A powerful report on Detroit’s foreclosure crisis was published in the Detroit News June 25-27. (See tinyurl.com/ncymc9f.) The articles were the product of months of investigation by reporters Joel Kurth and Christine McDonald. They document what Workers World newspaper has stated for years: The banks are responsible for the destruction of Detroit’s neighborhoods and the loss of 240,000 residents since 2005.
McDonald and Kurth set out the following facts:
1. More than one in three Detroit homes have been foreclosed in the past 10 years. Since 2005, 139,699 of Detroit’s 384,672 homes have been foreclosed because of mortgage defaults or unpaid taxes.
2. There have been 65,000 mortgage foreclosures since 2005. This doesn’t include so-called zombie foreclosures in which lenders initiated foreclosure, and may have evicted tenants, but abandoned proceedings before they were complete. Zombie foreclosures were more prevalent in Detroit than anywhere else in the United States.
3. Fifty-six percent of all mortgage foreclosures are now blighted properties or have been foreclosed again for nonpayment of taxes; 13,000 homes are slated for demolition at a projected cost of $195 million.
4. Of the 84,000 properties on the city’s blight list, 76 percent are foreclosures.
5. Homes sold for $22,000 on average in Detroit in 2014, down 73 percent from the peak before the housing crash and the lowest among 50 big cities. Detroit’s decline in property values cost homeowners an estimated $1.3 billion in lost personal wealth.
6. Detroit’s population fell by nearly 240,000 residents from 2000 to 2010, with the bulk of the population loss occurring after 2005.
How did the crisis happen?
Kurth and McDonald show how mass foreclosures in Detroit were a direct product of massive subprime lending in the city. Of all mortgages written in 2005 in Detroit, 68 percent were subprime, compared to 27 percent statewide and 24 percent in the U.S.
Subprime loans have interest rates at least 3 percent above benchmarks established by government and various lending indexes. In Detroit, however, the interest rates were far higher. Subprime loans were usually written with low initial teaser rates.
These low interest rates would soon adjust upward to an unaffordable payment for homeowners, leading to mortgage defaults and foreclosures. Many studies have documented how people of color and women were targeted for these predatory subprime loans.
In Detroit, which formerly enjoyed the highest rate of African-American homeownership of any U.S. city, $4 billion in subprime loans were written in the four years before the 2008 housing and financial crash. In Detroit, 78 percent of foreclosed homes financed through subprime loans are now in poor condition or tax foreclosed.
All banks and lenders were active participants in the subprime market because the rate of profit on subprime loans when sold to investors was eight times greater than the comparable rate on traditional fixed-rate loans.
Federal government and tax foreclosures
Fannie Mae and Freddie Mac, government corporations operated by the Federal Housing Finance Agency, are listed as the foreclosing entity on 7,700 homes in Detroit, of which 46 percent and 58 percent are respectively blighted or abandoned.
The Federal Housing Authority was listed as the foreclosing entity on 2,453 homes in Detroit, of which half are blighted or abandoned. Fannie Mae, Freddie Mac and the FHA stand behind the banks that actually foreclose on homes, with the government then paying the banks the full value of the inflated mortgage after foreclosure.
McDonald and Kurth’s series demonstrates the relationship between the mortgage foreclosures occurring in 2005 to 2010 and the property tax foreclosures that predominate today. Many of the banks sold homes after foreclosure at prices tens of thousands of dollars below the loan values and thousands of dollars below the values upon which the property taxes were assessed.
The purchasers of the homes, such as investors who purchased blocks of Detroit homes for a very minimal price, never paid the property taxes on these homes. Therefore many homes that originally were subject to mortgage foreclosures are now subject to property tax foreclosures as well. In the meantime, the homes remained vacant and were vandalized, and now are blighted and slated for demolition.
Had the banks worked with homeowners to modify their subprime mortgage loans, or reduced the amounts owed to the true value of the homes, the homeowners and their families would have been able to stay in their homes. The spiral of foreclosures and blight could have been avoided. Rational planning, however, never occurs to finance capital, whose only interest is maximizing profit with complete disregard to the human consequences.
