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Since she left her post as the editor of City Limits magazine from 1999 to 2005, Alyssa Katz embarked on a dystopian tour to dig up the roots of the housing boom and the crash that followed. Her book “Our Lot: How Real Estate Came to Own Us,” published last month by Bloomsbury, tells the stories she uncovered, stretching back through decades to reveal the mixed motives at the center of the crisis in home loan foreclosures. Housing writer Bendix Anderson sat down with Katz, now a consultant at the Pratt Center for Community Development and adjunct assistant professor of journalism at NYU, to discuss what happened, and what happens next – as well as Katz’s experience writing this exhaustively researched account. Following are highlights from that conversation.
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What’s your favorite thing about the book?
I was able to get out and go across the country and see how different people in different communities experienced the real estate bubble and bust.
What was the biggest surprise?
It was really how complicated people’s decision making was … very often people were deceived, set up, or led to believe things that weren’t true. But the situation was very much compounded by people’s own thinking — people thinking, this is how I’m going to get a leg up, this is how I’m going to make it to the next rung on the economic ladder.
Is it fair to say that the book is about how a massive government intervention to promote homeownership massively failed?
Yes and no. It is how a massive government intervention promoting homeownership should have corrected another major failure in American history. The phenomenon of near-universal homeownership promoted through the New Deal, though the Federal Housing Administration, excluded people of color and urban areas. We have seen a couple of failed attempts to rectify that, both very problematically executed. The FHA scandals of the early 1970s never had any hope — the idea was that the solution to urban disinvestment and riots was to permit FHA insurance in riot areas, but it was done in an incredible corrupt way that led to mass foreclosures. More recently what we’ve had is really a very promising effort to close the significant gap between white and black and Latino borrowers through the promotion of responsible mortgage products, credit counseling, and using the Community Reinvestment Act to bring people who otherwise would not have qualified to give them every opportunity to qualify [for home mortgages]. All that was necessary. It was an important step forward, except that this is happening simultaneously with the emergence of an increasingly deregulated financial system…
Deregulation worked too well. Too much money all over the world from too many investors was chasing this limited number of mortgages. Bankers also created derivatives, collateralized debt obligations, and credit default swaps that were based on the mortgages. Many of the investment banks created or purchased their own sub-prime divisions just to generate activity… as underwriting standards deteriorated in the mid-2000s, then investors were on the hook.
Can homeownership rebuild neighborhoods and help individuals become better people?
There is some empirical research that says that, controlling for other factors, homeownership is a force for strengthening communities. We have great examples of it here in New York, the Nehemiah Homes and Partnership Homes. I was just out to East New York, actually going back to one of the areas which had both been one of the hardest hit by the FHA scandals and which has one of the highest, I think it has the highest foreclosure rate in Brooklyn now, which is fascinating that it’s the very same blocks [that suffered the highest foreclosure rates in the 1970s]. And East New York also is where the Nehemiah Homes are … those blocks have very low foreclosure rates. …The Nehemiah Homes are in great shape, people have beautiful gardens … I think the neighborhood would be in much, much worse shape if not for the Nehemiah owners.
…The problem is we tend to forget how it can also be quite a destructive force. This is also depicted in the book. You remember the era of blockbusting as we called it here in New York, or in Chicago where they called it panic peddling, where homeownership proved to be an incredible destabilizing force for cities because people that have an investment to protect, they act extremely rashly — they will act in certain ways to protect their investment. Blockbusting relied on white homeowners in the 1950s and 1960s being afraid that their neighborhoods were, quote, “changing,” and there being pressure to sell and get out before they lost everything. To hold onto their home equity they sold en masse and that led to a huge amount of disinvestment and turmoil in neighborhoods. So that’s the downside. Just as you can build up capital in neighborhoods through homeownership you can also deplete that rapidly if there’s a flight.
The government is now planning on spending billions through the Neighborhood Stabilization Program — a massive, multi-billion-dollar government intervention to promote affordable homeownership. Does that sound good?
