Wednesday, March 14, 2012
Nowhere to Hide--Part II
During the Great Depression, families across the United States lost their homes and jobs and found themselves standing in food lines. With so many people out of work, prices on all products fell, including prices on food. To stabilize food prices, FDR implemented a system for paying farmers to destroy livestock and dairy. In the name of stabilizing the economy farmers were paid to pour milk into ditches and to slaughter livestock at a time when many Americans were going hungry,
I was reminded of this sad time in U.S. history this week as I looked at the state of housing and foreclosures in the U.S. I have been writing a series on New Urbanism and Smart Growth and last week I mentioned that while Smart Growth and New Urbanism have ardent supporters, these concepts also have passionate opponents. But the main obstacle to the implementation of New Urbanism is the upwardly mobile American who clings not only to our "guns and religion" but also to our single family residence in the suburbs and our SUVs. And while urban planners can change zoning laws requiring that new structures be built conforming to their high density standards, inducing Americans to actually move into crowded cities and live in tiny apartments is going to require eliminating all other options. Much like the federal government in the thirties, our governments today--on a state, local and federal level--are destroying access to housing to ensure that we will have to live where they say we can live.
Last year about 1.7 million homes in the U.S. were in some phase of foreclosure. However, many of those homes did not actually complete the foreclosure process--not because the homeowners were able to start making the payments--but because legal bickering between banks and state attorney generals over foreclosure processes, including robo-signing, halted the foreclosure processes. However, with the $26 billion dollar settlement over foreclosure processes between state attorney generals and major banking entities, the foreclosure process is back up and rolling, and this year approximately between 850,000 and 1,000,000 Americans are expected to lose their homes.
I have written about the foreclosure process several times in this blog. With some notable exceptions for people who were wrongly foreclosed, most of these foreclosures are long overdue. As of the middle of last year, many homeowners had been occupying their defaulted properties for over 400 days without making a single payment. That does not make sense on any level--either for the homeowner who cannot afford the property and needs to move on to a property he can afford or for the bank who made a mortgage loan that is not being repaid. What is interesting, though, is the fate of these properties.
Professionals in the housing industry worry about the consequences of nearly 1,000,000 foreclosed homes on an already debilitated housing market. However, if mortgage loans and mortgage credit were more readily available to Americans, these homes could be sold to provide housing for a new generation of homeowners and taken off the market. But rather than an easing of credit which would allow these homes to be purchased as single family residences, the federal government is instead tightening mortgage standards that already are so strict that many people with good incomes and good credit are having trouble obtaining financing.
Under the direction of Richard Cordray, the Consumer Financial Protection Bureau has announced that it will be finishing and implementing the new standards for qualified residential mortgages. Based on the CFPB's schedule, we expect that this will be done prior to October of 2012, and when the new standards go into effect, only a small minority of Americans will qualify to purchase homes at low interest rates and favorable terms. (For an explanation of the qualified residential mortgage see, Qualified Residential Mortgages the Worst Idea Yet and Risk Retention, Qualified Residential Mortgages, and the Future of Housing). Since the qualified residential mortgages are actually outlined in the Dodd Frank Bill, without repeal of the law, or at least this part of the law, the implementation of these new mortgages is inevitable, and the QRMs take home ownership off the table as an option for many Americans.
So what are we to with 1,000,000 empty homes? The Federal Housing Finance Authority put out calls last fall for investors to bid on purchasing these homes in bulk and renting them out. For information on this see The Heist. Now it seems that Fannie Mae has selected some investors who will be allowed to purchase the rentals. Fannie Mae will offer 2500 foreclosed properties in Atlanta, Phoenix, Las Vegas, Los Angeles/Riverside and three Florida regions to include single family homes and multi-unit apartments. So rather than making these homes available for sale, the government is going to bundle them together and sell them in bulk to be converted into rentals. The Wall Street investors buying the properties are the pimary beneficiaries of this plan.
