It seems to me there are two narratives to the mortgage crisis. The first one is about the deadbeat who bought a $750,000 house in the suburbs, either with a liar loan or just because they are Stupid About Money. The stories of these elegant Mediterranean mini-manses with their green pools, perhaps littered with trash from the eviction, arouse every contemptuous emotion we have.
This one is popular among many Republican pundits. I don’t need to tell you why — it underlines their bedrock beliefs of personal responsibility and the blamelessness of the holy market, which knows all and is perfect. It puts blame for the disaster not on a corrupt system (except for that part that passed the Community Reinvestment Act), but on millions of individual shoulders, but, it goes without saying, never their own.
There’s a second mortgage narrative unwinding, however. It’s starting to get its share of attention, a bit of it this weekend, in a NYT magazine cover story and in a longer piece from the Associated Press. The magazine story is about Cleveland, the AP’s about Detroit, but the datelines are interchangeable — both stories apply to both cities. If all you read is the first narrative, you might not know that the crisis hit the inner city particularly hard, maybe harder than it hit the suburbs, and with more devastating fallout. You might not know that the stupid decisions made by individuals were aided and abetted by aggressive salesmanship on the part of the mortgage industry, whose representatives cold-called and went door-to-door with pitches that promised poor people $8,000 cash in hand by the day’s end if they’d sign here and here, initial here, and sign again here.
Many of these transactions were outright fraud. I can’t tell you how often I’ve heard a version of this story:
Waver Brickhouse, gray-haired and soft-spoken, has come undone twice during the nation’s housing crisis. In 2005, she fell behind on her mortgage payments and turned to a so-called rescue firm, which, court papers allege, tricked her into signing away the deed to her Brooklyn home. She says the company, Home Savers Consulting, secretly sold her home, with the help of a mortgage from IndyMac Federal Bank, and ran up huge new debts.
You wouldn’t think it would be possible to steal a house, would you? And yet it happens all the time.
Fraudulent or not, what’s happened as a result of all this vigorous capitalism has been devastating to poor neighborhoods. Detroit’s problems haven’t been getting much ink because Detroit was on the ropes before it all began, but I’m telling you what I’ve seen with my own eyes: While many of these neighborhoods were poor before subprime came to town, they were still neighborhoods. They were hanging in there. Houses were shabby but occupied. Today virtually every neighborhood in the city is dotted with what, if they were trees, would be called “standing dead” but in the real-estate world is called “O.V.V.” — open, vacant and vandalized.
Last year, a friend of mine wrote about the proliferation of $1 houses in Detroit. His editors weren’t convinced it was much of a story, but it was picked up by blogs all over the world, and for weeks, months afterward, his phone rang regularly with calls from potential “investors.” One gentleman called from Australia. “I don’t see how I can possibly lose,” he said. A house for a single dollar? It’s like finding gold on the ground. Ron said he tells these folks that a $1 house will require thousands in repairs, usually comes with thousands in unpaid back taxes, and frequently has judgments from the city to either improve or face court-ordered razing. Here’s one of Cleveland’s housing investors, from the Times magazine story:
So much here defies reasonableness. It’s what (city councilman Tony) Brancatelli keeps telling me. A few months ago, he met with Luis Jimenez, a train conductor from Long Beach, Calif. Jimenez had purchased a house in Brancatelli’s ward on eBay and had come to Cleveland to resolve some issues with the property. The two-story house has a long rap sheet of bad deals. Since 2001, it has been foreclosed twice and sold four times, for prices ranging from $87,000 to $1,500. Jimenez bought it for $4,000. When Jimenez arrived in Cleveland, he learned that the house had been vacant for two years; scavengers had torn apart the walls to get the copper piping, ripped the sinks from the walls and removed the boiler from the basement. He also learned that the city had condemned the house and would now charge him to demolish it. Brancatelli asked Jimenez, What were you thinking, buying a house unseen, from 2,000 miles away? “It was cheap,” Jimenez shrugged. He didn’t want to walk away from the house, but he didn’t have the money to renovate. The property remains an eyesore.
And so we come to the next chapter in the decline: The arrival of the flippers, the would-be landlords, the investors. The AP story is hopeful, but points out how many of these people aren’t even Americans. Like Ron’s Australian caller, they don’t see how they can lose:
“Do the math, you can buy and rehab a home for $20,000, then rent for $900 a month,” he said. “Three to four months of the year, rent is going to pay the taxes.”
The person doing the math is from England, who thought “it would be quite good fun to have a look,” and ended up buying six houses, with plans for “many more.” Well, I wish him luck. The story points out he’s not buying the $1 OVV’s, but decent places in still-stable neighborhoods. However, it’s hard to keep an eye on a real-estate empire from across the pond, and I think he may be overestimating the rental market in a metro area about to lose not just its biggest employer, but its bedrock industry. I heard an estimate over the weekend that if GM and Chrysler go under, we can expect a 25 percent unemployment rate in Michigan. Which officially clears the betting table, I’d say. I don’t see how he can possibly lose.
Come the apocalypse, I’m moving to the Upper Peninsula, where I will bitch about winter eight months out of the year, instead of my customary five.
Anyway, there’s your official Depressing Modern Life update. How about some grim humor?
Alcohol: Cause of, and solution to, all of life’s problems. Especially when combined with firearms.
And now, felled as I was by the grippe this weekend, I’m going to bed for a brief spell. Carry on in my (koff, croak) absence.