There are a couple of problems that are emerging with the Neighborhood Stabilization Program. One is simply a lack of demand … what you see in a lot of cities that have very high vacancy rates and high foreclosure rates, typically concentrated in older, urban neighborhoods, what you find is that the market demand is extremely weak. And you have exactly what I talked about in the book. [For example] the Cleveland Housing Network does extremely important work reclaiming abandoned homes and selling or in some cases renting them to new occupants, but for lack of market demand it is going to be hard for the developers to even finance the rehab. …It can be very difficult for groups and city governments to acknowledge there is not demand for a particular neighborhood or that you’re going to have to downsize in some way.
What would an effective government-supported effort to promote homeownership look like?
This is going to sound very perverse but the best homeownership policy would better support the renters. I say that because I think that we have an insufficient housing choice in this country, in that policies have so strongly supported ownership. …The gap between the rights of owners and renters is so vast that anyone in their right mind would choose to own … people proved enormously willing to go into enormous debt just to have that privilege.
We didn’t take on enormous debt, but my husband and I bought in New York City, bought a coop in 2005, a ridiculous time to buy, because we were getting kicked out of our rental. It was turning condo and we were tired of getting pushed around. So I think that better support for renters will be part of a balanced housing policy.
What’s the right balance?
If anything we need to scale back on the degree that ownership is supported. The home mortgage interest tax deduction is a regressive benefit that pushes housing prices higher than they would otherwise be…
I certainly hope that Fannie Mae and Freddie Mac do remain extant and do play a strong role, whether they are government-sponsored or public-utility-type enterprises. One dangerous scenario that we’re facing right now is that it does become an entirely private-market situation. …By leaving [the question of Fannie and Freddie’s future] to a later date, it leaves open the possibility that Wall Street could run the entire show.
Executives of Fannie Mae and Freddie Mac say that their program loans, the loans originated under their underwriting standards, have really not had bad foreclosure rates.
Freddie and Fannie to some extent did get into Alt-A, meaning somewhat dubious [loans] … but that was the exception. Fannie and Freddie maintained by and large pretty strict underwriting standards.
Then they had these huge losses because they were buying bonds backed by subprime loans. Is it fair to say there was kind a Dr. Jekyll and Mr. Hyde quality to Fannie Mae and Freddie Mac?
Whatever motivated them to be such active secondary-market participants for sub-prime mortgage-backed securities — it was Jekyll and Hyde. It was because, I think, to the end, to differing degrees, Fannie and Freddie were desperately trying to hold onto their identities as mission-driven organizations and were facing extraordinary political pressure to do otherwise. I mean when you look at what the Bush Administration asked them to do, the pressure that it put them under and the numbers it asked them to deliver on… you can see the kind of desperate straits they were in.
As a relatively new homeowner yourself, are you worried about your property values?
I am really worried my property value. This is what homeownership does to a person’s psychology.
And has it made you a better person?
I don’t know about that. It’s just made me a greedier person. But that’s very instrumental in what gives homeownership its power. One has an investment to protect.
Can foreclosures contribute to violent crime?
Vacant properties are vulnerable to people using them for different purposes. In some areas you have meth labs. …These towns that have so many foreclosures have terrible, terrible budget problems … so towns can’t fund their police services and some areas are simply too sprawly to properly patrol in the first place.
There was this secluded McMansion neighborhood in the suburbs of Atlanta. [The houses] modeled themselves after everything from Tara, the house from “Gone with the Wind,” to the White House. One of them looked kind of like a Moorish castle. …In the still-very-segregated South people wanted to move to these communities because of the sense that they could pull up the gate behind them. What you had there were organized mortgage fraud rings … when the homes were owned nominally by the straw buyers, anyone could move in. You had fugitives … prostitution, drug dealing. It became very organized stuff. …It was a kind of fascinating re-distribution of housing resources.
Have homes built near jobs and mass transit held their value better?
Absolutely. There is research showing that.
The book ends with a kind of call to arms. Can government play a very significant role in building the cities of the future?
I think it can. The FHA built the suburban landscape. It created not just the 30-year fixed-rate mortgage and the opportunity for near-universal home ownership but it also built a very specific development pattern that we have lived with ever since. I point out in the book that developers who think FDR is just a few shades to the right of Fidel Castro still embrace this land use pattern. It was a very socially progressive idea at the time, that you could take people out of crowded ghettos and bring them out into the open countryside. This is a real social purpose. So I say in the book that we need to look at sustainable planning as a key value in the financing and planning of housing in the future.