Still, hundreds of thousands of foreclosures remain vacant. To deal with these remaining properties, banks and local municipalities are turning to a different strategy--demolition. On February 9, 2012, Ohio Attorney General Mike DeWine announced that he would be using $75 million of the $97 million which Ohio received as its portion of the $26 billion dollar settlement with banks over faulty foreclosures to demolish 100,000 vacant, foreclosed properties which are bringing down property values in their neighborhoods. The $26 billion dollar settlement was initially supposedly going to right the wrongs of improper foreclosures, but the we soon learned that in reality that qualified former homeowners who have been victims of an improper foreclosure will get $2000.00 for their pain and suffering. The individual states involved in the settlement then get their portion of $26 billion dollars which, in Ohio's case, will be used to set up a matching fund for cities who have allocated funds to tear down these houses. Much as during the Depression when milk was poured into ditches while families went hungry, single family homes are being demolished at a time when many Americans cannot qualify to purchase a home.
The state of Ohio is not the only place where this is occurring. In August of 2011, Time Business posted an article by Stephen Gandel, "Bulldoze: The New Way to Foreclose." "Increasingly, it appears that banks are turning to demolition teams instead of realtors to rid themselves of their least valuable repossessed homes." According to the article, Bof A announced plans to demolish 100 homes in Cleveland and to donate the land to local government authorities. The banking giant had already completed such a project in Detroit and in Chicago and planned to add as many as nine more cities by the end of the year. According to Gandel, Wells Fargo donated 800 houses, although Wells Fargo pointed out that very few of these were demolished--most were donated to non profit organizations and renovated. JP Morgan Chase says that since 2008 it has donated more than 1900 houses to city and county officials. For the banks, demolition of the houses and donation of the land, or in some cases donation of the entire property, is a win-win since once the houses are donated the bank is no longer responsible for taxes or maintenance on the property. There is also speculation that the banks can receive a tax benefit for the donation. For the cities and municipalities the benefits are clear--land once owned privately is now their property to use as they wish.
Gandel writes that the Cleveland-based Cuyahoga County Land Reutilization Corp "has been one of the most aggressive local-government organizations in striking these deals." "Local governments like these deals because they get free land to use for development or open space," writes Gandel. Not surprisingly, the Cuyahoga County Land Reutlization Corp, which identifies itself on its website as a, "quasi-government" organization, appears to be deeply committed to new urbanism and smart growth. Cuyhoga Land Bank's website states that, "An aggressive demolition policy is an essential foundation for our future." Under the Our Principles tab they write, "The Cuyahoga Land Bank is committed to healthy, sustainable community redevelopment within Cuyahoga County. The Land Bank exhibits this on-going commitment through efforts such as strategic blight clearance, deconstruction, the appropriate and innovative re-use of vacant land, and the use of energy efficient, green rehabilitation and new construction standards." In other words, we've got to demolish as much of the existing property as we can to make way for Smart Growth.
Smart Growth and Smart Code have apparently been alive and thriving for some time in Ohio and particularly in Cleveland. A group called EcoCity Cleveland has been working on converting Ohio to Smart Growth principles for over a decade. The group changed its name to Green City Blue Lake; a review of their website reveals a "Climate Change Action Plan" on the home page as well as announcements for the 4th annual sustainability summit at the Cleveland Public Auditorium in September and an invitation for Sustainable Cleveland 2019 stakeholders to attend a reporting and social get together Tuesday April 3rd. This last soiree promises that it will "provide an opportunity to connect with other groups and individuals to accelerate our mission to 'build an economic engine to empower a green city on a blue lake.'"
While it is not surprising that environmentalists and proponents of Smart Growth have apparently hijacked the city and county governments in Ohio, as they have in so many other metropolitan areas, what is surprising is that they have done such a good job of spreading the gospel of New Urbanism that a republican like Mike DeWine, who actually endorsed Rick Santorum for president, would spend $75 million destroying 100,000 private homes. With each demolition of each home, Dewine, knowingly or unknowingly, is moving Ohio one step closer to a statist, environmentalist society where individuals no longer can choose where or how they live. The government and the municipal planners will make those decisions for them.
Fortunately, Gov. John Kasich appears to be an enemy of mass transit, an essential component of new Urbanism, so there may be some hope for Ohio yet. Let's just hope that he can convert some fellow Ohio residents before all of their housing options have been eradicated.
Next week: Why $9.00 a gallon gas (or higher) would be a great thing!
Alexandra Swann's new novel, The Planner, about an out of control, environmentally-driven government is available on Kindle and in paperback. She is also the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen. For more information, visit her website at Frontier 2000