What can we do to affirmatively further fair housing?

Following on an article on segregation by Nikole Hannah-Jones for ProPublica I have joined a Quora discussion on what communities can do to affirmatively further fair housing. Read Quote of Rob Breymaier's answer to Fair Housing Act: What should communities be doing to "affirmatively further" fair housing? on Quora

Oak Park: A 40 -Year Diversity Success Story

There is a new article at the National Journal by Ron Brownstein discussing a new report from Myron Orfield and Tom Luce at the University of Minnesota's Institute for Metropolitan Opportunity. The report maps changing diversity in the Chicago region and cites Oak Park and the Oak Park Regional Housing Center as models for sustaining stable diversity and prosperity.

HUD Puts Recipients "On Notice"

[Cross posted at www.justinmassa.com and co-authored by Justin Massa.]

Today, it is likely that most if not all of the 1,200+ states, counties, and municipalities across the country that receive CDBG funds are revisiting their plans and procedures. The Anti-Discrimination Center of Metro New York v. Westchester County settlement, announced last week, requires Westchester to make up for years of neglect regarding the affirmative furthering of fair housing – namely, addressing the impediments to fair housing choice that perpetuate segregation. As HUD’s Deputy Secretary Ron Sims noted during the press conference announcing the settlement, after nearly a decade of lax federal oversight communities around the nation are now “on notice”.

The case makes clear that recipients of federal housing and community development funds “must comply with, inter alia, the provisions of the Housing and Community Development Act, including the requirement that it affirmatively further fair housing”, which it goes on to define as pro-integrative housing policies. Long ignored and often misunderstood, affirmative furthering of fair housing has always been about promoting, fostering, and sustaining integration in the housing market.

The case could not be more timely. While a significant victory for fair housing and integration advocates, the Westchester settlement is small in comparison to the benefit that proper regulations from HUD on the duty to affirmatively further fair housing may provide. Regulations that are currently being drafted by HUD staff and are slated to be published for public comment within the next few months.

To understand the potential implications of the settlement and new regulations, take a look at the numbers. Under the settlement, Westchester County will spend roughly $50 million on affirmatively located affordable housing developments over the next 5 years. Annually, HUD allocates over $20 billion to affordable housing through CDBG, HOME, Section 8, voucher, and public housing funds. Billions more dollars in Low-Income Housing Tax Credits are used annually to finance affordable housing programs.

Currently, regulations regarding the affirmative furthering of fair housing are vague, process-oriented, unaccountable, and largely ineffective. Updating them to require measurable actions with targeted outcomes, subject to oversight and review, would result in powerful positive impacts. We believe these regulations should:

1. Provide a strong definition of affirmative furthering of fair housing as housing policies that promote integration of those protected by the Fair Housing Act. Recipients must show that they will develop new affordable housing in a manner that expands housing options for protected persons, particularly geographic expansion to high-opportunity communities with plentiful jobs, good schools, and quality services.
2. Require that Analyses of Impediments and Fair Housing Action Plans address systemic and structural barriers to fair housing choice. In analyses of impediments, recipients should be required to address how current patterns of segregation and points of resistance to diversity and integration (such as municipal zoning, industry practices, and popular (mis)perceptions) limit housing choices and integration. Recipients’ fair housing action plans must address measurable actions with specified goals to overcome these impediments.
3. Afford MPOs (Metropolitan Planning Organizations) with the resources and authority to determine regional priorities and disparities regarding affirmative furthering of fair housing. Overlapping local and state recipients should be required to cite these regional issues in their analyses and plans.
4. Clearly state that all federal community development funds should promote regional equity and greater opportunity in disinvested areas. Strategically spending economic, education, and infrastructure dollars to increase opportunity in disinvested areas will balance regional development and enhance the quality of life for everyone.
5. Improve transparency and accountability by compelling recipients to post their plans online, hold them open for public comment, and engage the community in the planning process. These are key components of the Obama administration’s commitment to good government and will reduce the oversight burdens on HUD by empowering local fair housing advocates with critical information.
   

