Fannie Mae is working to remove race from appraisals.
...but have they removed it from themselves? In the lead up to 2008 their racist practices lead to the death of this renter, and historically racism has been in the governments and lending corners of the mortgage industry, not the appraisal side. Lets hope this is part of a larger move to remove racism at ALL levels.
From The New Yorker
In the early afternoon on October 1st, Donald Fatheree, a sheriff’s deputy in Akron, Ohio, drove his black-and-gold cruiser into one of Akron’s dying neighborhoods and came to a stop in front of a small white wood-frame house, with a neatly trimmed lawn and a beige Chevrolet parked in the driveway. He had been there many times before. Part of Fatheree’s job is to execute writs of possession, legal orders turning people out of their foreclosed homes—a disagreeable task mitigated, if only slightly, by the long grind of the process. Akron is so beset by foreclosures (there were several hundred last month) that it often takes a year or more for a foreclosure to result in an eviction. Fatheree tried to use that time to accustom people gradually to the idea of losing their home. He believed that a successful eviction required a skilled salesman (himself), who could negotiate, unofficially, between banks and evictees, possibly avoiding a forcible removal. Fatheree would explain to the resident that remaining in the house was not an option—it had already been sold at auction—but if the resident took steps to move out Fatheree might be able to negotiate a little extra time from the banks. Most people followed Fatheree’s advice and removed themselves before their final eviction date arrived. For the others, there was a standard procedure: they were escorted from the premises by a sheriff ’s deputy, and a moving van transported all their possessions to a local storage facility; if the belongings were not claimed within a month, they were sold.
Fatheree had already handled one forcible eviction that day, and the little white house was next on his list. The prospect made him a bit uneasy. In only the rarest cases—maybe one in a hundred—did eviction day arrive without his having had some contact with the resident of the home. The little white house was such a case. Fatheree had gone there countless times, delivering official notices and, sometimes, just stopping by on his own. His knocks on the door were never answered, but he believed that someone was inside; the notices he left, bright-yellow documents with “Sheriff” written on them, were always gone when he returned. A month before the eviction, he had, as required by Ohio law, posted the formal eviction notice by attaching it with duct tape to the front door. He’d returned to the house the day before, leaving one last note, along with his office and cell-phone numbers, in case the resident wished to talk. When, finally, he arrived for the eviction, Fatheree knew little more about the person inside than the information contained in the original foreclosure complaint: “Addie Polk, an unmarried woman.” You could never be sure what awaited on the other side of the door. As a precaution, Fatheree brought along another deputy, Jason Beam. Fatheree knocked on the front door, and, once again, no answer came. According to department policy, the evicting officers could not enter the premises unless they were accompanied by a representative from the bank. In this case, the defaulted loan had been made by Countrywide Home Loans, and had been assumed by the Federal National Mortgage Association, or Fannie Mae, which had acquired the house at a sheriff ’s auction in June. The house, appraised at forty-two thousand dollars, had sold for twenty-eight thousand. No one from Countrywide had yet arrived, and the two deputies decided to wait. Another deputy, Dave Bailey, happened by, and stopped to say hello. It was a lovely day, and soon the three officers were chatting in the sunshine just a few paces from the front porch. After a time, they were joined by a curious neighbor, Robert Dillon, who owned the house next door. Dillon told the deputies that, yes, Addie Polk did live there. She and her husband, Robert, had moved into the neighborhood in 1970, the same year that Dillon and his wife bought their house. The community, largely black, had been solidly working class back then. Akron’s three rubber giants—Goodyear, Goodrich, and Firestone—had provided more than enough opportunity for anyone who wanted work. But Akron’s factories were challenged by innovations abroad. As jobs disappeared, the neighborhood began to fray. The street’s brick roadbed now pushes up through the asphalt in big patches, and nearly every other house is empty or for sale. Robert Polk, who retired from the Goodrich plant, died in 1995, and Dillon, a taciturn Mississippi transplant, helps his widowed neighbor when he can, installing her air-conditioner and shovelling snow in winter. Dillon was surprised to hear that Addie Polk’s home had been foreclosed. She’d never let on about any financial difficulties. But, then, she was a very private person. She often didn’t answer her door or her telephone (Dillon had failed to reach her by phone that morning), and she had no children and no other relatives in Akron. But even in her old age Miss Polk, as Dillon called her, remained determinedly independent. She drove herself to the grocery store and, every Sunday morning at nine o’clock, to services at Antioch Baptist Church, half a mile away. Countrywide’s representative never arrived. Fatheree was ready to