After slaves were freed at the conclusion of the Civil War, “freedmen” were free to live their lives – the vast majority without land, without money, without jobs, without assets, without even owning the very clothes on their backs. Southern landowners, though doing better, were struggling. But they had land, the basis (along with slavery) upon which 80% of the nation’s economy relied upon and benefitted from before the war. Upwards of 800,000 acres of this land had been forfeited during the war and initially set aside for freed slaves (the broken promise of “40 acres and a mule”), but most of that land was returned to the former plantation owners when President Johnson rescinded the field orders of his generals. Having reclaimed the primary source of wealth, the challenge for Southern elites was how to enfranchise poor Whites and replicate slavery but by another name.
This is a theme we will see re-enacted throughout our history. One door to exploitation is closed, while another is opened. In the case of slavery, without a path to ownership or possession of land, there were few options for ex-slaves. This condition was made worse through so-called Black Codes, and later due to Jim Crow laws and conventions that limited the occupational options for Blacks mostly to working as house servants and farmers. For many families, the only available path to survival was sharecropping, a practice that, in many ways, worked better for plantation owners than slavery since “free labor” (i.e. non-slave labor) meant that plantation owners were freed from caring for their workers, having an abundance of substitute labor available without the cost of acquiring that labor.
The way that sharecropping worked was that an owner would permit families to occupy some part of his land. The owner would rent supplies, tools and houses (if you could call them that) to the sharecroppers. The sharecroppers would work the owner’s land in return for a portion of the harvest, which portion would then be reduced by the amount of rent owed for housing, supplies, tools and other necessities. Sharecropping arrangements were often harsh and dehumanizing and increasing the debt load of the tenant farmers maintained reliance upon the land owners for basic survival. This is another recurring theme of exploitation, namely creditor abuse, creditor management of debt and increasing consumer/worker reliance on debt to survive.
These arrangements, in many ways, were similar to arrangements in so-called “company towns” where housing and “company stores” were owned by the company. Many companies actually paid their workers in company scrip, which could only be used in the company store, and which were never sufficient in quantity for a decent living. This system effectively forced the workers into a form of debt peonage, memorialized in the song “Sixteen Tons:”
You load sixteen tons, and what do you get? Another day older and deeper in debt. St. Peter, don’t you call me, ’cause I can’t go; I owe my soul to the company store.
In more modern times, the legacy of these kind of schemes persists in the form of payday loans, title pawning, rent-to-own and other such mechanisms designed to strip equity and increase debt dependence. That is what all of these schemes have in common. They exploit those with limited means, regulate the poor, the working class and increasingly the middle class through the provision and management of debt, use government and the public at large to reduce risk to the creditors through insurance, purported insurance scams like Credit Default Swaps, “collateralized securities” and statutory “reform,” such as disallowing discharge of student debt through bankruptcy, and more. Beyond such government supported, facilitated and even encouraged schemes, once the need arises through excessive scandal or expressed public outrage, approaches are simply adjusted to maintain the effects of predation while changing the form. Examples of this include but are certainly not limited to: transitioning from slavery to sharecropping, slavery to prison labor; abandoning union busting in favor of off-shore manufacturing; belatedly complying with laws against redlining and instituting sub-prime lending practices; learning from company stores and applying these lessens to credit cards and other forms of credit; shifting predatory lending practices to mass purchasing of foreclosed homes and profiting off of home leasing arrangements (dealt with further below).
Welcome to the world of finance capitalism, what I consider the final phase of capitalism. As one generation after another engages in these and other forms of exploitation (focused also on limitation of wages, elimination or diminution of government regulations and reduction of taxes), money becomes less and less a utility and more and more the very basis of private wealth. In essence, money is reified. Land is no longer the primary basis of wealth. In fact, land is just one other commodity used to facilitate exchange and extract profit. Just as land was the sole asset needed for survival in the post-bellum South, money is now the sole asset needed for survival everywhere. And just as land has been historically monopolized as the means to breed dependency and exploitation, now money, through its monopolization, is the means, through credit debt, to breed dependency and exploitation. In the process, what once was seen as a component of America’s exceptionalism in the realization of the “American Dream” through homeownership is abandoned.