Forty-one years later after its passage, we now have a chance to realize the full promise of the Fair Housing Act. HUD’s forthcoming affirmative furthering regulations will determine the future of our metropolitan regions, and we hope that the drafters within HUD are taking the time and care to get them right. While many in the fair housing community are anxious to see progress, the implications of these new rules are simply too large to rush them. With more than $20 billion annually at stake, these new regulations will determine if we will begin to actively promote fairness and regional equity or continue to segregate opportunity along racial and economic lines.

Testimony to the National Commission on Fair Housing and Equal Opportunity

Introduction

Over the past 40 years, the fair housing movement has certainly made important progress toward ensuring the rights of individuals in their search for housing. Most significantly, systemic victories against lending and insurance redlining have improved the access to these services for people of color and other protected persons. In addition, random and systemic audits of real estate companies have provided gradual improvement in the expansion of homeownership locations available to protected persons.

However, the first 40 years of fair housing advocacy has almost completely failed at improving the integration of metropolitan communities. Differing segregation measurements show that communities throughout the United States continue to suffer from high segregation[1]. In many regions, while change occurs it often creates short-term integration that is replaced in short order by re-segregation. Common examples include gentrifying neighborhoods in central cities and suburban municipalities that experience increases in minority population. In the vast majority of these cases, increased diversity is followed by re-segregation that is due to displacement or flight[2].

This continual changing structure of segregation is due in part to the fact that in 1968, when the Fair Housing Act passed, American cities were already segregated in a way that privileged whites over people of color in nearly every quality of life measurement. Moreover, the most significant systemic victories (or their remedies) did not begin to manifest until the 1980s[3].

In their HUD-funded, landmark study of neighborhood diversity, Philip Nyden, John Lukehart, Michael Maly, and William Peterman found that the most stable diverse communities have “developed the institutional structures, social arrangements, and political-social environment to sustain their diversity. Among these structures are community organizations developed specifically to promote the community as racially and ethnically diverse[4].” Included among the activities are efforts to promote positive perceptions of diverse communities, affirmative marketing programs that seek to encourage inclusiveness, and active promotion of the goals of fair housing. They conclude that “stable diverse neighborhoods will not develop on their own; they require active intervention to counter misconceptions about diversity and a lack of institutional support for diversity[5].”

HUD and the fair housing community have largely failed to embrace the need to support community organizations that will affirmatively further fair housing in ways that foster and improve integration. The language of the most stable federal funding for fair housing activities, the Fair Housing Initiatives Program (FHIP), makes no mention of affirmative furthering or integration efforts in its fundable activities. It focuses solely on enforcement efforts through either investigation or education and outreach. This failure makes it nearly impossible for organizations focusing on integration to receive funding via FHIP.

At the same time, HUD does little to enforce the mandate for CDBG entitlement jurisdictions and their sub-grantees (EJs) to affirmatively further fair housing. In many cases, the only activities EJs engage in are poster contests for children or leaving fliers at libraries and municipal offices – activities that are not affirmative. Cases of affirmative activities such as promoting a community to underserved populations, establishing an active commission or sub-commission, or encouraging pro-integrative policies in their planning and development processes are extremely rare.

This is all the more tragic given that the academic literature on the subject of improving regional integration overwhelmingly supports the effectiveness of intentional programs. Cleveland State University professor Dennis Keating provides the most direct statement regarding neighborhood and community integration. In his study of racial change in Cleveland’s suburbs (including Shaker Heights), Keating explicitly frames his argument around the statement that, “to achieve the goal of community integration, affirmative housing policies are required[6].” Others concur and/or provide evidence that integration cannot be achieved solely through enforcement activity[7].

Keating and others come to this conclusion because they are aware of the limitations of fair housing enforcement techniques. The reactive nature of fair housing enforcement provides a number of restrictions to effective engagement in integrated communities. National estimates figure that less than 1% of discrimination complaints are reported[8]. When complaints are reported and referred to HUD or local agencies, the extremely long time it takes to remedy the complaints deters many complainants from completing the process. Most importantly, complaint-based fair housing efforts have absolutely no effect on the most difficult obstacle to integrated communities – white avoidance of communities of color.

Racial Attitudes Toward Integration

The reluctance of whites to live in communities of color is in continuous opposition to integration through at least three distinct processes. The best known of these three is white flight, in which white residents leave communities when minority populations increase in their neighborhood or community. A second, more benign, process is white avoidance, where whites refuse to consider moves to predominantly minority communities. A third process is gentrification, where communities seem integrated for a short period as whites begin to move into communities that become newly desirable and eventually significantly displace minority residents partly due to economic circumstances.

