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Monthly Archives: April 2014

Note: The following calculations and tables are a rough work product. If you see errors, or have ideas for how the data can better be presented, please let me know.

For over a decade the largest mortgage lenders issued millions of home loans, producing trillions in debt. Household mortgage debt peaked at $9.3 trillion in 2008, according to the U.S. Federal Reserve Bank of New York. Adding home equity loans, debt tied to housing maxed out over $10 trillion.  Many of these home loans were issued under fraudulent or deceptive pretexts. With the Financial Crisis of 2008 the American mortgage market collapsed, pulling borrowers into distress and leading to millions of foreclosures.

Screen Shot 2014-04-24 at 3.49.23 PMThe National Mortgage Settlement was supposed to be the keystone in a wider effort to halt foreclosures and keep people in their homes. The intention was to provide upwards of $25 billion in financial relief. California’s share was a whopping $18 billion.

The National Monitor for the Settlement released final numbers on the relief —how much, in what form, and where it was delivered— in March. The California Monitor (the only state to set up its own oversight office) released comprehensive numbers for the state in September of 2013. Using this data I plotted this assistance in the context of the foreclosure crisis.

Was the National Mortgage Settlement an adequate means of helping borrowers, stopping foreclosures, and holding the banks accountable for illegal lending and mortgage servicing practices?

California, the state that consumed a big chunk of the settlement provides a good window.

In California approximately 35,961 borrowers benefited from reductions of their 1st lien mortgage principal, wiping out $4.5 billion in debt.

Compared to the scale of the foreclosure crisis this was a rather small amount of assistance. There were over 978,000 foreclosures in California since 2006, according to DataQuick’s research. Relief provided by the banks through reductions in 1st lien mortgage principal represented only about 3.6% of the total foreclosures statewide over that time frame. This relief arrived rather late, after the peak foreclosure and default years of 2008 and 2009.

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Notices of Default and foreclosures peaked in California in 2008 and 2009. The banks began writing down 1st lien mortgage principal in 2012 and into 2013.

For every person that was assisted with a 1st lien write down during 2012 and 2013 there were another 3.5 foreclosures and roughly 7 times as many Notices of Default.

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Reductions in 1st lien mortgage debt is considered by many experts to be the most crucial form of assistance that was promised to borrowers through the National Mortgage Settlement. This graph lumps all 1st lien mortgage assistance under the Settlement into 2012 and compares the level of this assistance to the total number of foreclosures in California since 2006.

Thanks to the establishment of the California Monitor’s office and data compilation by the Monitor Katherine Porter, it’s possible to compare relief provided through the Settlement to total foreclosure and default levels down to the county-level in California.

Alameda County was especially hard hit by the foreclosure crisis. African American and Latino borrowers in Alameda County experienced very high levels of loan default and foreclosure, due in part to predatory and discriminatory loan origination in the late 1990s and early 2000s by banks like World Savings and Countrywide.Screen Shot 2014-05-03 at 11.52.07 PM

Like California as a whole, relief provided to borrowers in Alameda County by the five big banks arrived late and in a relatively small amount compared to the scale of the problem. For every 1st lien mortgage principal reduction provided through the Settlement, there were another 20 foreclosures. For every 2nd lien mortgage principal reduction there were 17 foreclosures.

Using data from the Alameda County Recorder’s office it’s possible to compare levels of relief provided by each of the five banks party to the Settlement to the county’s overall level of foreclosures.Screen Shot 2014-05-03 at 11.54.04 PM

2nd lien mortgage modification forgiveness and extinguishments were a bit more common. Across California the big five banks provided $4.7 billion in financial assistance to 56,047 California borrowers.

Short sales were the most common type of assistance. Across California 63,445 borrowers carried out a short sale in which their lenders sold their home and pocketed virtually all the proceeds. A good portion of short sales were bought up by investors have flipped housing for quick profits, or by large and small landlords who have converted a significant portion of single family homes into rental stock.

So did the National Mortgage Settlement provide meaningful relief and restitution to borrowers hit by predatory lending, the financial crisis, and illegal foreclosure tactics? Did it repair trust in the system? Did it change the financial system?

Digest some of the numbers above, and decide for yourself.

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Two weeks ago I reported on one of Oakland’s largest landlords, Neill Sullivan, the man behind the Sullivan Management Company (SMC). Sullivan’s firm manages three real estate investment funds named REO Homes. These three LLCs own approximately 270 properties, mostly single family houses and apartment buildings, mostly in West Oakland.

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Residential properties owned by REO Homes, LLC, REO Homes 2, LLC and REO Homes 3, LLC.

Neill Sullivan’s business is a for-profit venture, but he and his employees say that they’re seeking a “triple bottom line” that will show positive social justice and environmental gains, in addition to monetary gains.