leave, and have the eviction rescheduled, when the men heard a noise inside the house. Dillon, worried that Addie had fallen and needed help, said that he knew a way to get in, and Fatheree told him to try. Dillon fetched a ladder, climbed to a second-floor bathroom window, and worked it open. He stepped inside and called for Addie, but heard no reply. Fatheree’s official eviction notice, the duct tape attached, lay on a bedroom dresser. Dillon found Addie in bed, reclined on her side, apparently asleep. A gun lay beside her, and he recalls wondering, Huh? Why is Miss Polk sleeping with a gun in her bed? Two days later, Dennis Kucinich, the Democratic congressman from Cleveland, was in his Washington office browsing the Internet when he came across the story of Addie Polk from the Akron Beacon-Journal: At the age of 90, Addie Polk found herself in foreclosure this week, about to be forced from the home she’s lived in for nearly 40 years. So, with a gun in her hand, the Akron widow apparently shot herself in the chest Wednesday afternoon as deputies were knocking on her door with eviction papers in hand. While a nation reels in financial crisis from years of mortgage abuse, Polk is recovering at Akron General Medical Center, awaiting word on where she will live when she’s released. For Kucinich, the story seemed providential. At the moment, his colleagues in the House were in the final stages of debate over the Bush Administration’s bailout of the U.S. financial system, a plan that Kucinich angrily opposed. He saw the plan as an undeserved rescue of the very institutions that had caused the crisis, while guaranteeing no relief for people who were losing their homes to foreclosure. The Addie Polk story seemed to capture the disparity; Countrywide and Fannie Mae had been bailed out, but Addie Polk was left fearfully hiding from her fate. Kucinich ran from his office, in the Rayburn House Office Building, to the Capitol, reaching the floor of the House as debate was winding down, and told Addie’s story. “This bill does nothing for the Addie Polks of the world,” Kucinich said. “This bill fails to address the fact that millions of homeowners are facing foreclosure, are facing the loss of their home. This bill will take care of Wall Street, and the market may go up for a few days, but democracy is going downhill.” Kucinich later told me that Addie Polk’s predicament had struck a particular chord with him. “My story’s a little bit different than some of the members of Congress,” he said. “When I grew up in Cleveland, the oldest of seven, my parents never owned a home. They moved around a lot. We lived in twenty-one different places by the time I was seventeen, including a couple of cars. I’ve had the experience of being evicted. I understand what it’s like to have people carrying your stuff out and putting it down on the curb. I did this as a child. Children are pretty resilient—they can overcome just about anything. But when someone’s a little bit older, and you’re the breadwinner, or, in Addie Polk’s case, you’re a widow, and you’re ninety years old, where do you go?”
After his speech on the House floor, Kucinich returned to his office and instructed an aide to get in touch with Fannie Mae about Addie’s case, “and see what the hell they are doing.” That afternoon, a Fannie Mae spokesman, Brian Faith, announced that the institution would forgive Addie’s debt and cancel further proceedings against her. “Just given the circumstances, we think it’s appropriate,” Faith said. “It certainly made our radar screen.” Three weeks later, the same attorney for Countrywide who had filed the complaint arranged a transfer of deed, putting the house back in Addie Polk’s name. Even so, Kucinich said that he means to investigate the case through the Oversight and Government Reform subcommittee on domestic policy, which he chairs. The circumstances of Addie Polk’s debt do seem curious. Summit County property records show that Addie and Robert Polk bought their home in 1970, for ten thousand dollars, and that when Robert died and Addie became the sole owner, in 1995, the house was fully paid for. Then, in 1997, Addie was offered a new mortgage on the place, which she accepted, for twenty-one thousand dollars. Four years later, after interest rates declined and real-estate values increased, an independent mortgage broker sold Addie a new loan, for $46,400, and peddled it to America’s Wholesale Lender, a division of Countrywide. Then, in 2004, after interest rates dropped further and housing prices increased even more, she took out yet another loan from Countrywide. That loan, in the amount of $45,620, was paired with a line of credit for $11,380. Addie was eighty-six. The mortgage was scheduled to be paid off on May 1, 2034.
“What I’m interested in determining is the extent to which lenders targeted elderly people as potential customers in order to go after a class of people that they knew, actuarially, it was impossible that they were going to be around to the conclusion of the mortgage,” Kucinich says. “And they had a limited ability to repay. Lenders had to know this. And they did it anyhow, because it appears they were more interested in booking higher and higher sales.”
Kucinich says that he wants to find out who at Countrywide wrote the loan for Addie, and how it got approved. “The forensics of this have to be thoroughly explored,” he said. “As we get into it, I think it’s going to demonstrate the degree of depravity in this mortgage business.” “Mary has an intense fear of eating overdressed salad.”