In all these cases, attitudes toward racial integration play a primary role. University of Pennsylvania professor Camille Zubrinsky Charles has conducted extensive research into racial housing preferences. In a multi-city survey, Charles found that only 45% of whites are willing to move into a neighborhood that is one-third black and fewer than 30% of whites would consider moving into a neighborhood that is majority black[9]. Latinos and Asians have similar attitudes toward black neighborhoods, always finding them to be the least desirable of any racial makeup.

Likewise, professor Lincoln Quillian of Northwestern University analyzed data from the Panel Study of Income Dynamics (matched data from multiple censuses) and found that whites are very reluctant to move from a current residence to a census tract where the percentage of African Americans is higher[10].

In 2002, professors Evan McKenzie and Jay Ruby wrote an article chronicling their revisiting of integration strategies in Oak Park, IL. Oak Park is a model for promoting meaningful and lasting community integration. The authors concluded that, even in a community where diversity and integration are values, the programs should continue. In particular, the section regarding the primary community organization implementing the affirmative policies, the Oak Park Regional Housing Center, concludes that:

[T]he reason for its creation has not changed. White people are reluctant to rent in neighborhoods where there are a significant number of black tenants… If Oak Park is to continue to realize its goal of dispersed integration then the Center will have to continue to induce white demand in East Oak Park.[11]

The research for McKenzie and Ruby’s article included Ruby volunteering to spend time as the receptionist for the Oak Park Regional Housing Center when he discovered that “white clients who knew almost nothing about Oak Park arrived at the Center convinced they knew where the ‘bad’ places to live are located[12].”

The attitudes chronicled here are not always based on explicit racial prejudice. In many cases, they are indicative of knowledge gaps that perpetuate misperceptions and misconceptions. In 2004, UIC professors Maria Krysan and Tyrone Forman found that people of all races are ill informed of neighborhoods and communities where they are not in the majority. Whites were the most likely to not know about communities where they were not in the majority.

Regardless of how these attitudes are shaped, it is important to note that the work of integration cannot be solely the responsibility of people of color and others protected by the Fair Housing Act. Moreover, accomplishing integration requires more than enforcing the limited number of complaints filed. True affirmative furthering of fair housing mandates that whites must participate in integration efforts as well.

Other Structural Factors

The lack of regional or inter-municipal programs to address segregation has also hampered pro-integration advocacy and policy. In particular, the decision in Miliken v Bradley is significant. Despite its content relating to school desegregation, the Supreme Court’s decision to limit the ability to address inter-municipal remedies to segregation played an important role in perpetuating the geography of inequality that provides the foundational structure of nearly all American metropolises today.

The geographies of housing segregation and regional opportunity/inequality correlate nearly one-to-one. This pattern was first confirmed by the Leadership Council for Metropolitan Open Communities in its 2006 report The Segregation of Opportunity and has been repeatedly confirmed in other metropolitan regions across the nation.

Another hope lost was that an increase in the African American middle class would produce greater integration and reduced discrimination. Yet, study after study shows that wealthy African Americans are more isolated than poor whites[13]. (It should be noted that personal decisions to abandon the goals of integration and instead move to predominantly minority enclaves has also limited integration.) And, while Asians and Latinos have experienced greater success than African Americans regarding integration with non-Hispanic whites, housing professionals continue to steer Asians and Latinos to ethnic enclaves and a lack of resources for folks with limited English proficiency in many suburbs serves as an impediment to fair housing choice.

In short, the federal government and the fair housing community have had limited success in promoting integration because of a reactive strategy that fails to provide models of inclusion or leadership on affirmative measures. This is partly due to the language of the Fair Housing Act and the Community Development Act. However, it is also significantly the result of a lack of imagination and innovation in fair housing advocacy (an understandable situation given the diminutive and precarious funding and support for fair housing activities).