Coalition demands moratorium
The Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs first raised the demand for a moratorium or halt on all foreclosures and foreclosure-related evictions in 2007, when the crisis was just starting to unfold.
A coalition member got invited to a televised town hall meeting on Michigan’s economic crisis with liberal Democratic Governor Jennifer Granholm. The Moratorium NOW! representative explained to Granholm that under Michigan law she could declare a state of emergency and impose a moratorium to halt all foreclosures.
He told the governor about the 1930s’ Michigan foreclosure moratorium that lasted for five years during the Depression. Foreclosures were banned then and courts were mandated to set payments based on families’ ability to pay. The Michigan moratorium law and similar moratoria in 25 other states were upheld as constitutional by the U.S. Supreme Court.
Gov. Granholm’s response to putting a moratorium on foreclosures: “The banks wouldn’t like it.” A bill calling for a two-year moratorium was then introduced by State Senator Hansen Clarke, but it was stonewalled in the Legislature by Republicans and Democrats alike.
The coalition has stated many times: Had a moratorium on foreclosures been implemented in 2007, 139,000 Detroit homes would have avoided foreclosure, the population would still be close to 1 million, and the homeownership rate in the city would not have plunged from the highest to the lowest in the country. Instead, as McDonald and Kurth point out, Detroit and Michigan political leaders refused to take on the banks in any way, shape or form.
The people’s lost wealth
Kurth and McDonald’s series estimated that the foreclosure epidemic caused by the banks’ predatory lending practices has cost the city of Detroit approximately $500 million, with $195 million to tear down vacant homes and $300 million in lost property tax revenue.
But that is a fraction of the actual cost.
Detroit’s decline in property values cost Detroiters an estimated $1.3 billion in lost personal wealth. When 240,000 residents are driven out of the city and the wealth of the remaining residents is decimated, their income tax dollars and the money they spend on purchases within the city are lost as well.
In addition, the same banks which caused the destruction of Detroit’s neighborhoods then placed the city itself in predatory bond deals, often tied to interest rate swaps. The city lost approximately $1 billion to the banks in these swaps, as has been outlined previously in Workers World.
Today, approximately 20,000 occupied Detroit homes are facing tax foreclosure, with 25,000 other families facing de facto eviction through water shutoffs.
The state, under reactionary Gov. Rick Snyder, is sitting on $200 million in unspent federal Helping Michigan’s Hardest-Hit Homeowners Funds — funding earmarked to help distressed homeowners stay in their homes. Rather than release these funds to pay off delinquent property tax and water bills, this money is being diverted to Detroit’s “blight task force” to tear down homes instead.
The blight task force is run by Dan Gilbert, owner of Quicken Loans, a lender which has been charged by the Justice Department with fraudulent lending in connection with FHA loans and the responsible party for over 500 blighted homes resulting from Quicken Loan foreclosures.
Thus, the banks are being paid to tear down the blight they caused by their predatory lending policies, with funds that are supposed to be dedicated to preserving homeownership.
Take it from the banks, not the people
The Moratorium NOW! Coalition is demanding that there be an immediate moratorium on all tax foreclosures and water shutoffs in Detroit and that the federal Hardest-Hit Homeowners Funds be released and used for their stated purpose — to keep families in their homes by paying off delinquent tax and water bills.
Moratorium NOW! is also demanding the banks pay reparations to the city of Detroit for the destruction they caused, in the form of a $2 billion payment which can be used to implement a jobs program putting young people to work rebuilding homes and neighborhoods throughout the city.
The coalition is asking activists from throughout the U.S. to come to Detroit this fall for a massive demonstration to Stop the Foreclosures, Stop the Water Shutoffs, and Save and Rebuild This African-American City.
For more information, go to moratorium-mi.org, email [email protected], or call 313-680-5508.