Redefining the American Dream
Homeownership has represented an American ideal and component of what has been described as the “American Dream” for the better part of the last century, replacing the former ideal of the independent family farmer. As an example of this sentiment, what follows is part of an official White House release from G.W. Bush, building on the former (Clinton) administration’s explicit goal of expanding homeownership – not through assistance and oversight, but – through the unleashing of the neo-liberal mantra of deregulation.
On White House Stationary:
“[H]omeownership lies at the heart of the American Dream. It is a key to upward mobility for low- and middle-income Americans. It is an anchor for families and a source of stability for communities. It serves as the foundation of many people’s financial security. And it is a source of pride for people who have worked hard to provide for their families.”
President George Bush
June 2001
From our Nation’s earliest days, homeownership has embodied core American values of individual freedom and self-reliance. Expanding homeownership has been longstanding national policy, dating to the time President Abraham Lincoln signed the Homestead Act. The reasons for this are clear: homeownership benefits individual families by helping them build economic security, and it fosters healthy, vibrant communities.
- Good for Families: Owning a home provides a sense of security and allows families to build wealth. A home is the largest financial investment most American families will ever make, and it allows families to build financial security as the equity in its home increases. Moreover, a home is a tangible asset that provides a family with borrowing power to finance important needs, such as the education of children.
- Good for Communities: Homeowners work to maintain the value of their investment, which translates into a greater concern for neighborhoods and surrounding communities. A family that owns its home is more likely to upgrade the property, to take pride in its neighborhood, and to feel invested in the community. When citizens become homeowners, they become stakeholders as well. By increasing the ranks of stakeholders, communities not only enjoy increased stability but also benefit from a new spirit of revitalization.
Of course, this policy statement and the programs developed to implement the policy led directly to the mortgage foreclosure and finance/investment crisis leading to the Great Recession of 2008. The components of this crisis mainly involved the liberalization of financing models intended to increase homeownership. These policies unleashed the forces of predatory lending and investing, which identified all sources of potential home equity for refinancing and all sources of primary and secondary cash flow as the means for securitization and passing off of any risk to the public. Temporary expansions in homeownership essentially became the scourge of minority borrowers who, regardless of creditworthiness, were steered towards subprime loans. Not to leave out White homeowners, they were also targets, particularly if they were senior homeowners. The goal was simple: strip equity from homes through “teaser” rates available through Adjustable Rate Mortgages. Younger White and other homeowners were convinced of the “win-win” inevitability of ever-increasing home prices, thus justifying negative amortization (when disclosed) and banking on selling at a higher price or refinancing at fixed rates at a future date.
We don’t hear much these days about homeownership and the American Dream. After the Great Recession, with its millions of home foreclosures and losses of upwards of $7 trillion in mostly hard-earned equity, the “investment/finance” sector changed course. That course entailed buying up foreclosed homes after 2008 and having tapped out that resource this new profit sector is now competing with prospective buyers, gobbling up homes for sale and renting to those who have incomes but lack the wealth, which they either never had or lost or was stolen from them, to make a down payment.
Legal Theft; Acceptable Fraud
Prior to the economic meltdown, I ran an organization known as the Parodneck Foundation in New York City. One of the programs we had was a home repair program for seniors who were on fixed incomes. The idea was to maintain their houses, retrofit them as necessary, and make needed capital improvements, all intended to improve their quality of life and to prevent the premature institutionalization of seniors. The program had been in operation since 1986 but starting in the late 1990s eligible seniors were applying for home improvement loans and we were shocked that so many had extremely high housing debt ratios, poor credit reports, and mortgage, utility, municipal and other arrears, putting them at danger of default and preventing us from extending much needed assistance (our loans, funding by the city, were mostly deferred loans due on death or resale).