Lolita Adair became a real-estate agent in 1963, and a broker in 1979, at a time when Akron had few black brokers, none of them women. When the current foreclosure crisis hit, the city-council president, Marco Sommerville, asked Adair to head a task force on predatory lending. Now, when constituents come to him with mortgage problems, he directs them to Adair. “She knows the answer to questions before you finish asking them,” Sommerville says.
I met Adair, a stately woman in her sixties, in her office, in downtown Akron, a few days after the Addie Polk incident, and she agreed to show me around. As we made our way through town in her white Cadillac, past the housing project where LeBron James once lived, through neighborhoods where “For Sale” signs competed for space with “Obama” signs, Adair told me stories about the predatory lending that had occurred. “Mortgage brokers started cropping up like dandelions on your front lawn after a spring rain,” she said. Solicitations for easy loans, using one’s house as collateral, came in the mail, in telephone calls, and sometimes from door-to-door hucksters. “You put a slick and a con man together,” she said, “and you have predatory lenders.” People who accepted loans on terms that seemed too good to be true later found themselves confronted with hidden costs or huge balloon payments, or sudden, upward adjustments in the rates they thought they had agreed to. When they couldn’t make their payments, many of them, embarrassed or confused, ignored the legal notices that began to arrive, and soon found themselves ruined and dislodged. “Some of the stories are so tragic,” Adair said. She spoke of how the business had turned upside down in the forty-five years since she entered it. Back then, the tragedy belonged to those who couldn’t get loans because they lived in black neighborhoods and were redlined by banks out of the possibility of getting a loan. Adair says that is part of the reason that she became a broker; she served several terms on the local fair-housing board.
By 1970, when the Polks bought their house, the federal government had begun making it easier for the less well off to buy homes. But, Adair says, reform was too often reflexive, rather than measured, and that brought a new set of problems. By the nineteen-nineties, the government had all but mandated that more loans be made to people once considered too risky. Some lenders were eager to venture into the untapped marketplace, and property values (and profits) soared. Angelo Mozilo, Countrywide’s chief executive, told the Wall Street Journal in 1996 that he personally reviewed two hundred low-income minority loan applications that had concerned his underwriters, and approved about seventy per cent of them, in order to send a message to his organization. Approving such loans, Mozilo conceded, meant that “lenders have had to stretch the rules a bit.”
People who once found it too difficult to get loans, because of where they lived, and who they were, now found it almost too easy. “What happened was, once the lenders got into the community and found that where interest rates for normal borrowers were somewhere around five per cent to six per cent—you could start with a credit-impaired borrower at nine per cent,” Adair said. “As a result, it was, like, ‘There’s money there! We can make money.’ ”
A key player in these changes was Fannie Mae, created during the Depression to loosen money in the home-mortgage market. Fannie Mae does not make loans directly; rather, it buys loans made by primary lenders, thus freeing capital for other loans. Fannie Mae’s requirements for loan-worthiness set the standard for the industry; loan applications that did not meet Fannie’s standards were, by definition, subprime candidates. In 1999, in response to government pressure to expand low-to-moderate-income homeownership, Fannie Mae began to lower its credit-approval standards. What is striking about Addie Polk’s loan is that it wasn’t “predatory,” in the common usage of that term. Her 2004 Countrywide mortgage was a conventional prime loan, with a fixed thirty-year mortgage. In Adair’s view, that makes Addie no less a victim. “Just because Addie Polk’s loan is not an adjustable-rate mortgage,” she said, “the fact that this was someone who had her home paid off and was encouraged to mortgage her home, time after time, without sound lending practices, makes it a predatory loan.” When Fannie Mae (or its younger cousin, Freddie Mac) bought a loan, it pooled it with other loans and sold it to investors as a security—like a share of stock. These mortgage-backed securities came to be prized by investors, because they were seen as being a safe investment, backed, as they were, by American real estate. As home prices spiralled upward and demand for the securities increased, here and abroad, so did marketplace pressure to create more mortgages. Primary lending institutions were happy to oblige; it’s easier to make a risky loan if it’s going to be bought by Fannie Mae, bundled with other loans, and turned into a security. Whether it got bundled and sold again or stayed on Fannie’s books, Addie Polk’s mortgage almost certainly found its way into someone’s investment portfolio. That investment, though, was still seen as relatively safe, partly because of Fannie Mae’s peculiar nature as a quasi-governmental enterprise. When an investor bought a security that was backed by loans like Addie Polk’s, Fannie Mae guaranteed payment even if the borrower defaulted. Fannie was able to do this by exploiting its ability, as a government-sponsored enterprise, to borrow money at lower rates than its competitors. “Because it had the word ‘federal’ in it, and because it was a government entity, it could borrow at near Treasury rates,” Jim Leach, the former Republican congressman who attended last week’s G-20 conference on behalf of President-elect Obama, said. In Addie Polk’s case, Fannie bought the loan for which she promised to pay Countrywide 6.375 per cent interest on forty-five thousand dollars, and may have then packaged that loan with others into a security that paid investors a lower amount—say, 6.125 per cent. Fannie’s quarter-point profit amounted to an insurance pool against defaults. This worked, until Fannie Mae became swamped by defaults; in the event, the government stepped in for a rescue. Countrywide had passed the risk on to Fannie, which, in essence, passed the risk up to the government—a circumstance that critics have called “privatizing profit but socializing risk.”
