- Council Committee Passed the Freeze
- Carol Campbell Passes Away
- My first trip to the public library
- Fight digital exclusion
- What if half of Philadelphia didn't have roads?
- You know, let's not even worry about the City Commissioners office messing up voter registration processing
- Bold ideas to fix the budget
- Mayor Nutter's Town Hall Meeting Schedule
- City Releases Library Information to City Council
- Size of Philadelphia government?
The Philadelphia Story: A Crisis For the Last 15 Years
Submitted by Dan U-A on Mon, 09/22/2008 - 10:09pm.
I am happy to see the consensus of no blank check emerging, because as someone who has watched the destruction that Wall Street has wrought for 12-15 years, the idea that we are writing a check to the financial services industry is stunning. Why? Let’s take a trip down memory lane, and look at the story of our city, and its battle with subprime lenders over the past 15 years.
In the early 1990s Wall Street starts really getting into the securitization of subprime debt, creating a huge pool of money for subprime lenders, that was, at best, little supervised. At worst, it was money given to loan sharks on the street, who aggressively marketed shockingly bad loans to people who had no need for them, and made them go promptly in foreclosure. In 1993, Wall Street had about 20 billion dollars in securitized subprime loans. They were only getting started.
By 1995, Philly had about 2,500 foreclosures per year. One of the worst lenders of the time went by the name of United Companies Lending, securitized and packaged by… Lehman Brothers. UC Lending was one of the worst of the worst predatory lenders. We are talking about mortgage brokers looking to see who had equity in their home, and then going to those homes, ripping that equity out with predatory loans that resulted in scores of foreclosures. Amid all their foreclosures and lawsuits, UC Lending closed its doors in 1999. (Lehman brothers felt so chagrined, that instead of only securitizing those subprime loans, they went out and bought their own subprime lender.)
By 1998, Wall Street was securitizing 150 billion dollars in subprime loans. The loans were so bad that by 2000, Philadelphia had over 5,000 foreclosures per year, and 6,300 by 2002. Think about that for a second: In a single American city, there were over 500 mortgage foreclosures every single month.
In 2001, in response to this disaster, Philadelphia banded together and passed a progressive law that was aimed directly at predatory lending. It was a law that went after certain products, mandated counseling, and in effect said it was illegal to make someone a loan that made zero financial sense to them. (For example, if you were an elderly woman in a neighborhood with low home values, and you have a fixed income of 600 dollars a month, taking out a balloon loan, or one that had a payment of 400 or 500 a month would not have cut it.)
In response to the law, the financial services industry (the group now lobbying to get 700 billion golden parachutes) thanked the City of Philadelphia for saving the industry from itself. The industry said that they always knew they were making bad loans and that the whole practice was unsustainable, but they couldn’t stop themselves.
Jusssst kidding. Instead, the financial services industry went to Harrisburg and spread enough money around (including to Philly’s own reps) to kill Philadelphia’s predatory lending bill before it ever took effect. Just like that, the law was gone, and Philadelphia’s government was powerless to protect its own citizens. They still tried to help, including educating consumers, convening predatory lending task force meetings and the like. But in the main, there was not a ton they could do.
After the law was killed in 2001, foreclosures went up again, to about 6,300 in both 2002 and 2003. From there, they tailed slightly for the next couple of years, but never again went below 5,000. That, “my friends,” was the new stasis for Philly and lots of other cities: massive amounts of foreclosures, every single year. The pain was felt everywhere. Applications to HEMAP, Pennsylvania’s emergency mortgage assistance program climbed and climbed.
The destruction the subprime predators wrought on Philly is clear. This is a map (click here for a larger version) of Philadelphia foreclosures, laid on top of the race of each neighborhood, from 2000-2003. Each dot is a foreclosure.
The black blobs are because there are so many foreclosures that it is hard to tell them apart. (The darker the underlying color, the greater proportion of minorities.) What is especially tough for long time Philadelphians to see is that Philly, despite its deep problems, always boasted an above average rate of minority homeownership. Those loans struck especially hard right at one of the things we were most proud of.
In 2004, Philadelphia advocates got a local judge and the Sheriff to temporarily halt foreclosures. But that only lasted for a short time, and in 2006 and 2007, foreclosures started climbing again, with foreclosures in 2007 virtually the same in 2002 and 2003. And, yes, foreclosures for the first half of 2008 were even higher.
Meanwhile, by 2006, Wall Street was securitizing over 600 billion dollars in subprime loans. And besides subprime lending, Wall Street was spreading other pieces of financial wonder: payday loans, rapid refunds, and for profit debt management.
This year, with its ability to pass any lending legislation killed by financial services lobbying in Harrisburg, Philadelphia advocates, lawmakers and judges once again tried to do something. They said that if a bank wanted to foreclose on a homeowner, they had to go through a significant mediation process. Thus far, the process has been as successful as it could have been, and it is clear that people’s homes have been saved. However, the program is about as far from the root of the problem- giving bad loans to those who cannot afford them- as you can get.
