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Monday, August 6, 2012

Very Bad Things Happen When We Depend on the Same People Who Caused the Foreclosure Crisis to Track Its Destruction




Investigations  

There is not a single federal agency that has tracked foreclosures comprehensively, a massive information gap that prevents the work of journalists, advocates and policymakers alike.

 
 
 
 
It’s a simple set of questions: “How many foreclosed properties are there in the country? What zip codes are they in? What factors sent people’s homes underwater?” For policy makers, journalists or anyone trying to size up or address the years-old housing crisis, these questions present the natural place to start. But their answers don’t quite exist.
In Chicago, for example, the city’s official vacant property count, which relies on the banks’ reporting, hovers just under 5,000. The Chicago Tribune estimates 18,000. Housing activists say there are well over 100,000.   
 
Vacant homes in Chicago are so destructive to their neighborhoods and wider communities—dragging down property values, preventing the stabilization of markets and becoming havens for violent crime—that Mayor Emanuel recently announced that the city would spend $4 million finding and demolishing just 200 foreclosed properties.
 
Foreclosures are happening en masse all over the country, and Chicago is not unique in having absolutely no comprehensive list of in-progress or completed foreclosure properties, hampering any attempts to rehabilitate vacant homes or aid people being hit by the crisis.
 
Nationally, there is not a single federal agency that has taken the initiative to track foreclosures comprehensively, a massive information gap that prevents the work of journalists, advocates and policymakers alike. 
 
The government is instead relying on the expensive, potentially biased and seemingly inaccurate information amassed by mortgage bankers, real estate hawks and credit reporting agencies. How this happened is a story of congressional warnings and broken promises, of lack of funding, and ultimately, the increasing dependence on the for-profit sector to quantify and analyze our lives. In this sense, it’s not only a story of the government’s failure, but also of Wall Street’s almost unquestioned power to determine not only value, but reality itself. 
 
The story begins in March 2009, near the peak of the foreclosure crisis, when the government admitted that it was being blindsided.
 
"The failure of federal banking and housing regulatory agencies to gather and analyze quality market intelligence is striking,” the Congressional Oversight Panel reported. “Absent more complete and accurate information, legislators, regulators, and market participants are flying blind."
 
At this point, the government was still scrambling to collect information about how the crisis had happened in the first place and relying on for-profit information providers; companies such as RealtyTrac and industry insiders like Mortgage Bankers Association of America. For the public, that meant it was nearly impossible to access information about the housing crisis without pulling out a credit card, since the majority of these third-party providers charge high fees for their information and withhold their raw data, precluding any public accountability.
 
“Housing data in general is a huge problem,” says Bill McBride, who writes the blog Calculated Risk. 
 
For one thing: none of the available sources match up, making it impossible to aggregate the data into a comprehensive set or to make comparisons across different databases. 
 
A piece McBride posted in March quoted one company’s estimate of 91,000 January foreclosures along with another company’s estimate of 71,000 for the same month, exemplifying the information gap.
 
“Centralized data on foreclosures would help,” McBride says, “but that would just be a start. I was hoping we’d see a new emphasis on housing data following the housing bubble, but it hasn’t happened.”
 
Richard Neiman, a member of the Congressional Oversight Panel, stated the problem explicitly in 2010: “Improved intelligence on the mortgage market is critical to preventing future crises… Currently, Congress, banking regulators, consumer advocates, and other policymakers are left with incomplete or unreliable data purchased from third-party vendors or with limited data provided voluntarily by the industry.”
 
Part of the Dodd-Frank Act, signed almost exactly two years ago, mandated the creation and maintenance of a foreclosure database. But the project seems not to have started in any meaningful way.
 
“Currently, HUD lacks the funding necessary to create the database and lacks the statutory authority to compel reporting to HUD of information necessary to compile the data,” said Lemar Wooley of HUD. “Congress has not appropriated funds for this project.”
 
A spokeswoman for the new Consumer Financial Protection Bureau could not report any updates on the foreclosure database mandated two years ago, which came with no legislated deadline.
 
