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Why the Middle Class Home Owner Crisis Exists

"We had a situation over the last 10 years, where every step of the way, the government could have intervened on behalf of families, and instead, intervened on behalf of a small group of vulture capitalists."

Aaron Glantz has won a Peabody, been nominated for a Pulitzer and three Emmys, and written three books, including his most recent book, Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream. He’s written for the New York Times, ABC News, NPR and the PBS NewsHour and his reporting has led to criminal probes by the DEA, the FBI and the FTC. But perhaps the least relatable thing about Glantz is that he’s a homeowner — and that he bought his home in 2009. 

The year his son was born, Glantz and his wife bought a house in San Francisco, taking advantage of the bottomed-out housing market to buy a home that has now, clearly, become their largest financial asset. He assumed, at the time, that many other middle class families would be able to do the same: take advantage of cheap housing prices, buying on the ground floor, and waiting to sell until the market got healthy again while growing wealth. But when he began reporting on the Great Recession, the housing crisis, and the bubble he realized that he was an exception. A very rare one. 

“I had naively assumed that there were going to be a lot of other families like mine — families of middle class but modest incomes — that were able to use this historic price drop that came with the foreclosure crisis to become homeowners,” he says. “But as a journalist, I watched year over year as the home ownership rate in America went down. It went down not only in 2008, and 2009, but every year until 2016, when it bottomed out to a 50-year low.”

Recognizing that home ownership wasn’t stabilizing — and that he was more or less a rare benefactor of the low housing costs in the midst of the recession — Glantz had a few questions. What happened to all of those homes? Where did they go? They didn’t just disappear, Glantz knew. And if he was an exception, what was the rule? 

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That’s what led him to Homewreckers, which details the recovery from the Great Recession — and how Wall Street, capitalists like Steve Mnuchin, and the Federal government failed to help the American middle class in the midst of the worst economic crisis in recent history. 

Fatherly spoke to Glantz about Homewreckers, why the wealth gap has widened between black and white families, and why he feels optimistic about our future. 

Your book tackles the great recession, and how, in the aftermath, middle-class earners haven’t been able to gain wealth in the traditional ways like home ownership, which were subjects you came to after buying your own house. 

When we bought our house in 2009, real estate prices were low and we were in the middle of a recession. There were foreclosures all across America; eight million foreclosures during the housing bust. I had naively assumed that there were going to be a lot of other families like mine, that were families of middle class but modest incomes, that were able to use this historic price drop that came with the foreclosure crisis to become homeowners. 

Right. That tends to be the narrative about recessions. They can be beneficial to middle class people who have a new path to home ownership.

The people who benefited are people like Steve Mnuchin, who is now our Treasury Secretary, Steve Schwarzman, the head of Blackstone, Wilbur Ross, who is now our Commerce Secretary. Mnuchin and Ross both acquired banks from the government, paid the government nothing, and got billions in subsidies from the government while they foreclosed on large numbers of families.

So, it certainly was advantageous to the super rich: Ross, Mnuchin, Schwarzman and Tom Barrack, the president’s best friend who bought up 30,000 homes through his company. 

What happened to all the homes that were foreclosed on? Who owns them now? 

You used to have a situation where you had 30,000 homes and 30,000 families owning them. Instead, you have 30,000 homes, owned by a real estate investment trust, headed up by the best friend of the president.

So, you asked me what this means for the professional class. There might be some members of the professional class who are investing in these companies. But for the most part, the professional class is totally cut out, right? Unless you are a super rich banker at Goldman Sachs or at Mnuchin’s company or Wilbur Ross. We live in a country right now where the top one percent, where the the very, very richest Americans, control as much wealth as the bottom 90 percent of Americans. That 90 percent is going to include a lot of people who are in the middle class and even upper middle class. That’s why you have this economy right now. Yes, most of the people who got hurt in the recession were people who were middle class and lower middle class, who live paycheck to paycheck and lose their job and end up foreclosed on and then they can never get back into home ownership and the American dream again.

People are unable to acquire an asset. So, you can have a young professional who has a good job at a law firm, or is a doctor, but who feels poor because they’re unable to buy a house and live the American dream and feel that security.

They could be making $100,000 and still feel poor. So, that’s why I focused the book on who can own a home, and on who is benefiting from the historic decline in homeownership in America. It’s this small group of people who are connected to our president.

How was one investment firm able to own 30,000 homes? How were 10 people able to loot the wealth from families instead of those families taking advantage of a down economy and buying assets?

We had a situation over the last 10 years, where every step of the way, the government could have intervened on behalf of families, and instead, intervened on behalf of a small group of vulture capitalists.

So, for example, in the book, I write about the failure of Indymac Bank. This was a large, Southern California bank that failed because it was making a lot of toxic loans during the housing bubble, like the NINJA loan — No Income, No Job, No Assets, No Problem.

