More than five years after the housing market collapsed, the mainstream media have mostly stopped talking about housing policy, but have the problems been fixed? Far from it. We’re not even clear, it turns out, what the problems actually are. When a home of your own in a neighborhood that feels safe is still an unrealized dream, is that a personal or a political problem?
More likely than not, it’s a matter of public policy, says Pro-Publica reporter Nikole Hannah-Jones.
For this interview, we partnered Jones with someone she didn’t know, who also writes about housing: Jennifer Taub. Taub has looked in depth at what happened after 2008, in particular, what happened to families that sought mortgage relief and were denied it, while US taxpayers were bailing out “too-big-to-fail” banks.
Taub says the policy makers have become, and remain, “legal enablers of the toxic chain.”
Hannah-Jones says the toxicity started decades back. (Read below how racial segregation got a boost from FDR.)
Sometimes you just get the right two people in a room together, and the picture each paints fills in the whole. That happened in this conversation.
Nikole Hannah-Jones is an investigative reporter who covers civil rights for ProPublica. Her new e-book, Living Apart: How the Government Betrayed a Landmark Civil Rights Law, explores the decade-long failure of the federal government to enforce the landmark ’68 Fair Housing Act. Jennifer Taub is a law professor at Vermont Law School who has written extensively about the 2008 financial crisis. Her new book is Other People’s Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made Home Mortgages a Thrilling Business.
Watch in full on GRITtv .
Laura Flanders: Welcome both. Let’s start with you Nikole. It was 50 years ago that Governor Wallace in Alabama said, “Segregation now, segregation tomorrow, segregation forever.” Didn’t we end that?
Nikole Hannah-Jones: In some ways we did. What Governor Wallace was talking about was complete and absolute segregation. He was speaking, of course, about schools specifically, but in housing, we now have more integration, but for many, many communities, particularly the black community, segregation levels have not really changed since 1960.
How do you measure it today?
Nikole Hannah-Jones: You measure it by looking at, if you take the population of a particular city, then you look at how many people of different races live in particular neighborhoods. A city like New York City is actually the second most segregated city in the nation.
But the white community would say, “Well, we don’t have white communities like we used to.”
Nikole Hannah-Jones: That’s right. That’s why I say segregation now means that you still have it. So you have almost entirely black communities, but there are very few communities that are entirely white. So, white communities tend to have some level of diversity, but there are black communities where nearly everyone in the community is black.
And is it just because people like to hang together?
Prior to the Great Depression, we were actually a pretty integrated society.
Nikole Hannah-Jones: Absolutely not. I think that they have surveyed this for many years so that of all different ethnic groups in the country, black Americans desire integration the most, but at the same time, they are the most segregated, so I don’t think it’s just a matter of choice.
Now, no group lost more wealth in housing wealth than women of color in the financial crisis. Jennifer, what does the mortgage crisis have to do with this picture and beyond that?
Jennifer Taub: There are many connections because what the mortgage crisis is about – what led to it and the failure to really respond and help people – is tied to predatory lending. If you look at communities of color, black communities and Latino communities suffered more in the housing crisis because they were disproportionately targeted for predatory loans. So even studies [that] have controlled for things like wealth, they still bear out that fact.
Unpack the term for us a little bit. In some quarters [low deposit lending programs ] were seen as community development programs helping people get houses. You’re calling them predatory, what do you mean?
Jennifer Taub: You’re touching on one of the myths about this crisis: There still are these prevailing stories that the multitrillion dollar bank bailouts were necessary because people who could not afford homes tricked bankers into loaning them money.
Jennifer Taub: Even as I say it, it sounds ridiculous, and it is. The numbers don’t bear that out, and it’s not true, and one of the pieces of legislation that’s unfairly targeted to blame is the Community Reinvestment Act from 1977. As you probably remember, this was a law that was designed to deal with redlining, the practice of banks refusing to lend – literally drawing on maps red lines around communities – that happened to be communities of color. So it’s absolutely not true, and a report done by the Financial Crisis Inquiry Commission shows and concluded that this had almost nothing to do with the financial crisis and that the worst loans [that] were made . . . weren’t even subject to the Community Reinvestment Act.
Now you mention redlining as if everybody knows what that means, I am going to come to you on this, Nikole. For one thing, it’s still striking to me how we misunderstand how housing segregation was set up this way. Redlining was at the heart of it, yet it dates back to a period people think of as good for social policy, the FDR era.
