Tuesday, September 29, 2009

Natalie Johnson Lee Gets Called Out

Guest post and photo by the Hawthorne Hawkman, also known as The Mortgage Geek

In a recent Minneapolis Mirror interview, Natalie Johnson-Lee was asked about whether TJ Waconia was the major culprit in the foreclosure crisis in her ward. Even this question was uninformed, since the majority of TJ Waconia properties at issue were in Barb Johnson’s ward.

Like any good candidate should, Natalie used this opportunity to try and find something—anything!—to use against her opponent, and brought up the fact that Minneapolis proposed an anti-predatory lending ordinance at the city level many years ago. Her claim was that she and Don Zimmerman were the only councilmembers to vote in favor of this ordinance and that somehow if we’d passed it, we would have averted or at least somewhat lessened the crisis we now find ourselves in.

As a community organizer and self-proclaimed mortgage geek, I decided to see if her claims held any water. What I found was…

…they did not. I will explain why, but a fair warning is due: this is going to get rather technical. And now for a trip down the rabbit hole…

Around the time that this and other city ordinances were proposed, ACORN and other organizations like the Center for Responsible Lending were attempting to curb predatory lending at the state level. (Remember, this was back when ACORN could actually get things done.) That road was often difficult, since the mortgage boom was what got us out of the post-9/11 mini-recession and legislators didn’t want to hear that it was perhaps fundamentally flawed. So the organizations opted for an approach similar to the anti-tobacco movement: ban things at the local level and use that as an impetus for statewide change.

There is one problem with this idea that was not fully apparent until a recent Supreme Court ruling. Big banks like Wells Fargo, US Bank, Bank of America, etc. wound up not being governed by state law and only the federal government can really tell them what to do. Other smaller institutions like mortgage brokers and community banks are governed by state law. Nothing already written in law clearly made lenders at any level required to follow city ordinances of this nature. So many companies could have simply said, “These rules do not apply to us. We’re not going to follow them and/or we’re going to dispute them in court.”

(For the record, I worked for US Bank at the time many local ordinances popped up. We did create disclosure forms that told borrowers to avoid predatory loans and also stated what each city defined as predatory so that someone could compare their loan to those standards. I’m proud that US Bank chose to follow local laws AND lend responsibly. Many others did not.)

RT Rybak got the support of ACORN locally by promising to get a local ordinance passed. Then upon taking on the issue, realized that this was not a practical approach. This was the right decision, but where he failed was that he did not become a champion for a statewide law. ACORN and Rybak then had a major falling-out and their relationship became antagonistic for a while.

Fast-forward to today: What’s happening in cities that did pass ordinances? What’s happening in north Minneapolis? And would an anti-predatory lending ordinance have made a significant difference in Minneapolis or the 5th Ward?

The National League of Cities compiled this report about the major metropolitan areas that passed such ordinances. I found the whole thing fascinating, but that’s because I’m a mortgage geek and policy wonk. So I’ll sum it up for the other 99.99% of JNS readers. Chicago and Washington DC still have their laws in effect. Philadelphia's law was preempted by state law shortly after it was passed. Oakland and Los Angeles have had their laws stalled in court contests. Even if the laws are upheld, the lending they were intended to stop is over and done with. This map will show that Chicago is obviously not some sort of foreclosure-free economic utopia. Neither is DC (see page 5 of this link). Frankly, their issues are virtually identical to north Minneapolis in that low-income neighborhoods and communities of color are disproportionately affected by the consequences of predatory lending.

The connection between north Minneapolis and the foreclosure crisis at large is obvious to anyone who hasn’t been living under a rock. Actually, that may not be entirely accurate. Chances are that the rock you were living under had a fraudulent mortgage attached to it thanks to Larry Maxwell, Marlon Pratt, or TJ Waconia, and now thanks to their misdeeds you no longer have a place to live.

The Housing Preservation Project, CURA, and other neighborhood groups have studied what has happened with foreclosures in north Minneapolis and the problem is at least halfway a rental property issue. Depending on the geographic boundaries and when the loans were originated, between 50-70% of north Minneapolis foreclosures in this crisis were on non-owner-occupied properties. Last year, Hawthorne examined the boarded/vacant list (many of those properties were foreclosed, but not all) and found that 67% of those properties were non-homesteaded duplexes. A full study of public records of mortgage delinquencies in north Minneapolis right now has not been undertaken. However, a cursory examination indicates that roughly half of all delinquencies right now are on rental properties.

The anti-predatory lending ordinance was geared primarily at owner-occupants, although to be fair, very few people had a thorough understanding of how rental properties could be affected by the lax lending standards seen earlier this decade. Since similar ordinances have either never proven useful or were not implemented due to state law or contested lawsuits, it is doubtful that we would have seen a meaningful result from such action in Minneapolis. There may have been actions at the city council level that could have mitigated this crisis, but the local anti-predatory lending ordinance was not among them. Going after TJ Waconia and other fraudsters was absolutely the right move to make once that problem was clear.

The Minneapolis Mirror tossed a slow pitch to Natalie Johnson-Lee in hopes that she would hit it out of the park. However neither of them fully understand the game that they are playing.


Don Allen said...

Derivatives and Variables...

Anonymous said...

Congrats Johnny...you made the top 100 Minnesota Blogs list:


World Is Flat 17 said...

Morgage Hawkman Geek,

That was an awsome post!

Bottom line...city ordinance would not have made a difference, thus the answer was fluff.

Did I get that right?

I'll wait for it...

Anonymous said...

I hope I'm not off topic, but thanks for posting the info about foreclosure trends. Very good summary of what I have anecdotally seen in my neighborhood, and thanks for the links to the supporting data.

There have been many times when non-Northsiders have commented to me that things would stabilize here if everyone would use the programs. With all the investment ownership, stabilizing owner occupants is only part of the solution.


Another Mortgage Geek said...

Nice post. I agree with 90% of it and the other 10% really isn't material to the conversation.

Johnny Northside said...

In regard to TJ Waconia...

There will be some kind of future post about this, but behind the scenes right now Jim Watkins--self proclaimed best friend of T.J. Waconia fraudster Thomas Balko--has been trying to stir up sympathy for his incarcerated friend. Since the MPLS Mirror printed Jim Watkins' other dribble about TJ Waconia, it wouldn't surprise me if the contact is ongoing.

I'm troubled by the fact the mug shots for a number of mortgage fraudsters--Thomas Balko, Donald Walthall, Marlon Pratt, Larry Maxwell--aren't appearing on the Department of Corrections website. We need to see what these jailbirds look like and know their whereabouts. I sent an email to DOC but haven't heard back.

Anyway, this is a developing issue. Stay tuned, and nice job doing what you do so well, Mortgage Geek a.k.a. Hawthorne Hawkman.

Johnny Northside said...

On another note: World Is Flat 17 has great NoMi-related videos on YouTube.