Our organization quickly evolved into a mortgage counseling center, amassing information on countless seniors, and working to address their problems. What we discovered was nothing less than criminal. It appeared that “investors” were checking title records and finding homes with 20 and 30-year-old mortgages. It goes without saying that such a home likely was sitting on a boatload of equity. With targets in view, brokers began reaching out to homeowners using hard sell tactics, talking up the untapped resources hidden in their homes that were being “wasted” by not refinancing. The entry points were many. Mortgage brokers, loan officers, real estate brokers, home improvement contractors were all entry points for stealing the equity of senior homeowners – mostly senior homeowners of color. One lady told us that she actually signed loan papers that she did not read in the hospital on the day after an operation. Another senior told us that she had a minor roof leak and the contractor convinced her to talk to a mortgage broker about upgrading the house. While she did in one room, the contractor was tearing out her bathroom upstairs, thus forcing her to agree to refinance and maximize home improvements to ensure value. Another senior did not want to go through with the loan, but when she went to closing she was surrounded by all the people who were getting paid out of her loan proceeds. She said that she felt that she was among a pack of salivating wolves. These are only a few of the stories.
After a while, it seemed to us that financing, underwriting, appraisals, mortgage brokering all began to feed off of themselves, raising home values and increasing opportunities for exploitation and profiteering. Then in 1999, the federal government’s two GSEs – Fannie Mae and Freddie Mac – began to purchase sub-prime mortgages, abandoning what were very conservative and safe underwriting standards. Of course, the purported purpose was to spur homeownership among minorities, but they ended up doing more harm than good. Motivations were mostly political, but also financial since the increase in volume resulted in annual bonuses in excess of $10 million to the those running the GSEs.
After the crash, and after fraud stripped trillions in equity from hard working and retired Americans, there was nothing that amounted to a reckoning or consumer restitution. Those who benefitted from this universal theft were the very ones who were bailed out. At Parodneck, as mentioned above, we provided mortgage counseling services to victims of predatory loans, mostly sub-prime loans that were advanced and (seemingly and mostly) reserved for seniors seeking home improvements and homebuyers of color. This became a very frustrating experience. Our counselors would make home visits, comb through credit reports, read through closing documents, spend hours speaking with mortgage modification officers from all of the major lenders, only to be told – after months of work and after making the case that a modification was called for – that a new bank officer was taking over the case. Fine, right? Not by a long shot. Our counselor would inform the new bank officer of the status of the application for modification but time after time the new bank officer would say that he did not have the file and that the process would have to begin again. This happened repeatedly and with all of the major lenders of sub-prime loans and the servicers that we worked with. There is no way that this could have been such a pervasive practice if not for the tacit approval of President Obama’s Treasury Secretary at the time, Timothy. F. Geithner.
And there are other indications that the federal government ignored victims of financial scams and dragged their feet on other areas of potential help to troubled mortgagors. On the campaign trail, Barack Obama supported a practice known as “cramdown.” If provided for in “must pass” legislation, this provision would have allowed bankruptcy judges to write down the mortgage debt and/or revise the repayment terms, just like other debt is forgiven or restructured in a bankruptcy action. But once in office, this commitment faded as the new Administration failed to include these provisions in “must pass” January and February bills to address the banking crisis. [Relatively on its own, the cramdown provision failed to pass the Senate in separate, April 2009 proposed legislation.] The actions show where the Administration’s priorities were.
The administration’s eventual program, HAMP, grew out of the banking industry’s preferred alternative to cramdown, one where the banking industry, rather than bankruptcy judges, would control loan restructuring. Unfortunately, the program has been a success for bankers and a failure for most hard-pressed homeowners[i].