Or, the reverse mortgage, where the bank gives you some money and then adds interest and fees on top of it every month and then, when you die, the bank just takes the house because the debt has ballooned so big. Or interest-only loans, where it’s a high interest credit card. Instead of paying off the loan, bit by bit, over time, if you make the minimum payment, the debt actually grows bigger, like a high interest credit card. 

These were all the products that Indymac made that collapsed in 2008. There were lines around the block, consumers trying to pull their money, and the government stepped in and took it over. The government lost a tremendous amount of money on this because we insured consumer deposits. And they could have done any number of things with this bank. What the government decided to do was give it to a group headed by Steve Mnuchin, which also included George Soros, Michael Dell, founder of Dell computers, John Paulson, etc.

Yeah, that doesn’t seem to be a solution. 

Then, we made a further deal with Mnuchin’s group where we agreed to pay them when they lost money, to help cover their losses. Normally, a bank would have a financial incentive to not foreclose, especially in a down economy. The government removed that incentive and said, we will pay up to 90 percent of your losses on foreclosures That includes not only the cost of the loan but attorneys fees, appraisal costs, inspection costs, etc, right?

So, you can foreclose on families and hardly lose any money. And if they made money, they could keep it. Any money Mnuchin made, he could keep, and any money he lost foreclosing on families, we’d pay. So, we end up giving his group more than a billion dollars in subsidies as he forecloses on over 100,000 families, including 23,00 seniors.

As you know, the government was backing up many of these loans. So the government actually ends up owning more than 200,000 homes all across America, and was trying to figure out what to do with all this real estate that it doesn’t want. 

What do you mean? Decide if they would sell it off?

The Obama administration put out a call for public comment. There were a lot of good ideas. One of the good ideas was to sell the homes off, one at a time, to families like mine so they could build wealth for their families. Other good ideas included giving the housing stock to affordable housing providers, or using it to integrate neighborhoods.

What the Obama administration did instead was auction off the homes, 1,000 at a time, to large Wall Street firms. Some of the first homes that Tom Barrack acquired as part of his empire was a 1,000 home bundle across Los Angeles, Las Vegas, and Phoenix. He paid about 30 cents on the dollar for a controlling interest in those homes. 

So if you were a consumer at this time, during the housing bust, maybe you would want to buy one of these homes for cheap, but nobody would lend to you, right? And anyway, before you had a chance to bid, the home was gobbled up by these private equity firms. So, if you go to people in the Obama administration at the time, and they go, well, why did you do this? They said, “Well, anyone could have competed.”

Anyone could have competed who could buy 1,000 homes at once. If you were a family and you wanted to buy one home, even if you’re an upper middle class family, you were completely cut out of this opportunity.

What I’m hearing is we had a clear pathway out of the housing bust and recession that could have rebuilt the middle class — but we didn’t take it. 

Right. If we lived in a true, free market society, when the market was down, homes that would have been out of the reach of middle class people would fall into their price range. We might have a situation where the home ownership rate in America could have remained stable, because some families who maybe took out risky loans or junk loans, would lose their homes to foreclosure — but then other families, who were behaving in a more fiscally responsible manner, could benefit from that down price and then gain equity over time, and raise their children in an atmosphere of stability and pass on wealth and opportunity to the next generation. 

And yet, that did not happen. So, what we have now, is that we have families that perhaps maybe could have bought a home when the prices were lower financially, but they were robbed of that opportunity, and now, prices are incredibly high and people are still renting and they feel squeezed, even when they make a good salary.

So, how are we doing in 2020? The President might say the economy is doing great — the DOW is up; unemployment is low. Do you agree with that sentiment?

Most middle class Americans spend 80 percent of their money on just 5 essentials: food, shelter, clothing, transportation, and medical care. Four of those five things immediately disappear as soon as we spend the money. Our gas is burnt up. Our clothing wears out. Our food is eaten. The only big ticket expense we have that has any chance at appreciating in value is our housing, which is most families’ largest expense. Either you’re saving money and building security for your family and living the American dream, or, it’s doing all of that for your landlord.

That’s why I focus an entire book on home ownership.

Is home ownership bouncing back?

It’s starting to kick up a little bit from its 50 year low in 2016. It’s still at a historic low.

One thing we haven’t talked about yet is racism. The home ownership gap between black people and white people is greater than its been at any time since the Jim Crow era. It’s actually greater than it was when segregation was legal, and encouraged by the government.

So, people of color were more likely to be wiped out during the foreclosure crisis, they were more likely to get bad loans during the housing bubble, and now, what we found in our journalism, was that people of color are more likely to be denied credit, even when they make the same amount of money, and are trying to buy the same size home in the same neighborhood as their white counterparts.

Right. Recovery is uneven.

We’re not talking about a racial wealth gap that’s just propelled by poverty. We’re talking about a racial wealth gap that is propelled by the fact that even middle class and upper middle class people of color can be shut out of buying assets and building wealth. We live in a country where the average homeowner is worth 100 times more than the average renter, according to the census bureau. 

