The Housing Vultures

A deteriorating bank-owned house, Moreno Valley, California. 2008
David McNew/Getty Images
A deteriorating bank-owned house, Moreno Valley, California, August 2008

“They control the people through the people’s own money.”
—Louis Brandeis

1.

In an alternate reality, the one progressives wanted, the government wouldn’t have bailed out the banks during the 2008 crash. When mortgage-backed securities began catching flame like newspaper under logs, the government would have prioritized struggling homeowners instead. It would have created a corporation to buy back the distressed mortgages and then worked to refinance those mortgages—lowering monthly payments to reflect the real underlying values of the homes or adding years to the mortgages to make the monthly payments more manageable. If a homeowner missed mortgage payments, rather than initiating a foreclosure after two months, as was done by many banks during the recession, the government would have held off for an entire year, maybe more. In the event the homeowner still couldn’t keep up, the government would have acquired the home, fixed it up, and rented it out until another person bought it.

Who could ever dream up such wild ideas? Franklin Delano Roosevelt, for one. To stanch foreclosures during the Great Depression, FDR created the Home Owners’ Loan Corporation (HOLC), which bought more than a million distressed mortgages from banks and modified them. When modification didn’t work, it sold the foreclosed homes—200,000 of them—to individuals. While the program was costly, in the end it pretty much paid for itself: because homes weren’t dumped on the market all at once, they almost always sold for close to the amount of the original loan. The New Deal—which also created the Federal Housing Administration (FHA), to guarantee mortgages with banks, and the US Housing Authority, to build public housing—inaugurated the golden era of homeownership and middle-class prosperity. It wasn’t without significant problems—the HOLC invented redlining, only providing FHA-backed loans to white people purchasing in white neighborhoods—but if you were white, this was a stabilizing and egalitarian response that held speculators at bay.

Homewreckers, Aaron Glantz’s recent book about the investors who exploited the 2008 financial crisis, is essential reading as we plunge headlong into a new financial catastrophe. Glantz, a senior reporter for the Center for Investigative Reporting’s public radio show, Reveal, has written books on the mishandling of the Iraq War (How America Lost Iraq) and the neglect of veterans that followed (The War Comes Home). He observes that there are two ways a government can respond to a crisis caused by reckless speculation: by stepping in or by stepping aside. Roosevelt stepped in; Ronald Reagan, dealing with the savings-and-loan crisis, stepped aside. Starting in 1986, as a result of Reagan’s deregulation, countless savings-and-loan associations had run amok with other people’s money, taking risky bets; 747 of them imploded.1 But rather than restructuring the toxic debt, the Reagan administration sold it to “vulture investors,”…


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