When home values dropped and credit markets tightened, making refinancing difficult, strapped borrowers had no recourse but default, and eventual foreclosure. Last week, Fannie and Freddie announced a plan meant to address that inequity for some borrowers, promising to sponsor loan modifications for homeowners who are at least three months late on payments. By the end of June, there were 2.4 million homes in foreclosure or prolonged delinquency, accounting for 4.5 per cent of all mortgages in the country—the highest level ever recorded. The primary lenders servicing those loans—like Countrywide— would earn new fees for the loan adjustments.
Adair turned onto La Croix Avenue and came to a stop across from Addie’s house. When we got out of the car, we were met by Robert Dillon, who had been told by Adair to expect us. We talked about Addie, and when the subject of her loan came up Dillon looked at Addie’s house and shook his head. The roof was patched, the fascia was rotting, and the porch sagged underfoot. He remarked, “When they said forty-five thousand dollars, I said, ‘Where’d the money go? I don’t see it.’” (Marco Sommerville, the council president, had wondered the same thing. “It’s the obvious question,” he’d told me, and suggested that an investigation might be warranted. “There are some people who feel there’s a snake in the cockpit somewhere.’’)
Adair, however, was annoyed by the question, and thought the answer was self-evident, considering the string of loans that Addie took out beginning in 1997. “Everybody asks what happened to the money!” she said. “But twenty-some thousand of it went to pay off that first mortgage, when she had that forty-six-thousand-dollar mortgage. Then she was back with a forty-five-thousand-odd mortgage a year and a half later. That’s when they gave her the eleven-thousand-dollar line of credit. The lady, just on pure, simple mathematics—if her husband’s been dead since 1995, that’s thirteen years for her to be living on her own, and she probably did not work—” “No, no, she didn’t,” Dillon said. “—and her only income would have been from his retirement.” “I don’t know. Four hundred a month? Plus Social Security.” “She probably didn’t have a thousand dollars a month that she was living on.” Adair said that she didn’t know Addie Polk, but she had known lots of people like her, and could imagine the circumstances that led to her catastrophe. “Here was an elderly lady whose home was paid off, who was getting telephone calls, or people knocking on the doors,” she said. “You’d be surprised in some of our neighborhoods how many people have told me that they actually came knocking on their door. They tell you you might have some medical bills, or you can consolidate all of your loans into one payment. You can repair your house, or you might want to take a vacation. I mean, they go through all of this, and they do it in a way of asking you, ‘Do you have some credit cards you could pay off? Do you have some medical bills?’ And, of course, if you’re elderly, and you say yes, you have medical bills or what have you, ‘Oh, well, we can put them all into one payment, and this will not hurt you, because it’s the equity you have in your home.’ What they don’t tell you is, those doctors’ bills are not charging you any interest; now we’re gonna start charging you some interest.”
Most of the money that Addie received was automatically used to pay off the previous loan; in the process, the home that she’d once owned outright was stripped of its equity. She kept up with her payments on the last mortgage—$284.61—for a time, then missed a few; by last year, she had stopped making payments altogether. When Countrywide called to inquire about late payments, she would listen for a few minutes and then hang up the phone.
Dillon said that the week after Addie shot herself he and his wife visited her in the hospital. The gun she had used, a .38-calibre handgun, had inflicted a serious wound in her shoulder, and no journalists have been allowed to speak with her. Dillon said that Addie seemed remorseful about the incident, and told him, “It was a crazy thing to do.” She brightened, Dillon said, when he told her that she was getting her home back. “She said, ‘I am?’ I said, ‘Yeah, you’re gonna get it back.’ She was real happy to hear that.” But Dillon didn’t know how or if she would return home. Published in the print edition of the November 24, 2008, issue.