Meanwhile, the government’s vision of the foreclosure crisis might be on the verge of going even blinder. The House of Representatives recently voted to end the American Community Survey, used by the Census to help the federal government decide how to distribute some $450 billion per year in funding. 
 
Rather than holding predatory mortgage lenders and industry actors accountable, the House legislative response to budget shortfalls -- exacerbated by the economic collapse caused by Wall Street and the government’s inability to regulate it -- was to turn to that same private sector to measure that very sector’s failure.
 
The majority of what foreclosure data is available comes from private vendors, many of which stand to profit from foreclosures and some of which, the facts suggest, may have engaged in practices that contributed to the housing crisis in the first place. These include Realtytrac, which calls itself “the leading online marketplace of foreclosure properties,” Lender Processing Services, CoreLogic, and the Mortgage Bankers Association of America.
 
Several agencies recently took enforcement actions against Lender Processing Services, which provides HUD with mortgage delinquency rates. A standing cease-and-desist order remains in effect by the Federal Reserve, the FDIC and other agencies against LPS since April 13, 2011, for, among other things, "executing assignments of mortgages containing inaccurate information”—probably not a quality one looks for in their data provider. Two months ago, the Federal Housing Administration publicly questioned an LPS report showing 63,000 April foreclosures when FHA’s data showed 19,000. A HUD staffer who spoke on the condition of anonymity said LPS sells the agency information covering about 80 percent of the market for around $300,000 each year.
 
RealtyTrac, used by the likes of National Public Radio, HUD and even people testifying to the House of Representatives on behalf of homeowners, has received a series of complaints for defrauding customers and providing inaccurate data.
 
Another popular source of information is the HOPE Now Alliance, a group of lenders representing about two thirds of outstanding mortgages in the United States. In 2008 the group said they had helped one million homeowners save their homes; the Office of the Comptroller of Currency said that HOPE had vastly overstated their work and helped less than 200,000. Given the lack of an authoritative housing information database, experts simply threw up their hands at the discrepancy.
 
Nationally, homeowners continue to suffer an average of 40,000 foreclosures every month (or so the industry says), and accurate information is necessary for states to allocate the aid from the recent $26 million settlement to underwater homeowners. Meanwhile, urban planners and local governments are struggling to save hard-hit neighborhoods without having comprehensive pictures of the problem.
 
“It’s like this secret they just don’t want you to know about,” said Kathryn Clark, a former urban planner and artist who was so astonished by the lack of foreclosure data that she has begun mapping the foreclosures onto quilts in order to represent the crisis. “It’s crazy what you have to pay to access it. It’s frustrating. It’s shocking. It amazes me.”
 
Citizens used to be able to look to the USPS Administrative Data On Address Vacancies, made available through HUD for vacancy data; however, USPS and HUD decided to renegotiate their data sharing agreement -- right in the middle of the housing crisis -- and as a result, now only allow official governmental entities and non-profit organizations to access the data.  
 
“I think it would be good if the government itself could actually collect loan performance data,” said the HUD staffer. He said he has hope that a Dodd-Frank regulation requiring the use of universal loan identifiers will make it easier to merge databases and create a clearer picture of the crisis. The CFPB is currently writing rules for this tool, but the enforcement mechanism is unclear.
 
More than simply helping us to cope with the crisis, accurate housing information is necessary if we are to avoid another bubble.
 
The HUD staffer explained that predicting housing bubbles relies on the government knowing whether homes are being purchased for immediate residential purposes or for future, speculative profits. By 2005, for example, nearly 30% of all houses were being purchased as unused investments, not homes. Had the government known that, perhaps it could have predicted the spectacular collapse only three years later.
 
At this rate, the government won’t be able to predict the next time, either.
 
“To get a handle on when growth in prices in a housing market is not due to actual demand for housing to be lived in, or supported by growing incomes – that’s the hard thing to detect,” said the HUD staffer. “And that’s kind of the definition of a bubble.”
 
 Sam Jewler and Chris Herwig are two Occupy activists and journalists in based in Washington, DC.

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