So, people of color are falling farther and farther behind, compared to their white counterparts, even when they have good middle class or upper middle class jobs.

If you’re a parent, and you want to pass that stability of home ownership onto your children, you can’t.

I knew that before 2008, that home ownership and wealth between black and white families was already not a great story, just given the history of redlining, high-interest credit, and everything that happened with the G.I. Bill. What’s made it so much worse today than it was 70 years ago?

If you look over the historical continuum of the last 100 years, in the 1930s, what the government did in the 1930s was totally opposite what it did in the great recession of the 2000’s. FDR started a government run bank, the Home Owners Loan Corporation (HOLC). It refinanced one out of every five loans in Urban America. It saved 1,000,000 homes. And when people were foreclosed on, that bank went and then sold the homes to other families so they could live the American dream.

The result was that home ownership boomed in the decades after the Great Depression, and the modern middle class was born. We not only had the HOLC, but we also had the G.I. Bill for returning WWII vets and millions were able to buy homes and live the dream.

But even then the G.I. Bill wasn’t equitably distributed for women and men of color, because it was a bill that partnered with businesses that had the right to discriminate against consumers. I know that black men who returned from war were denied loans because private banks could do so, and sold homes that were lower value because homeowners associations didn’t want black people in their neighborhoods.

Exactly. We had this fantastic government program, but only if you were white. Lines were drawn on maps, and in some neighborhoods were redlined. One of the worst things you could say about your neighborhood was that it was a “melting pot.”

The government was absolutely against integration in the 30’s. People of color were systematically left out of this amazing middle class opportunity.

In 1968, as part of the Civil Rights movement, President Lyndon B. Johnson signed the Fair Housing Act, which said that all of those practices from before were illegal and discrimination was wrong.

Right. So that’s good. But things didn’t get better?

In 1977, the government came back and Jimmy Carter signed a law called the Community Reinvestment Act. It said, it’s not enough to just not to discriminate, but that banks are required by law to try to lend to all parts of the community, not just the rich and the white. So they can’t just sit there in their offices and say, we can’t find any borrowers from these neighborhoods. They actually have to go to those neighborhoods, open a branch, and seek customers and make responsible loans.

But what this morphed into, during the housing bubble, was banks making predatory loans to people of color. So, you had these NINJA loans, high interest loans, so when the housing bust happened, the foreclosure crisis disproportionately affected those communities. Including Mnuchin’s bank, OneWest, which concentrated 70 percent of its foreclosures in California in communities of color.

When lending returned and the economy started to get better, people of color were systematically left out of this rise of opportunity that came with this recovery. So, Mnuchin’s bank foreclosed on 100,000 families, 23,000 seniors, and concentrated those foreclosures in neighborhoods with large amounts of borrowers of color over five years. Then Mnuchin’s bank made just three loans to help African American families buy homes and just 11 to Latino families.

And then all these families are now renters to banks, unable to build wealth or buy assets because they were foreclosed on.

One other thing is that the people who set up this system are now running the country. So, if we’re concerned that there aren’t enough safeguards in place, and that we might experience the same movie again, one of the barriers we face is that the people who benefited from the last crisis are now in charge of the economy and the people who are taking up the debt have the ear of the president.

I guess what bothers me the most is that I feel like we could have a fundamentally different economy if the Obama administration had done more for families, rather than for banks.

At every step of the way, good people came forward with good ideas. That could have had the whole story go differently. In 2008, when the economy was collapsing, people went to Schumer, Pelosi, Bush and Obama and raised the issue of recreating the HOLC, which, as I said, was so successful for the country’s white majority back in the 1930’s. Imagine if that had been launched again, but without the racism. We would have avoided so much of the pain that I wrote about, and we would have been in a much stronger position today. The people who raised these issues weren’t lefty pinkos. We’re talking about former members of the Federal Reserve Board of Governors, former advisers to Reagan, people at the American Enterprise Institute.

This was not only an idea that had progressive policy implementations. It was also very fiscally responsible. The alternative, which we ended up doing, ended up shoveling a lot of money to bankers like Mnuchin that we would never see again. 

Well, I’m feeling pretty thoroughly bummed out. 

Don’t feel bummed out! Where I left in the book is fairly optimistic. Like I mentioned, throughout this whole process, people came forward with very practical ideas that could have made the situation better, and they were dismissed. Those ideas are still there. We can still have a government bank that invests in the American people, instead of giving our subsidies to Wall Street bankers, for example. If you look at the Democratic candidates for president, many of them, Elizabeth Warren, Bernie Sanders, Pete Buttigieg — not Joe BIden, as near as I can tell — have offered pretty robust plans to deal with our housing crisis. I wish that the moderators at debates could ask them about this as extensively as they’ve made them talk about their health care plans. 

These people understand how important these issues are to the American people. That makes me optimistic that the issues that we’ve been discussing my very well be before the voters in the next election.