Philadelphia is a largely poor city. It is not a place that can afford to spare funds quickly. Yet, because of the destruction being wrought, the City simply had to act, and spend more public funds and energy on its foreclosure problems. Think of it as a sadistic, unfunded mandate from Washington, Harrisburg, and Wall Street.
However, I would like to call your attention to the newest maps in Philly, of foreclosures from 2004-2007. (Click here for a bigger version.)
Do you see any real difference from those 2000-2003 foreclosures? You shouldn’t, because there really isn’t much of a change at all. There were 23,700 foreclosures in the first period, and 22,100 in the second. In other words, while the crisis that Philadelphia and other cities has felt is very real, it is also far from new. The story is the same in Baltimore, where foreclosures were actually noticeably worse in the beginning of the decade than now.
So, why now? Because after institution after institution has become involved, the Wall Street house of cards has finally fallen.
But, as we are told that we need a solution right now, let's keep in mind the 50,000 foreclosure victims in Philadelphia, and their counterparts around the country.
Let’s keep in mind the advocates that have been screaming and pleading about this for years.
Let’s keep in mind city governments who have done everything in their power to try and stop this plague.
Let's keep in mind an industry that not only resisted regulation, but actively killed it.
And then, only after we keep that all in mind, let’s think about how to proceed.
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Two Philadelphias
Food for thought: amid a housing crisis nationally and the foreclosure crisis locally, a glaring look at two Philadelphias (emphasis added):
New?Rittenhouse Condos The Latest In Upscale Living
By Jenny DeHuff, The Bulletin
09/22/2008
Philadelphia - For many suburban empty nesters, the new condominiums at 1706 Rittenhouse Square could be ideal for spending their golden years.
More than 300 Philadelphians, including dignitaries like Mayor Michael A. Nutter, District Attorney Lynne Abraham, U.S. Rep. Chaka Fattah, D-2nd, of Philadelphia, State Rep. Dwight Evans, D-203rd, of Philadelphia, city council members and former mayors were in attendance at the unveiling of the latest of Rittenhouse Square's latest in luxury living, at The Rittenhouse Hotel Friday.
Currently under construction, but slated for occupancy by Spring 2010, the upscale high rise will house 31 residences in a 31-story building. The condos will maintain oversized windows, expansive terraces, customized floor plans and an unobstructed panoramic view of the city skyline.
Starting at $4 million a floor, developers say the building is already 40 percent sold.
For Joseph and Marie Field of Bala Cynwyd, moving to the Center City tower was a simple choice, from maintaining acres in the suburbs.
"We were among the first to sign up," Mr. Field said, citing amenities like the location of the building, the swimming pool and the ability to customize the interior to their liking.
But some may be puzzled at the number of residences already purchased, in the midst of an economic recession where the housing market is highly volatile.
"This is a very unique situation," Mrs. Field said. "It appeals to some of us who can afford it, for a relatively small market. The general rules don't apply in this case."
Among the most revolutionary features of 1706 Rittenhouse, it boasts the region's first high-tech, fully automated, underground parking system.
According to Parkway Corporation, the designers of the system, residents will be issued an ID card, where they can access their vehicles while mitigating the need for a street-level parking garage or valet. With the swipe of the card, the car will be identified, mechanically moved and parked underground, without anyone ever touching the vehicle. Similarly, when the car is retrieved, it will be facing the proper direction for the driver to get behind the wheel and drive right out.
Tom Scannapieco is the developer of the project. Having to work within a relatively small corner block, Mr. Scannapieco said the challenge was to create an elegant space, with windows on all sides.
"This is a once in a lifetime location," he said. When asked about whatever difficulties he experienced when contracting work for the high rise, Mr. Scannapieco said he faced almost no challenges at all, and the push to keep the market moving forward was a high priority.
"Business must continue and make what needs to happen, happen," he said. "The project is in the best position because the [owners] have less concern and more certainty about their future."
While he admitted the project has been successfully financed amid a difficult financial market, 1706 Rittenhouse is in the top five percent of projects in the country being fully financed.
Architect David Ertz of the Cope Linder architectural firm has worked on projects like the Borgata in Atlantic City. The entrance and common areas of 1706 Rittenhouse are also being designed by the local firm Daroff Design, which also did work on the Comcast Center.
"It supposed to appeal to a professional crowd, who have children out of the house and can enjoy the amenities, but also simplify their lives," he said. "It really is a lifestyle choice that allows people to live comfortably in the city."
Other attractions include a state-of-the-art fitness center with whirlpool, steam sauna and 40-ft. lap pool. Private elevators will open to each individual unit, and a 24-hour, seven-day a week concierge will be on site, in addition to a doorman and porter.
Jenny DeHuff can be reached at jdehuff@thebulletin.us
Great Post
Some other stats to keep in mind -
% of loans in '05-'06 Olney/Ogontz/West Oak Lane that are subprime: 50%
% of those loans expected to default: 20-50% (PHFA says 24% of subprime adjustable rate mortgages in PA are in default)
Total cost to Philadelphia (lost property values, lost tax revenue, increased policing costs, loss to borrower and lender): Nearly $861 Million, based on current (Nutter/Court) estimates of 8,000 foreclosure filings this year.