From Homeownership to Single Family Sharecropping
With Sharecropping, you can live on my land, but nearly all the value derived from that land I get to keep. With rentals of single family homes by corporations, you get to live on the land but, again, nearly all of the value I get to keep. What is the real difference? If you own a home with a mortgage, at least you can build up equity over time. It would seem that the derivation of the word mortgage – “mort gage” or “dead land” seems more apropos to these corporate renting schemes than to typical homeowner mortgage financing.
With regard to the mortgage/investment crisis of 2008, a crisis that created a global recession, some small time local brokers did end up in jail. From what we learned on the ground, these people mostly represented the point of entry for outside predators who, as described to me by one advocate, came in to the area like locusts, made their money, and then left, leaving local mortgage brokers and other local collaborators holding the bag. But in terms of Wall Street, only Lee Farkas from Taylor Bean and Whitaker ended up serving time for 14 counts of conspiracy and fraud. [Farkas did nine years of his 30-year sentence.] So here we have trillions lost in home values, but even though the values may have been inflated, much of that value did not disappear. It was essentially stolen and privatized in the form of interest, fees, bonuses, yield spread premiums and commissions. Much of this money was available for a new use. And even though I have no proof of this, I suspect those who were enriched through this period of finance predation are the same people who knew that renting would be the wave of the immediate future. Stripped of their wealth, people still had incomes to live on and a need to be housed. Thus started the era of burgeoning corporate ownership of single-family homes held for rent. According to a 2019 Bloomberg City Lab article, based upon UCLA and National Bureau of Economic Research:
more than 12 million single-family homes are currently being rented in the United States. Those homes, valued at more than $2.3 trillion, make up 35 percent of all rental housing around the country. In the past, the great majority of single-family homes that were rented out were done so by their owners or small real-estate companies. But today, a large and growing share of single-family rental homes are owned and managed by large corporations, real-estate firms, and financial institutions. The percentage of home owners is at its lowest level since the 1960s.[ii]
What does a typical deal look like? From one renter I spoke to, the leases are net leases. The only things the corporate “owners” pay for are local taxes. So the homeowner is responsible for basic maintenance, renter’s insurance (that includes property and liability), and utilities. In fact, this renter conveyed a story to me that is probably typical. Her family experienced a failure of the septic system causing raw sewage to back up into their home and causing them not to be able to use the first floor bathrooms for an extended period. As a major item, this was not a renter responsibility. But the corporate attorney threatened to take her to court when she held back the next rent that came due after repeated broken promises that the situation would be corrected. They actually began a court case against the renter, while calling the person over and over again, first threatening, then gradually changing to an appeal to stipulate a settlement. The attorney even called her late on the night before the court hearing to try and settle. It was only when they were scheduled for the hearing and outside the courtroom that the lawyer for the owner consented to stipulate to do the necessary repairs and provide a partial offset in the rent due for what really amounted to a constructive eviction. Imagine all those renters who cannot afford, due to work or child care or other caretaker responsibilities, to take the day off to go to court. They would likely just make the repairs and eat the cost. There are rent to own arrangements but they are few and far between, only in “targeted” areas, and usually an option after the houses have been rented out for an extended period. So in a basic transaction, let’s assume the investor pays $250,000 to purchase a home. Yearly costs for taxes may be $2500. Monthly rent could be as much. In that case, on a $250,000 investment, the annual return on investment is $25,500. That amounts to a 10% return on investment. Add another $7200 for depreciation (I assume these arrangements are not considered passive investments) and the return amounts to about 11%.
The impact on this corporate infusion into the home buying market, falls into the mold of historical exploitative practices. Among the impacts:
- Holding such a large percentage of the market forces prices upward, making it more difficult for people to become homeowners and, if they do, requiring that they pay more than in a more conventional housing market.
- With this extent of involvement in the housing market, brokers know they have ready buyers. Some brokers that I spoke with have stated that a property might be listed at 11 AM and by 2 PM it is already “Pending,” with back up buyers already lined up.