Nikole Hannah-Jones: Prior to the Great Depression, we were actually a pretty integrated society. Most black Americans lived in majority-white communities – which makes sense. Black Americans were only, and have been, for a couple of centuries now, only 12 and 13 percent of the population, so it makes sense that they would live in majority white communities. Following the Great Depression, you have this desire to really bolster the middle class. We have these programs where the federal government led by FDR decides that the government is going to get into the business of insuring mortgages. Prior to that, you had to have between 50 and 80 percent down to buy a house, which, of course, would exclude almost everyone watching this program. But after that, after the government started to insure loans, you only needed 20 percent down, but the government also decided that there were certain Americans who didn’t deserve that helping hand and those were Black Americans and so . . .
It was as explicit as that?
Nikole Hannah-Jones: It was as explicit as that. Black Americans, and to a lesser extent Jews in some places and some other ethnic groups. It was the federal government that actually introduced redlining. What they did was they rated certain communities. Certain communities would be deemed the least risky and communities that would also be deemed the most risky, and the most risky communities would be literally outlined on a map in red, and these were areas where the government would not insure loans. If the government wouldn’t insure loans, the private business industries took the lead from the government and also refused to lend in those areas. Not only would the government not insure loans in black communities, but also in integrated communities. If you were a white person living in an integrated community, you would suddenly find that you couldn’t get loans. You couldn’t get loans to repair your home; you couldn’t get loans to purchase your home, and people couldn’t get loans to buy those homes.
Whites weren’t just fleeing – people always talk about white flight – they were etched out by policy or at least responding to policy triggers, is that fair to say?
“After the government started to insure loans, you only needed 20 percent down, but the government also decided that there were certain Americans who didn’t deserve that helping hand and those were Black Americans and so…”
Nikole Hannah-Jones: There was definitely some of both – white people who did not want to live around black people, but [for the] neighborhoods that were already integrated, there suddenly became a financial disincentive to have an integrated neighborhood and so this kind of truism that black people brought property values down, which we still believe. What actually was the case: It wasn’t because black people weren’t caring for their property, it was literally the federal government would not insure a loan in a neighborhood so property values did go down because of that; but it wasn’t because of the color of the people moving in, but federal policy that was discriminatory.
So, you hear this story Jennifer and you’ve written about a sort of similar phenomenon in a way in the current period, what are the echoes that you hear here?
Jennifer Taub: There are a few echoes, and there are also some unfortunate ironies here. One of the eras I say, to some degree, we should return to is the New Deal era, and another program aside from creating the Federal Housing Administration is the Home Owners Loan Corporation (HOLC). This was an agency that was set up to help people back after the Great Depression – in a similar position to people today after the 2008 crisis – which was, they had taken out loans to buy a home and the value of the home plummeted and widespread unemployment. So, what the HOLC did was get these mortgages, buy them from the banks, and refinance them, reduce principle and let people stay in their homes.
So, we know what to do when we need to do it and when we feel like doing it as a nation, but after 2008, it’s not what we did.
Jennifer Taub: It’s not. In fact, the data’s really good on this because about 1 million mortgages were refinanced through this, and about 800,000 – 80 percent of them – did not redefault, and that was a huge percentage of the mortgages at the time. The problem was, returning to what Nikole says, it wasn’t available to everybody.
You write about the family the Noblemans, who were a white family involved in insurance out of Texas. What did they go through?
Jennifer Taub: Harriet and Leonard Nobleman purchased a one-bedroom condo in Dallas. They were trying to downsize a bit; their daughter was off at college, and they bought this condo at exactly the wrong time. It was the peak of a condo bubble that had actually been brought on by a fraudulent land-flipping scheme. Recently we had mortgage-flipping scheme;, this was a land-flipping scheme. So they bought a condo for about $71,000 in 1984, and very shortly thereafter the prices of condos in the Dallas area plummeted. Then Leonard suffered some health issues; they both had job problems: lost their jobs; got their jobs back. It turns out the value of their home was only $23,500.
That’s what you call “underwater,” right?
Jennifer Taub: They were severely underwater with their mortgage. Their lender wouldn’t negotiate with them. Other folks in their condo complex had done some restructuring of their loans, but their lender wouldn’t budge. They ended up filing for bankruptcy, and their lawyer thought this was a good plan because across the country, in many states, if you filed for bankruptcy, one of things that would happen, not just to your other loans, but to your home loan is that if you were underwater, it would be reduced to the value of the condo. That didn’t happen to them. The bank rejected them, and they took it all the way up to the Supreme Court, and the court said, no, they were too small to save.
At the same time we the taxpayers were busy bailing out the banks. Now the banks said they’ve paid it all back with interest; this all worked very well. Problem solved?
