Over the past year, there have been widespread media reports of a national housing recovery. Hard hit cities like Detroit, devastated by the foreclosure crisis, are frequently mentioned as leaders in rising home prices. But don’t tell that to the people who actually live in working class communities in those cities. In the overwhelmingly African American neighborhoods of Detroit, for example, entire blocks of homes still sit boarded up. In these communities, the housing crisis is still palpable and its effects dominate the physical and economic landscape.
The “free market” will not bring these communities back. Unless we take bold action to save homes in these hard hit working class neighborhoods of color, these communities will never recover from the foreclosure crisis.
Elected officials in cities like Detroit must act on their own to stem the crisis in their communities. They should follow in the footsteps of cities like Newark and Richmond, California that are taking local action to fix the housing crisis and bring jobs back to the community. These cities are preparing to use “reverse eminent domain” to acquire underwater mortgages from private investors and refinance the homeowners into new, affordable loans with reduced principal. Underwater mortgages are those where homeowners owe more on their loans than their homes are worth, which puts them at a significantly heightened risk of foreclosure.
Elected officials in cities like Detroit must act on their own to stem the crisis in their communities. With widespread celebrations of a recovery, policymakers will likely declare victory and move on to other issues. But cities like Detroit cannot move on. They will be left behind, drowning under a sea of underwater mortgage debt.
Although traditional eminent domain programs have often been used to displace working class communities of color to make way for corporate interests, this application of eminent domain reverses these effects. It uses eminent domain to empower communities and contribute to economic recovery and the building of wealth. It is a localized principal reduction effort that circumvents financial institutions unwilling to renegotiate mortgage to current market rates.
Under this program, cities can find private capital to acquire these mortgages by paying lenders fair market value for the loans. They can then refinance homeowners into new loans that reflect the current values of their homes. Families retain ownership over their homes throughout this process and remain in their homes, while only the mortgage note changes hands. This program can save underwater homeowners hundreds of dollars each month by reducing their monthly mortgage payments. This financial relief to household budgets can also spur local economic recovery.
A report released this spring by the Haas Institute for a Fair and Inclusive Society at the University of California, called “Underwater America: How the So-Called Housing ‘Recovery’ Is Bypassing Many American Communities,” showed that nearly 10 million homes nationally are still underwater and that the underwater problem is particularly concentrated in working class communities of color. A third of the most deeply underwater ZIP codes in the United States are in neighborhoods where African Americans and Latinos make up at least 75 percent of the population. They make up more than half of the population in two-thirds of these ZIP codes.
The federal judge overseeing the Detroit bankruptcy has ruled that the city can slash retirees’ pensions, forcing them to give up deferred wages that they have already earned through years of service. In personal bankruptcy processes, the federal law does not allow judges to write down the principal on underwater mortgages. In fact, efforts to facilitate principal reduction at the federal level have repeatedly been thwarted. This double-standard is symptomatic of a larger problem: federal bankruptcy and housing laws are designed to protect the interests of the powerful titans of Wall Street, not ordinary people.
This is why elected officials in cities like Detroit must act on their own to stem the crisis in their communities. With widespread celebrations of a recovery, policymakers will likely declare victory and move on to other issues. But cities like Detroit cannot move on. They will be left behind, drowning under a sea of underwater mortgage debt. Local action is needed to ensure that communities most directly impacted by the housing crisis are able to benefit from the “recovery.” Local officials in these cities should follow the lead of bold cities like Richmond and Newark that lead the way in fighting for their residents against powerful Wall Street interests.
Saqib Bhatti is a fellow with the Nathan Cummings Foundation. He has spent years developing strategic campaigns to hold banks accountable for their role in creating and profiteering off the economic crisis.
The ideas expressed on the Haas Institute blog are not necessarily those of UC Berkeley or the Division of Equity & Inclusion, where the Haas Institute website is hosted. They are not official and not of one mind. Thoughts here are those of individual authors. We are committed to academic freedom, free speech and civil liberties.