Proactive Models of Intentional Integration and Affirmative Furthering

In cases where integration, opportunity, and inclusion come together, an intentional effort to be proactive has occurred and in some cases continues to occur. The best known of these programs are located in the Chicago region – the voucher-oriented Gautreaux program and the market-oriented Oak Park Regional Housing Center. Chicago continues to provide further innovation on this subject including a new start-up organization called MoveSmart.org a regional non-profit that aims to expand housing choices by reducing knowledge gaps that perpetuate segregation.

However, similar programs exist in other communities, such as the Inclusive Communities Project in the Dallas/Fort Worth region, the Heights Community Congress in Cleveland’s southeast suburbs, the Maplewood/South Orange Community Coalition in New Jersey.

Essentially, these programs inform housing seekers of their rights and opportunities from the beginning of their search process rather than after housing providers have denied them or discouraged them from quality housing options. These efforts create and sustain diverse, integrated communities of inclusion and harmony. They also create environments that minimize discrimination and expand housing choices. As such, these programs work to guarantee the right to fair housing choice at the beginning of a housing search rather than after an act of discrimination.

Housing patterns form the foundation for all other geographic structures of equality and opportunity. Prioritizing affirmative – pro-integrative – measures will add a sorely missing component to fulfilling the rights of all persons guaranteed under the Fair Housing Act as well as promote a structure of equal opportunity in our metropolitan regions that will assist in ameliorating nearly all other metropolitan problems. 40 years after the Fair Housing Act, it is time we embraced the full spirit and intent of the law.

---

[1] The most common of these are available at SUNY Albany’s Lewis Mumford Center’s web site http://mumford1.dyndns.org/cen2000/data.html.

[2] Two Chicago examples (where I am most familiar with changing neighborhoods) include Uptown, where low-income African Americans are increasingly isolated in the “Heart of Uptown” while the surrounding portion of the neighborhood gentrifies rapidly, and Cicero where Latino in-migration has coincided with white flight from the suburb.

[3] For instance, the remedies from the Gautreaux case began their implementation in the 1980s. The major systemic lending and insurance cases were decided in the 1980s and 1990s.

[4] Nyden, Phil et al. (1998) Neighborhood Racial and Ethnic Diversity in U.S. Cities. Cityscape: A Journal of Policy Development and Research. v4, n2, p9

[5] Ibid p266

[6] Keating, W. Dennis. (1994) The Suburban Racial Dilemma: Housing and Neighborhoods. Temple University Press. p4.

[7] Among others see: powell, john, et al. (2007) Communities of Opportunity: A Framework for a More Equitable and Sustainable Future for All; Briggs, Xavier ed. (2005) The Geography of Opportunity: Race and housing Choice in Metropolitan America. Brookings Press; Schwemm, Robert (2007) “Why Do Landlords Still Discriminate (and What Can Be Done About It)” John Marshall Law Review. v40.

[8] National Fair Housing Alliance 2006 Trends Report.

[9] Charles, Camille Zubrinsky. (2001) Processes of Racial Residential Segregation. From O’Connor, Alice et al. eds. Urban Inequality: Evidence from Four Cities. p237.

[10] Quillian, Lincoln. (2002) Why is Black-White Residential Segregation so Persistent?: Evidence on Three Theories from Migration Data. Social Science Research. v31,p209.

[11] McKenzie, Evan and Jay Ruby (2002) Reconsidering the Oak Park Strategy: The Conundrums of Integration. p30

[12] Ibid.

[13] Smith, Geoff et al. (2007) Paying More for the American Dream: A Multi-State Analysis of Higher Cost Home Purchase Lending. (available at the Woodstock Institute’s website).

To the Future!

I started writing this blog for a lot of the same reasons I got into civil rights work in the first place. When I talk about how I got into civil rights work, the best explanation I can give is that, growing up in a nearly all-white and mostly-middle class suburb, I really believed that the stuff I learned in history class was how America really worked. I believed the hype that everyone has a fair chance and an equal shot. I believed that there was opportunity for anyone willing to work hard enough for it.

Then, as I became more aware of the inequality and injustices throughout the country, I felt compelled to act and try to make our ideals our reality. I wanted chances to be fair, for shots to be equal, for the playing field to be level. I wanted every American to be a valued and cherished American. I wanted a government to support the middle class, provide for the poor, and guard against greed, hate, and fear. That's why I got involved and that's why I campaigned, donated, and voted for Obama. Because for the first time in my adult life, I believed a candidate would attempt to live up to our ideals.