Integral to Mr. Sullivan’s real estate play are the deep-pocketed investors and financial institutions backing him. These investors, and one of the banks supporting his acquisition of Oakland housing stock, also claim to have a triple bottom line emphasis that looks beyond profit.

As I explained in the story, one of these investors is Tom Steyer, a retired San Francisco hedge fund manager who amassed a personal fortune of well over a billion dollars. Steyer put up personal money to support REO Homes, LLC, one of Neill Sullivan’s acquisition funds. And a bank that Steyer and his wife Kat Taylor founded in 2007 also made loans to REO Homes, LLC to finance property acquisitions.

The CEO of One PacificCoast Bank, Kat Taylor, took issue with my presentation of these facts, writing in a letter to the East Bay Express last week that my report was an “outrage,” and a “gross misrepresentation” because of my inclusion of Oakland community voices who are critical of Neill Sullivan and investors like him who have monopolized a good share of West Oakland’s rental housing. Taylor wrote:

“OPCB is a triple-bottom-line bank mandated to achieve social justice and environmental well-being; at the same time, we are financially sustainable. Our ethical standards are beyond reproach and our procedures and safeguards meet or exceed those required by our main regulator, the Office of the Comptroller of the Currency.”

Taylor added that:

“Our ownership reinforces our mission. The bank’s foundation owns 100 percent of the economic rights of the bank. If and when profits are distributed, they can only go to the foundation, which is required by its bylaws to reinvest them into the low-income communities we serve or the environment upon which we all depend.”

But there’s another place that the One PacificCoast Bank’s profits have been going besides philanthropic ventures, according to tax records of the Foundation.

The One PacificCoast Foundation, the non-profit that owns the banks’ stock, has been heavily indebted to Tom Steyer. Steyer loaned the OPC Foundation $26.5 million to allow the Foundation to purchase 100 percent of the One PacificCoast Bank’s stock, effectively capitalizing the bank, according to the Foundation’s recent tax records. The OPC Foundation has been paying back that loan to Steyer, and according to a tax file from 2011, the Foundation paid $2.246 million in balance due.

Thus a lot of the profit generated by the One PacificCoast Bank that was channeled back to the Foundation was used to pay back Steyer for the loan, in addition to being doled out as grants to non-profits.

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Tom Steyer loaned $26.5 million to the One PacificCoast Foundation (then called the One California Foundation) to allow the Foundation to purchase 100 percent of the shares of the bank of the same name. (Source, One PacificCoast Bank IRS Form 990, 2011)

One PacificCoast Bank is linked to other major real estate investors besides Neill Sullivan. In fact, the One PacificCoast Bank and Foundation exist in a complex network of real estate ventures where the lines between for-profit enterprise, and tax-exempt philanthropy are blurred.

The One PacificCoast Foundation’s links to Bridge Housing Corporation are a case in point.

On the board of the One PacificCoast Foundation is Cynthia Parker, the president and CEO of Bridge Housing Corporation, an affordable housing developer. Bridge Housing has numerous real estate projects in the works in Oakland, especially West Oakland. The Mandela Gateway apartments are a Bridge Housing property. So too is the MacArthur BART Station’s planned 625 unit apartment complex called “Mural.”

What qualifies projects like these as non-profit and affordable is that a portion of the units are set aside for renters below the area’s median income level. For example, the Mural apartments going up next to MacArthur BART will include about 90 “affordable” units, or about 14 percent of the total.

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Not-for-profit doesn’t mean the executives aren’t highly paid. The total compensation of Bridge Housing’s CEO in 2012 was $493,000. (Source: Bridge Housing Corporation IRS Form 99, 2012).

The One PacificCoast Foundation directly supports Bridge Housing Corporation.

Also on the board of directors of One PacificCoast Foundation, at least until 2011, is Rick Holliday. Holliday established Bridge Housing in the early 1980s and he remains on Bridge Housing’s board of directors. But Holliday’s main focus these days appears to be his own for-profit real estate company, Holliday Development.

Holliday Development’s first project in 1988 was conversion of an industrial building in San Francisco’s SOMA into lofts. Today one bedroom units in the building, 601 4th Street, are priced at approximately $1 million.

Before the crash in 2008 that brought the Bay Area’s real estate market to a brief standstill, Rick Holliday was betting big money on West Oakland. That year the San Francisco Business Times ran a profile on Holliday and explained his ambitions for West Oakland: “Some developers see West Oakland as the next South of Market, a San Francisco neighborhood transformed from an under-utilized industrial zone to a booming office and residential district.” Holliday said he was “bullish” on West Oakland real estate.

SOMA’s median rent for a one bedroom apartment is currently about $2,500, making it one of the most unaffordable places to live in the United States.

West Oakland’s rents are quickly rising too. Holliday’s marquee West Oakland project, the Pacific Cannery Lofts sold out last year. Prices in the 163 unit property ranged from one quarter million to half a million dollars, according to the San Francisco Chronicle.