Chapter 1

When Housing Market Crashed, Lives Collapsed

---

Heather and Rick Little learned in court that they would have to leave their home by Dec. 10 — just two weeks before Christmas.

The Littles knew the foreclosure was coming before the October 2008 hearing.

The bank was relentless with calls and notices and big fat envelopes, Heather remembers. She called and begged for help, but there was nothing the bank could do. “Nothing they would do,” she said.

She stopped trying to stall the foreclosure.

The day of the hearing, the Littles wheeled their daughter, Emma, then 19 months old, into the Manatee County, Florida, courthouse in her stroller. Their son, John, was in kindergarten that day.

The judge was sympathetic, Heather recalls. He asked them how much time they needed to pack up and move. The hearing took less than 15 minutes.

“There was no one around, thankfully,” she said, “because I fell apart.”

Their house became one of the 9 million homes that would go into foreclosure nationwide between 2007 and 2010.

The Littles went from hosting barbecues in their backyard with a swimming pool and outdoor kitchen to taking whatever they could get from local food banks.

A decade after the height of the Great Recession in 2008, people who lost homes and careers are still recovering.

For the Littles, life is more stable now, but the swimming pool and outdoor kitchen are long gone.

Today, the family’s backyard holds plastic pots where Heather grows fruits and vegetables — signs she still remembers what it felt like to question where their next meal would come from.

“We had nothing extra at the end of every month,” Heather said of the years after their foreclosure. “Nothing. Not even a dollar.”

The Littles’ four-bedroom house in Bradenton, Florida, was supposed to be a pit stop along the way to their waterfront dream home.

At 2,800 square feet, the newly built house dwarfed the 980-square-foot cottage they sold for a $100,000 profit in 2004.

The booming residential construction industry fueled their dream. The Littles owned a company that poured concrete and installed beams for new homes. Before the recession, they had so much business that they had to turn much of it away.

But in 2006, they learned the company that managed their payroll taxes had stolen their money.

The owner of the payroll company was sentenced to 48 months in federal prison. The Littles were left with $180,000 in back taxes and fees for attorneys.

In June 2006, they took a trip they’d prepaid for to the Florida Keys, suspecting it would be their last vacation for a long time. The day they returned, Heather learned she was pregnant with Emma.

Right after that vacation, the Littles noticed something odd: Suddenly, they were no longer turning away business. Instead of the usual four houses a week, they’d have three.

They’d taken everything out of their savings accounts, retirement and life insurance policy to pay their tax debt.

Their home’s value had risen more than $40,000 in the two years since they bought it. That meant they could refinance and take the equity to put toward their taxes.

So in December 2006, they turned to their mortgage for help.

Their old monthly mortgage payment was $2,500. Their new payment: $4,500.

“We had a feeling we were going to be in a position where we wouldn’t be able to swing that if anything happened,” Heather said. “But we didn’t have a choice. We needed to pay back the IRS.”

By February 2007, their client base had dried up completely. Construction firms were undercutting one another, taking jobs that once paid $2,800 for just $800.

“We became completely destitute in a matter of six months,” Heather said.

Before 2006, the Littles didn’t even carry a credit card balance from month to month. They weren’t the high-risk subprime borrowers often blamed for the housing market’s downfall.

But the construction boom that fueled their lifestyle was driven by risky loans and easy access to credit.

Traditionally, when you wanted to get a mortgage, the bank made sure you were creditworthy because it kept the loan in its portfolio.

But in the mid-1980s, big banks started buying mortgages from the smaller banks that issued them. They’d package them with other mortgages in bundles known as mortgage-backed securities. Then, they’d sell parts of those packages to other banks.

Banks started relaxing their standards so they could make new loans.

“Once I know I can sell a loan to somebody else, and I completely shed myself of any consequences if the loan goes bad, my incentive to spend time and money making sure the individual is creditworthy goes down,” said Mark Flannery, an economist and professor at the University of Florida’s Warrington College of Business.

Banks didn’t verify borrowers’ occupations or incomes. They qualified people for bigger loans than they could afford. They offered loans with monthly payments so low that borrowers owed more after they made a payment, rather than less.

