Do you think the Occupy Wall Street movement will have any impact on the housing market?
- No. (64%, 99 Votes)
- Yes! (19%, 30 Votes)
- Maybe if it were better organized. (17%, 26 Votes)
Total Voters: 155
The right to fair housing for all in America is a relatively new development in our nation’s history.
Until the late 1950s, the code of ethics for the national real estate trade union insisted that real estate agents ought not advertise or sell homes in white neighborhoods to individuals of any other “race or nationality,” lest they compromise property values and diminish the standard of living.
Federal Housing Administration (FHA) underwriting guidelines mandated institutional redlining practices, directing underwriters to ensure properties were occupied by members of the same racial and social classes in order to maintain neighborhood stability.
It was not until the late 1960s, at the apex of the Civil Rights Movement, that these discriminatory practices in the public and private housing sectors were fully addressed and eliminated. Born from the successes of America’s most powerful and significant social movement, government protected rights to fair housing were canonized in the Federal Fair Housing Act (FFHA), the Equal Credit Opportunity Act (ECOA) and the Community Reinvestment Act, to name a few.
As civil rights became a sacred fiber in the fabric of America’s social contract, and the nation’s housing policy proliferated, home sales volume grew steadily and led to great prosperity in the housing industry for the following thirty years or so. That is, until now. [For a critique of U.S. housing policy, see the March 2011 first tuesday article, The home mortgage tax deduction: inducing debt and stifling mobility.]
The great fair housing movement of the 1960s was certainly a step in the right direction for protecting everyone’s right to shelter in America, regardless of race. However, the efforts of activists, civil rights leaders and legislators were quickly subsumed into the money-making machine by lenders and the Wall Street rentiers. [For more information on the rentier class, see the September 2011 first tuesday article, Rentiers and debtors: why can’t they get along?]
Fair lending for all, coupled with a robust federal housing policy, merely meant more grist for the lenders’ mill and thus more opportunities for profit. While members of minority groups began borrowing and buying homes at rates equal to their white, middle-class counterparts, the loans were more expensive and highly predatory.
In 2006, at the height of the subprime lending practices that created the housing bubble, 52.9% of black homebuyers financed their purchase with a subprime mortgage, 47.3% of Hispanics went leveraged with a subprime loan while a mere 26.1% of white homebuyers purchased a home with subprime financing. [Data courtesy of the Joint Center for Political and Economic Studies.]
Thus, the last 30 years of “fair” housing policy culminated in a bubble fueled by a covert and systemic form of discrimination vis-à-vis predatory loans of the adjustable rate mortgage (ARM) and subprime variety. One could say the victories of the Civil Rights Movement in America and the Federal Fair Housing Act have been effectively neutralized by rentiers’ exploitative efforts to extract as much profit as possible from everyone, especially rising minorities.
This is the “fairness” the housing industry currently operates under: equal exploitation for all.
Now, with Occupy Wall Street (OWS), we have another social movement on our hands that has the potential for changing the landscape of the housing industry and creating a new age of fair housing. This vision of fair housing is based on the fundamental notion of equitable shelter for Americans at a fair price (including the financing) without the profligate speculation and profiteering from greedy Wall Street investors.
As one of the OWS protestor’s signs read, Stop speculating on our homes!
first tuesday take: Whether or not the OWS movement has discernable goals or definable demands, one thing is clear: they are sending a message that they have wised-up, they are mad as hell and they are not going to take it anymore.
The Civil Rights Movement of the 1960s changed the landscape of the real estate market forever due to a dramatic paradigm shift in the notion of fair housing. OWS deserves a closer look by real estate professionals as it may well be another catalyst for change of epic proportions.
If it is, it will be crucial for brokers and agents to understand the political victories of the OWS protestors to better serve the homebuyers of tomorrow. [For first tuesday’s take on real estate trade union involvement in the OWS movement, see the October 2011 first tuesday article, Unions occupy Wall Street — where are the Realtors?]
re: “Occupy Wall Street: A New Wave of Fair Housing Activism?” from the Huffington Post
In order for Commercial Banks to buy CMO’s they needed to be rated by Moody’s, Fitch, or Standard & Poors due to a 1930’s law, which prevents banks from investing in securities not rated by an outside agency. As reported in the WSJ article “Let’s Write the Rating Agencies Out of Our Law,” 85% of the tranches of CMO’s containing subprime mortgages were rated “AAA” and almost all tranches were rated as investment grade. A banks capital requirements (i.e., allowable leverage) is based on the rating of the security and the type of security. Per the article:
“For every dollar of equity that insurance companies are required to hold for bonds rated AAA, $3 is needed for bonds rated BBB, and $11 is needed for bonds rated just below investment grade (BB). For banks, the sensitivity of capital requirements to ratings is generally even more extreme.”