We have a very long road ahead of us. Our progress on issues of equality and justice is still in its early stages. I don't, and no one else should, expect the Obama administration to fix all our problems in the next 4 to 8 years. But, last night was an important step toward fulfilling the promise of America both because of Obama's race and because of his proposed policies.

I truly feel like that beacon is shining brighter today!

Way to Go, Ohio

I spent Saturday canvassing in a rural part of Ohio near my hometown of Oregon. It was a great day full of unexpected delights.

The whole structure was not what I expected. I figured that I'd be meeting up with a few people in their early 20s decked out in Obama gear and full of a take-on-the-world attitude. I thought we'd be walking up and down the small town home to the staging area. And, I thought it would last about two or three hours.

Instead, I found myself among a bunch of ladies in their 60s and older. I was paired with a woman named Fay. Fay is 80 years old, spry, and witty. As she told me, she's spent her whole life within a mile and a half of the railroad tracks that run through the township. She'd also been a school teacher in the area. With that kind of experience, she knew just about everything about everyone in the township. It was amazing as she would correctly guess the last names at various addresses we stopped at.

These addresses were along township roads. Some of them the homes of farmers. Most of them not. But, all of them spaced far from one another in that rural pattern so common in Ohio. To get to each of them we didn't walk. Instead, we hopped into Fay's big white pickup truck and drove from house to house. I'd hop out at each place and strike up some conversation and pass out some literature for folks as we met them. Occasionally, Fay would jump out too to catch up with some of the folks she knew well.

The people we met, we're kind and considerate. If they felt it, they never let on hat they found our visit to be annoying or intrusive. Some folks even invited me in to keep warm while we talked. It was really no surprise to me. This is the way people always were when I was living back in Ohio, especially those farther out. There's a sense of knowing that if someone is actually taking the time to come over, they probably have something important to say. After all, it's not like you can just walk next door or across the street.

At the end of the day ,those who would tell us favored Obama over McCain by a margin of about 3 to 1. And, I really think that I answered a few questions in a way that turned people from leaning McCain to leaning Obama. I tried to urge those folks to vote early.

Not one person brought up Bill Ayers or Islam. On person asked me if Barack Obama changed his name. I told them no, but he did go by Barry in high school. I forgot to say, "Do you really think he'd change his name to Barack Obama?"

Most people were worried about health care, energy, and the economy. People are very afraid of slipping out of the middle class. They feel unsure about the future of the economy, wonder how they'll afford to pay for prescriptions and medical care, and think we need to end our dependence on middle eastern oil. I had a long conversation with a guy about energy and drilling. And, I talked about how a company near by called First Solar would benefit and likely expand from a policy change that focused more on domestic more green energy. He seemed to go from undecided to Obama in that conversation.

People were also freaked out about McCain's plan to tax health care benefits. They do NOT like that idea one bit. I never got this far with any of them, but I think the tax on benefits would also be a bigger hit for small businesses (that would also have to pay taxes on that portion of payroll) than any Joe the Plumber scenario. It would be very harmful to small businesses and large businesses too.

Anyone that brought up the war brought it up to say we need to get out of Iraq immediately. In fact, I was stunned at how many people stated that unprompted. I didn't really want to talk about the war much. My plan was to focus on taxes. But, people kept adding on that we're wasting money we need and losing soldiers we love in Iraq just to keep the oil flowing. It's clear that many people feel we're only there to protect the oil.

All in all, it was a good day. The people I met were all white and almost all in their 50s. The fact that they were 3 to 1 for Obama made me feel a little more confident. There were also a lot of undecided voters yet and in many cases, they seemed like folks who would have voted for a more moderate Republican ticket. A lot of those undecided folks thought the Palin selection was a poor choice made purely for political reasons.

I think this part of Ohio is ready for Obama and the change he promises.

Geography and the Invisibility of Poverty

Folks, today is blog action day and I'm joining in on the fight to eliminate extreme poverty in Illinois. You can do your part as well by going to the From Poverty to Opportunity web site.

Poverty is everywhere. But, it is most concentrated and noticeable in urban and suburban communities of color and rural towns and villages across the country.

