, signified the best places to live; D-rated neighborhoods, colored red, were the worst.

“Part of what’s interesting about the project is just getting to think through what people’s popular narratives are today about segregation and redlining,” says Johns Hopkins historian N.D.B. Connolly, who worked on the Mapping Inequality project. “What do people know? And how can showing these HOLC maps add to that general understanding?” Connolly, an expert in the history of race and American cities, thinks the project can help people consider the longer historical trajectory of inequality.

“It also provides a way to think about racial inequality as far more of a problem of law and economics than of culture,” he says.

The HOLC maps and area descriptions are available for the public to download, so others can begin to pursue questions that even two or three years ago would have likely been too onerous to tackle. For example, what was the relationship between residential segregation and union membership? By collecting information from union membership rolls, you could now analyze union members’ living conditions. You could also determine what segregated neighborhoods looked like in terms of infrastructure quality, or how many homes had telephones, or the availability of grocery stores. “It gives you a way of taking a slice of American life and adding a whole host of new data points,” says Connolly.

On Baltimore’s HOLC map, Sandtown-Winchester was a redlined, D-rated area eight decades ago. Federal agents determined that it had “houses in very bad condition” and vandalized buildings in poor repair. They reported relatively equal numbers of white immigrants and black people living in the area, and when asked to assess the area’s “trend of desirability” over the next 10 to 15 years, HOLC agents predicted it going “downward.”

These maps challenge the narrative that healthy, thriving neighborhoods declined because of rioting in the 1960s or indolence. What they actually suggest, Connolly says, is that these Baltimore neighborhoods were always struggling, but more opportunities were given to white immigrants to get out. “These are not places that have ‘gone downhill,'” Connolly says. “Rather, they are places that were always full of environmental hazards, always considered poor and getting worse, and also the only option available to black families due to housing discrimination.”