The WSJ article, “A Silver Lining to the Financial Crisis: A More Realistic View of Capitalism,” further illustrates how Commercial Banks were encouraged to hold CMO’s via regulator capital requirements:
“But under the recourse rule, “well-capitalized” American commercial banks were required to hold 80 percent more capital on commercial loans, 80 percent more capital on corporate bonds, and 60 percent more capital on individual mortgages than they had to hold on asset-backed securities, including mortgage-backed bonds, as long as these bonds were rated AA or AAA or were issued by a government-sponsored enterprise (GSE), such as Fannie or Freddie. Specifically, $2 in capital was required for every $100 in mortgage-backed bonds, compared to $5 for the same amount in mortgage loans and $10 for the same amount in commercial loans.”
So to recap, Commercial banks bought “AAA” rated Mortgage-backed securities because they were safe and allowed the banks to further extend their capital (i.e., greater leverage). So banks were encouraged by banking regulations to buy Fannie or Freddie mortgage-backed securities because they required less capital than holding individual mortgages and commercial loans for which the bank performs its own credit risk assessment instead of the ratings agencies.
Nice, logical and concise case made, Mr Vangsness, the type I’d like to see more of in these forums.
I had to poke around to find it but it could only be the left wing loons at the Huffington Post that originated this drivel.
The OWS crowd “are mad as hell” and not taking WHAT anymore ??? That’s the problem, this crowd, mostly under 25, have done little more than take, take, take for their entire lives. Understand that for the first 18 years of your life you have everything done for you, provided for you and given to you. Of course it’s quite a shock to some to be told that they have to get a job, buy their own car, rent their own apartment, pay for their own food.
FedEx just announced today 55,000 jobs for the holiday season, not great but something and maybe a foot in the door to a company that provides an excellent service and will not be going anywhere anytime soon. Anyone like to hazard a guess as to how many of these OWSers went over to the local FedEx office to apply for one of these jobs?
HOLD IT!!! Who rated those loans?
Uh, wasn’t it the federally structured oligopoly of Moody Madness, Standard and Poorness, and Fitch Failures? The feds even admit that it was their fault…
“The regulation of the Credit Rating Agencies (CRA’s) by the Securities and Exchange Commission (SEC) and the FED has eliminated competition between CRAs and practically forced market participants to use the services of the three big agencies, Standard and Poor’s, Moody’s and Fitch. SEC Commissioner Kathleen Casey has said that these three CRAs have acted much like Fannie Mae, Freddie Mac and other companies that dominate the market because of government actions. While the CRAs issued ratings that were “catastrophically misleading, these same rating agencies enjoyed their most profitable years ever during the past decade.”
And who leaned all over the SEC, the CRA’s, and the banks to “put everyone in a house”? It was the Frank and Dodd comedy show! And instead of being tried for criminal abuse of power, these same bosos were put in charge of the investigation and the “corrective actions”!!! So, now we have the Frank/Dodd act that punishes Wall Street and the banks. For example, that new fee for using a debit card that the banks are being crucified over? Since, Frank/Dodd clobbers the merchant transaction fee, who get stuck with the tab? And who gets stuck with the blame?
I find it hard to understand why First Tuesday continues to publish this liberal propoganda right out of the liberal’s playbook..
Quote: “Now, with Occupy Wall Street (OWS), we have another social movement on our hands that has the potential for changing the landscape of the housing industry and creating a new age of fair housing. This vision of fair housing is based on the fundamental notion of equitable shelter for Americans at a fair price (including the financing) without the profligate speculation and profiteering from greedy Wall Street investors.”
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Explain to me how “greedy Wall Street investors” caused the housing crisis????
Do Investment Banks on Wall Street make mortgage loans to residential home buyers??????
Explain to me how those “mortgages” got to Wall Street in the first place??????
Was it maybe through 2 government sponsored entities by the names of Fannie and Freddie, who were implementing Congressional Social Policy?????
As to a “fair price”, tell me what is a “fair price”. Should the government determine what the fair price is? Should some benevolent angel that doesn’t exit determine what the fair price is??
To assert that somehow Black and Hispanic borrowers were discriminated against just because they have a higher number of subprime mortgages is a canard. The only way you can do that is by comparing apples to apples. Did the Black and Hispanic borrowers have the same credit worthiness as the white borrowers, i.e., same income, same credit scores and same assets? Highly unlikely, which means it wasn’t discriminatory.
Also, this idea that the existence of a higher percentage of subprime loans is somehow evidence of predatory lending is also a canard. If the same credit standards were applied to everyone and the minority borrowers had on average lower credit scores and income, it just shows that the loans were being priced according to risk.
That was the real reason the mortgage crisis happened in the first place. The government thinks they can give out “affordable mortgages” to everyone and the risk just magically disappears. They are completely ignorant of basic finance and valuation, i.e., the risk/return trade off.