I've written previously about the geography of inequality. It is clear that America is geographically divided into places of opportunity and places of struggle. This geography is a powerful force that often has an ability to squelch individual efforts toward self-improvement and actions to ameliorate despair. Documented in so many places (like this, this, and this) poverty isolation is certainly a broad structural barrier to opportunity and equality.

This isolation further frustrates efforts to eliminate poverty by rendering it invisible. By spacializing poverty and opportunity, those of us not in poverty benefit from the privilege to ignore our struggling brothers and sisters. Even during an age where the middle class is shrinking and the economy is failing, the geographic structure of our lives allows us to complete our day-to-day tasks without significantly interacting with those living in poverty. It encourages us to abandon those less fortunate than ourselves. And, it leads us to believe that we're insulated from the possibility of scarcity in our lives.

Perhaps most importantly, this isolation means that when we try to construct structures of opportunity we too often ignore the input of those in need of these structures. It is imperative that those living in extreme poverty must be engaged in the development, implementation and enforcement of the policies that grant freedom from poverty. Our separation discourages cooperative involvement and diminishes our capacity to value all voices and perspectives.

Hopefully, today will be the beginning of greater solidarity between those living in poverty and those living more comfortable lives. Hopefully, we can all reflect today on how the way we value the least fortunate among us is a reflection of how we value basic human dignity and our own integrity. Today is a chance to reflect. But, more importantly, it is a chance to get involved in the cause of eliminating extreme poverty and getting engaged with those we frequently fail to acknowledge.

Not so Calculated Risk

Calculated Risk is fond of going on about how many homes are "underwater" -- where homeowners owe more on their mortgages than their home is worth. It seems like something we should keep an eye on but I disagree with the conclusions they consistently make stating that these homeowners are likely to default and/or "mail in the keys".

People buy a home for a lot of reasons. One is an attempt to make a smart investment. But, in most cases, that investment is a 20 to 30-year investment, not a 3 to 5-year investment. More importantly, people buy a home to have a place to live! They are not going to simply mail in the keys because their house lost value.

For starters, they often don't even know if the home is worth more than they owe because they don't know how much they owe at any one time. They might know the house has decreased in value but that doesn't mean it's worth less than they owe. And, it also means people have to give up on their dream of home ownership, something many are unwilling to do.

Calculated Risk is a great site, but I think they're taking too many liberties extrapolating on a short-lived, geographically-focused phenomenon. i wonder if there's any historical evidence of folks doing this in past housing busts. If not, then Calculated Risk should consider much more likely factors in defaults such as job losses and catastrophic payments.

How We Got to the Bailout

Here’s my slightly-less-brief-than-my-comments-at-The Weblog synopsis about what happened in this crisis.

In the mid-1990s sub-prime mortgages begin their steady climb in market share.

Around the same time payday and title loan lending begin to take over America’s corners not already claimed by Walgreens, CVS, and Starbucks, especially in poor neighborhoods where there were no Starbuckses.

In 1998, there are a number of us (me as just a beginner in the movement) that are very loudly (or as loudly as we can) warning that this is problematic and needs to be re-evaluated. At this time, the real problem is that loans are being made with terms that are impossible or nearly impossible to repay. The borrowers are folks that should be able to get better terms. About 90% of the people affected negatively are not white so the problem is ignored.

In the early 2000s, a number of states pass anti-predatory lending laws or regulations. Around the same time, banks that are regulated by CRA are beginning to get in to the game more often. Chase and Citi and WaMu among others buy dedicated sub-prime lenders and designate them “another channel for mortgages” — the wholesale channel (because brokers, not loan officers, are the point of contact for the borrowers). That channel is the channel where people of color get worse terms than they could have gotten through the banks regular retail lending. In Georgia, possibly the state with the best protections passed, the banking industry (with the help of Wall Street and Fannie and Freddie) get the law repealed. Ohio passes a law that essentially is pro-predatory lending in classic Republican-controlled ironic-naming-of-bills fashion. The problem is still largely ignored and still predominantly harms poor people, seniors, and people of color (and most often people who fit all three categories).

Wall Street begins its fury to buy these loans because they offer a higher return than traditional mortgages. Sub-prime loans often have egregious fees, penalties, interest rates, and adjustments that make them look on paper like a better ROI. Even with state regulations, some of which are challenged by federal regulators, there's still room to soak "unsophisticated" borrowers.