They steered borrowers away from traditional fixed-rate mortgages and toward riskier loans with interest rates that could swell from 5% or 6% — normal for the time — toward 15%.

Borrowers weren’t prepared when their interest rates shot up after they settled in their homes.

Usually a risky loan takes a while to go delinquent, according to Flannery. “If you can afford the loan, you could pay for it until something bad happens, and something bad doesn’t happen two months out very often,” he said.

But by late 2006 and 2007, some borrowers were defaulting just two or three months after they got their loans.

“That sort of raised red flags, and [investors] started to look at what they’ve been buying,” Flannery said. “That led to a big change in confidence about what those assets were worth.”

The Littles took out $40,000 from their mortgage just as the cracks in the shaky foundation of the lending game started to show.

As foreclosures skyrocketed, residential construction grinded to a halt.

Mortgage lenders started shutting their doors mid-2007.

Investment banks began asking for bailouts in early 2008.

And in the middle of it all, the Littles could no longer pay their employees. So they closed their construction business in summer of 2007.

About 500 miles north of the Littles’ Florida home, Jeanne and Mitch Johnson put their 2,000-square-foot, double-wide manufactured home on 7 acres of rolling farmland in rural Winder, Georgia. The land was passed down to Mitch by his father, a cotton farmer.

Jeanne, a veterinary technician, and Mitch, a cattle farm manager, shared the home with their two sons and several pets, including goats, chickens and peafowl.

They borrowed $100,000 for their first mortgage in 1994. Jeanne filled the home with antiques and books, and planted azaleas, rose bushes and a vegetable garden.

“We had done a lot to make it a home,” Jeanne said.

When they refinanced in 2006 and took out a new 30-year mortgage for $121,000, they used their equity to pay off past-due medical bills and put new hardwood floors in their home. They felt confident they could pay the $926 monthly bill.

But winter 2006 was the beginning of the hardest time in their lives together.

A few months after they refinanced, Jeanne left for a 21-month stay in Reno, Nevada, to care for her sick mother.

Mitch stayed behind to maintain their home and land on Jim Johnson Road, a street named after his father. Jeanne found a new job and an apartment in Reno, knowing she’d eventually go back to Georgia and her life with Mitch.

After her mother died in April 2008, Jeanne headed back home. Crushed by grief and depression and still responsible for many of her mother’s expenses, she returned to a bleak job market.

“I looked [for work] as much as life would let me,” she said.

Living on only Mitch’s income of about $1,600 per month after taxes was a constant stressor.

Mitch and Jeanne Johnson spend the evening in bed with their dogs, George, left, and Monroe, right, in the single-wide trailer where they’ve lived since they lost their home to foreclosure in 2010. Photo by Tina Russell / THE PENNY HOARDER

“I used to do the rob-Peter-to-pay-Paul thing,” Jeanne said. “Pay the electricity this month and pay the mortgage next month. I just juggled bills for as long as I could.”

Jeanne thought she’d pay back the balance on the mortgage a little at a time. But she learned partial payments wouldn’t count toward the past-due amount.

The Johnsons started getting late notices from Wells Fargo in July 2010.

They applied for a loan modification in hopes of getting a new, more affordable 30-year mortgage and a clean slate.

“I used to do the rob-Peter-to-pay-Paul thing. Pay the electricity this month and pay the mortgage next month. I just juggled bills for as long as I could.” - Jeanne Johnson

They spent late nights at their kitchen table gathering every pay stub and billing statement they needed to prove they were struggling.

There was so much paperwork Jeanne had to mail it all in a box.

A Wells Fargo spokesperson told The Penny Hoarder that the Johnsons qualified for payment assistance from the bank three times previously. But this time, they fell too far behind to qualify for further help.

They also didn’t qualify for the Making Home Affordable program, which the federal government was pouring money into at the time, because their mortgage wasn’t owned by government-backed corporations Fannie Mae or Freddie Mac.

As Jeanne and Mitch scrambled to save their home, it was auctioned off on the Barrow County, Georgia, courthouse steps.

“I feel like they stole our home,” Jeanne said.

Heather Little worked seasonal shifts at Toys R Us in the years after her family lost their Florida home and construction business. She got promoted to a human resources position, and then laid off.

