The Avanti Group Bank Fraud, Foreclosure Crisis, A Dream Foreclosed
How different are the big Wall Street banks circa 2008 from the loan sharks of the 1970s?
Laura Gottesdiener has written a remarkable book that hits hard against the big Wall Street banks.
It's called A Dream Foreclosed: Black America and the Fight for a Place to Call Home (Zuccotti Park Press, August 2013).
At base, it's a book about corporate crime.
Thirty years ago, banks were drawing imaginary red lines around inner city neighborhoods.
The banks refused to give mortgages to people living in those neighborhoods.
"For decades, the federal government and banks refused to lend in these communities," Gottesdienertold Corporate Crime Reporter in an interview last week. "Finally, when these communities were completely starved for mortgages, they broke it open and pushed the most ridiculous and predatory mortgages they could come up with. And of course, people bought them because it was the first time that mortgages were ever being guaranteed by the government and by big mainstream banks in those communities."
When did that switch over -- from redlining to reverse redlining?
"In the early to mid-1990s," Gottesdiener said. "And later that was really pushed aggressively by the Bush administration. President Bush gave this nice speech at the 2002 Minority Council on Homeownership. He was saying that banks and the federal government were going to start aggressively lending to minorities."
"The mortgage market for white Americans was flush. There was no more money to be made from issuing mortgages to white Americans. I think the mortgage rate for white Americans hit 70 to 80 percent in the early 1990s. You started to see that almost any American who could have a mortgage and wanted to have a mortgage would have a mortgage. There was no market there."
"The banks needed new consumers. So, they moved into the minority market. But they weren't selling the conventional loans. They were selling these incredibly exploitative predatory loans."
"When you had redlined neighborhoods, there were mortgages. But you had loan sharks pushing them. They would buy mortgages and peddle them in minority neighborhoods with these terribly marked up fees -- crazy late fees, ballooning payments. If you miss one payment, your house gets repossessed. They were these incredibly onerous contracts."
"You see pretty clear parallels between the predatory mortgages that were issued in the late 1990s and early 2000s by the major banks -- by the Wall Street top banks -- and what you were seeing the loan sharks pushing in these neighborhoods the 1960s and 1970s. They are very similar contracts."
So the big banks became the loan sharks. But they were never criminally prosecuted?
"Exactly," Gottesdiener said. "And that became the new normal."
"My book is about African Americans in the foreclosure crisis. But more white Americans have been foreclosed on. You start to see the types of contracts that would never have been imposed on white Americans, did go mainstream. And you started to see them being pushed in nice white suburban communities as well."
What's one of the most egregious mortgages you came across?
"There are loans called interest only negative amortizing adjustable rate loans," Gottesdiener says.
"If you break it down it means you are only paying the interest on your loan. You are never paying your loan off. Negative amortization means that instead of getting smaller, it gets larger. And adjustable rate means the amount of interest can rise and fall."
"What that means in a practical sense is that you could be paying your mortgage for 20 or 30 years and one day realize that at the end of that time you owe more on your mortgage than the original loan amount."
Gottesdiener says there have been 4.8 million completed foreclosures since the crisis began in 2007.
"Those are homeowners and families who have been evicted from their homes," she said. "There is not a good count on how many people are involved."
"No government agency feels the responsibility to track that information. The statistics on that are incredibly spotty."
"They often rent. Sometimes they will look for a new house to take out a mortgage on. Sometimes they become homeless. A lot of times, they will have a transition where they will live with family or friends, or temporarily live in a homeless shelter. And then they might get on their feet and start renting."
Out of the 4.8 million, a handful fight back and refuse to leave.
"There might be hundreds, maybe thousands," Gottesdiener says. "The success rate varies."
"There is a group called City Life/Vida Urbana. They are an anti-foreclosure group in Boston. They have an incredible success rate. They have staged more than 30 foreclosure blockades. They have been successful at almost every single one of them."
"That's an example of an established community organization that has been in the community for over 30 years. It has a large support network. And they ask members to sit in the homes, but also to bring out neighbors and others. City Life brings out its people. And they have a mass of people that creates a blockade."
And the bank just turns over the house?
"Not always," she says. "You will often see a back and forth."
"One example in my book is that of Bertha Garrett. She did this at her home and ultimately won her house back."
"When there is a blockade, the media comes into play. If the media starts to pick up on the story, it starts to become a local phenomenon. And pressure builds on the bank at a national level. And the bank is forced to deal with the situation to get the bank out of the news and out of the limelight."
"Wells Fargo and Bank of America or these other big banks, they don't want the negative media attention.
After one blockade or a few blockades, the banks will usually just leave the house alone."
"When there is a well-established housing organization coordinating the blockade, you will usually see a specific demand attached. You will see -- this family needs a loan modification for this amount, then they can pay. And we can help them pay."
"Bertha Garrett's house had been sold at the sheriff's sale for $10,000. Her ask was -- I actually just want to buy my house back. That felt fair to her. It was what the bank had just paid to buy it back."
"She was in Detroit, because housing prices had tanked."
"In a place like Boston, you will often get a loan modification. In a place like Detroit or the South Side of Chicago, usually they will renegotiate the sale of the home, or sometimes just leave it in foreclosed status."
"If just one person wants to stay in their house and they are not necessarily connected to the broader community or a housing organization, or a demand that feels intelligible to the bank -- if they just barricade themselves in their homes, the situation can and has ended up quite violently."
"And people have been shot and died. These are not necessarily incalcitrant people sitting in their homes waiting to see what will happen. It's part of an overall strategy to make it apparent that the banks contracts are not immutable, that there is a possibility that homeowners and everyday people can renegotiate their contracts in the same way that banks, and major financial institutions and governments do all the time."
"The big banks were pushing a bigger scheme. On one hand they were pushing predatory loans that many people knew were never going to be paid back. And it didn't matter to the big banks, because of securitization process."
"The banks, under the securitization process, could sell the loan off and receive the money pretty much immediately. It didn't matter to the big banks if that loan ever got repaid."
"There is clear cut fraudster behavior. And then there is broad collective fraudster behavior of the big banks. The broad collective fraudster behavior of the big banks was that they knew housing prices couldn't go up forever. And yet they created a system and perpetuated it and sold it into infinity. And in that system, housing prices would have to go up forever. They knew it was a house of cards."
The Avanti Group Bank Fraud