(I should add here that some banks and brokers are doing their level best to stay out of this mess. But, it is becoming increasingly difficult to only lend based on sound practices and still get any significant market share.)

In the mid 2000s, competition takes hold in a top-down manner rather than a bottom up manner. This is where things really fall apart. Previously, the problem is more contained with a few banks and investment companies. Now, everyone wants some of that high return. To increase market share, the different investors start offering money with fewer strings attached (see This American Life’s “The Giant Pool of Money” for more detail). Now ridiculously poor judgments are being made and really poor loans are being made and sold into the secondary market.

Fannie and Freddie have lost much of their market share, dramatically, and feel the need to keep up with Wall Street. They have to compete in order to remain relevant and stable. This leads to the eventual conservatorship.

At a point near the beginning of 2006, the investors start to realize their mistakes. So, they accelerate and sophisticate the ways they hide their mistakes through multiple slicing and dicing of good and bad loans in their portfolios. The Urban Institute has a good description of just how incredible this all gets.

The hope is that the increase in home values will continue without pause and save everyone from their poor mistakes simply through inflation. It does not change lending behavior. The brokers have nothing to lose since they’re in and out of the process in a matter of days. Banks think they have nothing to lose because they sell their loans to Fannie, Freddie, and Wall Street. Apparently, Wall Street feels invincible. It just continues to buy these bad loans despite the fact that anyone paying attention, with an iota of financial knowledge, can see this is about to crash hard.

Around the same time, the problem is beginning to get attention because middle class white folks are now beginning to feel the effects as they begin to fail to pay their adjustable rate mortgages.

House prices fail to increase at high rates, then begin to decline or stabilize. Fannie and Freddie can’t capitalize enough. The feds take them over. The reality is now unavoidable.

The secondary market collapses/implodes, especially Wall Street (Fannie and Freddie are essentially still in business). The banks can't sell their bad loans and haven't held on to enough good loans in their own portfolios because those were needed to hide the risks when selling to the secondary market.

We’re $700b short, or maybe its less than that. No one knows for sure because of the shell game upon shell game upon shell game that kept this all going for far too long.

Real School Choice

If John McCain is serious about school choice being a civil rights issue, perhaps he'd do well to revisit his party's longstanding efforts to ensure that public school districts remain segregated.

It was under the Nixon administration that the federal government fought busing programs and programs that made it possible for poor, minority, inner-city school kids to go to richer, whiter, suburban schools. The Nixon administration could have used its power to withhold Community Development Block Grant funds from municipalities, counties, and states that would not embrace affirmative measures. Instead they fought these measures and Republicans have made their resistance to regional, racial equality a hallmark of their policies ever since.

The Nixon administration even assisted with the fight against school integration in the (unfortunately) landmark case of Milliken v Bradley -- a direct attack on Brown v Board of Education.

Of course, this mentality has continued to today's Supreme Court in the recent school integration cases that included Justices Roberts and Alito -- the type of judges McCain says he wants on SCOTUS -- arguing against voluntary integration.

Here in the Chicago area, State Senator James Meeks used just this idea in his protest against unequal educational opportunities in the region.

The solution isn't to require poor people pay for private education while richer people get public education. It's to equalize the quality of education for everyone by removing the arbitrary barriers of school districts that perpetuate racial, ethnic, and income inequality.

Fannie Mae Ends Declining Markets Policy

In just a few months, Fannie Mae has ended their declining markets policy in favor of a nationwide policy that requires reasonable down payments on loans regardless of geography. The policy is a win-win for Fannie and the fair housing community as it addresses both sound underwriting practices and fair lending concerns.

You can read Fannie Mae's press release here or this from Reuters.

update: Freddie Mac follows suit.

The State of Fair Housing 2008

This week, The Chicago Area Fair Housing Alliance released its 2008 State of Fair Housing Report for the 6-County region. The report provides statistics on the frequency of discrimination complaints in the Chicago region and a narrative on the structure of segregation and inequality throughout the region.

It also includes a Blueprint for Change that recommends ways to foster integration, improve access to housing options, and promote sustainable development throughout the region.

You can view it here.