Rick took whatever work he could get, regardless of how much travel it required. He even considered contractor jobs in Iraq. “There was not a construction job to be found anywhere,” Heather said.

The family moved in with Heather’s mother twice. They learned how to stretch $400 of food stamps to feed a family of four all month.

Heather took out student loans and went back to school in 2012 to become a radiologic technologist. She now spends her days performing X-rays. Rick maintains bridges for a neighboring county government.

“These jobs aren’t going anywhere,” Heather said, sitting in the kitchen of the three-bedroom home the family rents.

Now, their lives revolve around their work and children — taking 10-year-old Emma to and from lacrosse practice and trying feebly to get 16-year-old John to put down the video games.

Heather Little and her son, John, 16, wrestle in the kitchen as Heather makes dinner for the family in Palmetto, Fla. John was only 6 when the family was evicted from their home, and the only memory he has of it is the day they moved out. Photo by Tina Russell / THE PENNY HOARDER

But the family is still saddled with old credit card bills that were never discharged because they couldn’t afford to pay $1,500 to file bankruptcy.

The Littles still live month to month. They worry they could lose it all again. Still, they hope to become homeowners again someday.

“When you [lose] it all, you realize there’s a difference between a need and a want,” Heather said. “We don’t need the big entertainment house.”

After the Johnsons lost their Georgia home and farmland, they started renting a 30-year-old single-wide trailer on a parcel Mitch’s sister now owns that was once their father’s land.

Jeanne thought they’d be there for only a few years. It’s been seven so far.

After the foreclosure, she and Mitch moved all their nonessentials into storage.

“The standing joke is, I narrowed it from 23 boxes of books to 18 now,” Jeanne said with a weak smile. “They’re all in my shed.”

Today, their furniture is a worn hodgepodge of beloved antiques. Some of the floors are cracked or peeling linoleum. In the living room, there is only plywood.

Diabetes and neuropathy in Jeanne’s legs qualified her for disability in 2016. She still blames herself for not being able to find a job or pay the bills to avoid losing the home.

She often wonders if she’ll be able to buy a home again. She said a lender told her that her credit score needed to be above 510 to get a mortgage.

“I’ve just finally gotten it over 400,” she says. “It’s taken a long, long time.”

She misses buying seeds each spring. She wants to have a flourishing garden again instead of just a few tomato plants.

But for now, she may buy paint for the trailer. She hates the dreary walls in beige and gray.

She thinks it might be time to finally make this place home.

Chapter 2

When Doing Your Job Meant People Lost Their Homes

---

The foreclosure papers covered nearly every surface in the Lee County, Florida, Clerk of the Court’s civil division.

The 60 full-time employees weren’t enough to manage the caseload. Even with help from six temps, everyone worked overtime.

When they ran out of cubicles in 2008, they started working in the hallways.

“We just had tables full of paper, and you couldn’t get them in files, or pull files, update files,” said current clerk Linda Doggett, who was the office’s second in command at the time. “We couldn’t even get temps in here to file all of that paper.”

Each packet of paper represented one more person who was on track to lose their home.

From April 2007 to December 2009, about 62,300 foreclosure cases were filed in Lee County, Fla. A room full of paper files from open cases remains at the Lee County Justice Complex Center. Photo by Tina Russell / THE PENNY HOARDER

Lee County was one of the communities hit hardest by the financial crisis. There, nearly 1 in 8 households received a foreclosure notice in 2008, compared with 1 in 54 households nationwide.

But people who lost their homes weren’t the only ones impacted in Lee County and throughout the nation.

For people in fields like real estate and law enforcement, the crisis transformed their work.

When Bert Parsley worked at a luxury car dealership in Lee County, he noticed its high-end customers often worked in real estate. In 2004, he got his real estate license and a piece of the boom.

Homes were selling faster than construction crews could build them. Contractors were so confident the money would come that they would often start building homes without buyers in mind.

Between 2000 and 2007, Lee County’s population more than doubled to almost 69,000.

Nowhere was the boom more apparent than in the once-rural Lehigh Acres community on the eastern edge of the county. There, more new homes were built between 2003 and 2007 than in the entire 50 years prior.

