Dec 6, 2013
The Landscape of Wall Street’s Creative Destruction
Posted on Aug 2, 2013
By Laura Gottesdiener, TomDispatch
Crime Starts at the Top
“There were feces in the basement, urine, rolled-up carpet,” said Thomas Turner, a housing activist in Chicago describing the inside of a foreclosed home, once owned, according to neighbors, by an 80-year-old man. Under the ownership of the Pittsburgh-based bank PNC, Turner explained, “It was abandoned for six years, so squatters and strippers had punched holes in the walls. There was no toilet, no tub, all the kitchen cabinets were torn out. The bedroom looked like someone had taken a sledgehammer and just started swinging… I still see gang members on the front porch or rolling up real slow in the car.”
Another Chicago resident, Erica Johnson, described a vacant home similarly. “There were clothes, books, broken dressers, little white drug bags, used condoms,” she said. “It was a little drug house, and they were probably bringing their girls up in here.”
Some foreclosed homes become brothels, such as a Deutsche Bank-owned house in South Los Angeles where the girls’ names and prices were scrawled in blue marker across the upstairs walls. Others become meth labs or gang hideouts.
As in other hard-hit African American neighborhoods across the country, residents here had organized to stop bank-pursued evictions from stripping the value from the community. Neighborhood support had, for instance, helped a mother named Monique White beat her eviction in a highly publicized six-month battle against US Bank only weeks before I arrived. Still, the never-ending evictions were eating away at the stability of the neighborhood.
“That’s a known crack house,” said Morris, as he pointed at a brick structure less than 100 meters away from a neighborhood park. More than half the homes within sight were boarded up with plywood. Within five minutes, we had passed two former residences he identified as current drug houses and a handful more that he said had already been raided by the police— all foreclosed homes where families used to live.
As we drove, we discussed the illegal chain of events that transformed these homes into drug dens. The crimes started at the top. Banks peddled toxic mortgages like crack, paying employees cash incentives to push them in African American neighborhoods. The loans exploded, so they forged millions of foreclosure affidavits to speed state-enforced evictions.
Once homes are vacant, bank contractors insufficiently seal and maintain them, allowing intruders to strip the houses of their copper wiring, plumbing, and sometimes even the furnace. The copper alone sells for anywhere from 50 cents to a dollar per pound. Finally, people dealing drugs begin to use the houses at night as distribution centers. The street-level crime drags down neighboring property values, spurring more foreclosures and evictions. And so the cycle continues.
Banks are legally obligated to maintain and market their foreclosed properties, but they often shirk those responsibilities—especially in communities of color. In an investigation of more than 1,000 homes across the country, the National Fair Housing Alliance found that bank-owned homes in communities of color were more likely than homes in white neighborhoods to have graffiti and peeling paint on the exterior, trash and dead leaves strewn across the sidewalk, unsecured locks on the doors, and be missing “for sale” signs on their front lawns.
Foreclosed houses in such neighborhoods were also 80% more likely to have a broken or boarded-up window, and 30% more likely to have trash on the front lawn. After a lawsuit, Wells Fargo paid $42 million to settle charges of racially discriminatory maintenance; there’s scant evidence to suggest the practice has changed since. Cities have increased fines levied against banks that don’t maintain their houses, but not a single bank has been held accountable for drug dealing, murders, and rapes that occur on their unmaintained or poorly maintained properties. The only “crime” they appear concerned about is when community activists try to fix up such homes and move families in—doing the job the bank was supposed to do in the first place. Then banks call the police to arrest the “trespassers.”
The double standards in property maintenance lead to an “extremely troubling” trend in home sales: these uninviting neglected houses, disproportionately located in communities of color, are most often being snapped up by investors rather than families. Overwhelmingly, the investor of choice is the Blackstone Group, one of the world’s largest private equity firms and now the nation’s largest owner of single-family homes. Since April 2012, Blackstone has spent more than $4.5 billion buying at least 30,000 houses concentrated in cities hard-hit by foreclosure, including Atlanta, Jacksonville, Orlando, Chicago, Charlotte, Phoenix, and urban areas across California. According to local real estate brokers, the company often makes its purchases in cash.
The idea is that there’s big money to be made in rental properties these days, given that there are millions of displaced, former homeowners with wrecked credit scores looking for places to stay. It’s like a pay-to-play game of musical chairs—except Wall Street owns the stereo, the speakers, the chairs, and the roof, and somehow when the music stops you’re always out.
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