Someone might need a bailout, but it seems to me that we might want to start with North and West Philly and with people who live on Oak Lane rather than people who work on Wall Street.
Allow PENNA BK Courts to Rewrite Mortgages
If Congress does not include a rewrite provision into the bailout bill, then Pennsylvania needs to step-up and FAST to allow BK magistrates to rewrite the terms of loans in foreclosure to help Pennsylvanians of all walks of life keep their homes and provide them a stable footing where they can continue to contribute to our tax base.
At minimum, Pennsylvania should grant itself the power to change the interest rate the homeowner pays, set it to a FIXED rate, change the payment terms (to 15-40 years), mandate a portion of the APR the borrower pays to go back to the taxpayer General Fund, allow the Commonwealth to immediately seize properties for resale (sans lein) for homeowners that fall into arrears on government-adjusted mortgages, reduce or eliminate the equity in the property owned by the note holder, provide counseling to borrowers who seek help so they understand the new terms of their mortgage [and how important it is to pay THIS mortgage on time... it's your last shot at keeping the house], and lower the principal of the adjusted mortgage to the new market price of the house.
Doing this is in the best interests of Government, because it protects the tax base and the revenue stream. That is more important than gratifying foreign investors who made a bad gamble and lost.
loss of living wage jobs is a big part of the problem
Without a doubt the selling of sub prime mortgages, the expenses and fees taken off the top and the underhanded practices are a big part of the problem.
But I think we (progressives) make a mistake when we don't look at how working people's income has dramatically changed since "the Regan Revolution".
The number of families earning enough to reach a middle class life style continues to drop. When a family’s income isn't enough to pay bills and maintain their home, they begin to take capital out of their cars, homes, bodies and even their neighborhood.
I believe that as we focus on the deregulation of the industry that allowed the sub prime melt down to happen we should also focus on the restructuring of income that makes families more vulnerable to predatory practices.
It is hard to prey upon people who have other choices and much easier to take advantage of people who have nowhere else to turn.
Perhaps it time to tie predatory practices to the lack of living wage jobs
Lance Haver
Good work, Dan -- my own take
I find this all particularly infuriating because when I first got here I jumped right into the sub-prime lending fight (alongside a bunch of other people, including an Acklesburg that you might have met, Dan) and sat in rooms with the financial lobby and the Secretary of Banking and tried to hammer out a deal that would rein in the worst aspects of the business while letting the industry continue to function.
They hemmed and hawwed. They complained about those awful sharks. But they wouldn't ever let us move. Then Banking took forever and a day to decide what they wanted to do and the Rendell administration just never really focused on it and, before you know it, everything went to crap before anything could be done.
Now those same lobbyists are trying to use the crisis to get paid, but I can guarantee you that they'll fight just as hard today against real controls as they did three years ago, before it all exploded.
THAT SAID: I'm kinda for the bailout. The reason is because I don't really see it as a bailout so much as I see it as the government taking control of a bunch of mortgages. The math on this isn't hard. When you factor that the life of a $60K loan can bring in over $200K in a 30 year amortization, you realize that the government has a lot of wiggle room to adjust the terms and still make all its money back.
If the government has control of a bajillion loans, it's not unthinkable that they could just re-write the terms en mass, cut lots of people's monthly payments, stabilize their credit terms and increase the overall feeling of economic security for consumers (doing great things for the economy). Obviously, we have to pay back the people we got the $700 bn from and we need to get the money back without an inflation adjusted loss, but I think we could do that and still cut people a pretty serious break.
Remember, when the government manages lots and lots of money all at once (see Social Security), it does it pretty efficiently. Between IRS and HUD data, we could do huge loan mods without asking anything of the consumer. Which would be pretty sweet. Can you imagine if thousands of consumers got a letter one day saying: "We've cut your monthly payment by $200 and given you fixed 7% interest rate for 30 years rather than your adjustable rate (currently at 10.9%). Oh yeah, and we hacked $10K off your principal so that it equals the estimated real value of your home. Is that okay? Sign here if it is X____________"
People would be okay with that.
I really hate the thought of these financial services schmucks getting a golden parachute. Word. That said, I guess I'm just a pragmatist and don't see it happening any other way. If they get paid but we also get ourselves in the position to cut thousands of people a break that ain't lost their homes yet, I can deal with that.
People are going to argue that Wall Street is going to sell us the worst loans. That's true. But we'll get them at a discount. And even the worst loans are performing at around 80%. If we took them and gave them better terms, they'd perform even better.
I'm furious at Wall Street, but this plan still seems to have a lot of potential.
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This Too Will Pass, for the guts in your cerebrum.
alternatives
an economist on NPR this morning suggested it would be better either to loan banks money with mortgages as collateral or buy stock instead.
I hate the latter idea, because the government as shareholder sounds like a disaster and the wrong incentive for us. What if the government started to depend on its market returns? Ugh.
And the latter idea gives us no power over the actual mortgages. In fact, it could encourage even more aggressive collection and re-fi practices that would just be worse for consumers.
If we do anything, I think we should buy loans. They are selling cheap these days.
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This Too Will Pass, for the guts in your cerebrum.