- By over-charging working class and middle class families for rent, compounded by associated fees for utilities and amenities, this prevents these same households from being able to save sufficiently to afford a down payment necessary to become homeowners. It also may result in increased reliance on consumer debt, particularly in the current economic downturn spurred on by the pandemic.
- The tightness of the market prevents prospective buyers from the ability to negotiate. The market right now in the Atlanta area is such that if you do not have a legitimate pre-approval letter (for financing), are prepared to make an immediate decision, and offer more than full price, your prospects are slim to none of getting the opportunity to purchase a home.
- Add to housing debt the pervasive absence of savings and the reliance on credit and we are entering a period when the American exceptionalism, of which the American Dream of homeownership has been a component, is becoming the exceptionalism of an American nightmare.
So just like with sharecropping, company towns, and countless varieties of predatory creditor schemes, the path to a thriving middle class is being stymied by monopolization of the primary asset necessary for inter-generational prosperity and well-being – access to wealth, or money. What source is available for the accumulation of wealth? Who is able to buy enough land, pay for its upkeep and taxes, purchase the equipment necessary to compete and support a family? Who is able to invest in industrial machinery and produce goods that survive in an environment of global competition? Who has access to the critical information and other resources necessary to invest in the stock market without speculating? And if any of these represented a path towards economic self-sufficiency, who has the money to invest in the first place? As time goes on it seems that the words of the anarchist Peter Kropotkin gather increasing resonance for the majority of us. As he stated in The Spirit of Revolt, “Everything has been appropriated by somebody; he [the worker] must accept the bargain or starve.”
We do not have to accept the bargain as presented and we do not have to starve. But first we must overcome the racist barriers that we ourselves erect, support, tolerate and/or ignore that prevent true democratic rule by the majority, fully appreciative of the benefits of and necessity for uniting around our diversity, and operating pursuant to values that merge the connection between and among social relations, economics, politics and our ecosystem – a paradigm Murray Bookchin described as Social Ecology. The work ahead: When Whites had exclusive access to publicly provided benefits, they were in favor of those supports; when public benefits were made accessible to all, budgets for public facilities were cut, public pools were drained, and all forms of public support were defined as socialism or welfare. When democracy was controlled by a super-majority of White Americans, it was great. But now with trends tending towards a “majority-minority” country, democracy is not only questioned, but under attack. Unions, and the bargaining power, wages and benefits that went along with them, were recognized and acknowledged as a value to our democracy and economy when they were mostly exclusively White, but as minorities entered and became a more substantial part of the labor force and members or eligible for membership in a union, “right to work” became the new norm. Homeownership was a national goal until homeownership was no longer the nearly exclusive province of White households. Now, it seems we are reconciled to have a renter society.
Until we overcome what reporter and author, Eduardo Porter, defines as “America’s Fundamental Paradox,” a paradox that causes Whites to reject publicly provided benefits when not exclusively benefitting Whites, we will not be able to overcome successive manifestations of constantly revamped exploitation. So let’s start with prohibiting corporate involvement in the small homes rental market and using eminent domain to buy out those houses currently in corporate portfolios. We can make this policy part of a revival of the American Dream, but this time one that is inclusive. There are national and local not-for-profits operating in communities of color who could take ownership of these homes, market them to suit their communities, and any amount over what people in these communities could afford to pay based upon the market would become a “shared equity” lien on the house, due and payable to the not-for-profit upon sale. Forgivable down payment assistance (based on longevity of tenure in the home) should also be a part of this American Dream Revival Program. Such a program would not only be equitable and represent a down payment on reparations, but would also please my Fair Housing associates
[i] David Dayen, A Needless Default (The American Prospect Magazine, Winter 2015 Issue, 2/8/15)
[ii] https://www.bloomberg.com/news/articles/2019-10-04/the-decline-in-owner-occupied-single-family-homes