“I didn’t think the financial system was broken, but after doing this research, I think it’s not broken, it’s rigged. It’s actually working as it’s designed to work.”
Jennifer Taub: What’s interesting is when you said we were bailing out the banks at the time; it was not just the banks, but the banks on the other side of their mortgage had been bailed out. In fact, it was the survivor of the largest saving and loan to fail in the country. I have to tell you when I decided to write about the Noblemans, they weren’t just a random family. I was writing about them because this Supreme Court case still stands in the way today of people using the bankruptcy process to reduce their underwater home mortgages, but as I pulled this thread and looked into it, I found out: This bank, American Savings Bank, is purchased by Washington Mutual which then becomes the largest depository institution to fail in this crisis. Then it gets purchased. WAMU, after the parent files for bankruptcy, the bank is purchased by JP Morgan Chase. In the course of the research, I come to find that different kinds of toxic mortgages that Washington Mutual was putting out there, offering and [re]selling, were introduced through this bank that stood in the way of these homeowners getting relief.
And JP Morgan says well, we’re just stopping a worse disaster from happening, if that bank had gone under taking with it all of those mortgages. Hearing this, I asked Jennifer what echoes did you hear in your story, what echoes do you hear in hers, or how does it interconnect with your story around housing?
Nikole Hannah-Jones: When we look at why there was support for the FDR programs, there was this belief that this was really helping white Americans and the white middle class. When you look at the language around this financial crisis, it was about irresponsible black and brown homebuyers who were getting loans that they didn’t deserve. It was about some PC [politically correct] move by the government trying to help people who shouldn’t be homeowners be homeowners. So, it was a very different feeling about who should be getting a bailout: Was it the white middle class or was it blacks and Latinos? I also think that the echo is that the segregation created by these federal policies going back to the 1930s made the blacks and Latino community targets for this kind of lending. Whether or not these banks were being intentionally discriminatory and saying we’re going to go out and treat blacks and Latinos differently, you had these entire communities that were unbanked. Communities where no matter what your credit was, whether you had grade A credit, you had high income, you were unable to get traditional loans. You could target an entire community with these substandard loans that you knew were going to produce very high default rates.
We once had a woman on our program on a panel with a guy from Countrywide, the mortgage company, and when he accused her of having had no reason to get that mortgage if she couldn’t pay it, she said it was that or “having rats crawl all over my baby. There are 11,000 people waiting for section eight housing where I live. You don’t talk to me about choices.” That’s what comes across so strongly in your work. What models do you see out there that provide an alternative? You lay out a few in your book of not just myths to be done away with, but measures that might help even at this point.
Jennifer Taub: There are often courageous folks inside of the administration fighting against the status quo to make things fair. So whatever ideas that we come up with, we need people like that in the Congress, in the administration. Recently, someone like Sheila Bair who was the head of the FDIC, when she was in that role, when she was in Treasury, she was sounding the alarm about these predatory loans. In terms of the various ideas, I think there’s sort of a parallel track. We need to deal with the problems in the existing system. I didn’t think the financial system was broken, but after doing this research, I think it’s not broken, it’s rigged. It’s actually working as it’s designed to work. It means that there are winners and there are losers, and the winners are the big banks, and the losers are ordinary Americans: the consumers, the borrowers and taxpayers. We need to change that.
You talk about “legal enablers of the toxic chain.” I hear that in your work too, Nicole. That first question, what happened to caring? Sounds so naive and secondly, what other routes could we have gone down?
Nikole Hannah-Jones: The work that I do I kind of have a very long view of history. I think when it comes to housing, this has always been a very difficult issue for Americans. There’s a reason why real estate agents say “location, location, location” and not “house, house, house.” You’re not buying a house, you’re buying into a community; you’re buying opportunity – and we are very selfish about wanting the best opportunity for ourselves and not necessarily caring about what opportunities are left for other people; so, it’s been very hard to overcome that. We have a great deal of historical amnesia. One of the things that I hear when you talk about strong, fair housing enforcement, people say, ‘Well, that’s just social engineering.’ The government doesn’t need to social engineer, which is where I like to point out segregation was created by social engineering. We were fine with it then. It’s using social engineering to undo it is what seems to be the problem.
Rigging the banking system sounds like social engineering to me.
Nikole Hannah-Jones: Yes, it’s created a lot of these problems. You have communities that are unbanked and cut off from banking. You leave it open for predatory lending. But they are also people we don’t care so much about in the first place, which is why they are already cut off and unbanked, so then I don’t think there is as much political incentive for us to make it right.
Thank you both. Nikole, Jennifer; great to talk to with you. Keep up the good work.