Parsley teamed up with some friends from church who owned a brokerage. Soon, he was selling houses and speaking to real estate groups around the country. He also purchased three investment homes to rent out.

“I wasn’t experienced enough to see the writing on the wall or to know what was going to happen,” he said. “I just knew we were making money, and it was going great.”

But eventually, a combination of inflated home values, too much new construction and weak lending practices turned what was supposed to be a cheap, sunny haven into a money pit.

“I remember turning on CNN one day, and I saw one of my real estate signs on national TV,” Parsley said. “I was like, ‘Oh crap. This isn’t good.’”

When home prices tanked in 2007, jobs evaporated — especially in construction. Between June 2007 and June 2008, Lee County lost a higher percentage of jobs than any county in the U.S.

Parsley started showing rentals, which weren’t nearly as lucrative as sales. By 2007, homes that had been on the market and occupied by renters turned into short sales, a term for when lenders allow houses to be sold for less than what is owed on them. At one point, short sales were 80% of Parsley’s listings.

Short sales often took 12 months to close. That meant 12 months before he saw a single dollar.

“I remember turning on CNN one day, and I saw one of my real estate signs on national TV. I was like, ‘Oh crap. This isn’t good.’” - Bert Parsley

Two of Parsley’s tenants with overdue rent vanished, leaving him with his own mortgage plus two more for houses that sat empty.

He let all three investment properties go into foreclosure in 2008 and 2009. A loan modification allowed him to keep his own home.

“Everything was devastating,” he said. “Here I had changed careers. I was questioning everything I did.”

Lee County Clerk Charlie Green was the county’s chief record keeper and chief financial officer. He was responsible for paying the county’s bills and handling payments for land transactions, such as deeds and foreclosure auctions.

By late 2008, the county had a backlog of more than 28,000 open foreclosure cases.

“It was obvious if we didn’t do something, from my perspective, we would be doing nothing but processing foreclosures within a year or two,” said Green, who retired in 2013.

Processing the backlog quickly wasn’t just a matter of efficiency; it was imperative to rebuilding the local real estate market.

Green proposed a system to judges known as the “rocket docket.” The term comes from a Virginia federal courthouse known for decades as the fastest to go from “file to trial” for civil cases.

On the first day of the Lee County rocket docket in December 2008, a single judge cleared nearly 1,000 foreclosure cases.

When a struggling homeowner stood before the judge, they only had a minute or two to make their case.

In 1999, about two hours north of Lee County, Matt Weidner started practicing “door law” — whatever comes through the door. From 2003 to 2008, the Pinellas County attorney also had a mortgage broker’s license.

Attorney Matt Weidner sips his morning coffee while he answers emails at his office in St. Petersburg, Fla. Weidner defended clients across Florida during the housing crisis. Photo by Tina Russell / THE PENNY HOARDER

“Frankly, the law wasn’t all that great for me in that point in time,” Weidner said. “So, during the boom times, you’re looking around and everybody’s making money. Flipping real estate, doing mortgages.”

He grew uneasy when his law clients started to reveal challenges paying their mortgages, car loans, even for groceries.

First it was the paycheck-to-paycheck clients who were struggling. Then it was six-figure-income types, too.

Pinellas County’s influx of foreclosures was nothing close to Lee County; still, around 1 in 30 households in Pinellas County received a foreclosure filing in 2008.

Throughout Florida, many counties worked to speed up foreclosures, often by temporarily hiring retired judges. The state designated $6 million to help counties reduce their backlogs.

Weidner found that many of his clients were among the 3.8 million borrowers nationwide who were victims of “robosigning” — when lenders pushed through signed documents that were often invalid and even forged.

As judges rushed through the docket, Weidner tried to get them to recognize that some clients were about to lose their homes because of forged documents.

“When the judge would meet you with a blank stare, you’d have to say, ‘Stop,’” Weidner said. “The more the judge would resist, the more we’d have to get aggressive.”

But most of his struggling clients were simply people who found themselves in over their heads.

One client was a friend who Weidner believed to be well-off. His finances revealed he didn’t have money for groceries, let alone mortgage payments.

“Matt, I’ve got nowhere to go,” the client told him. “The only way that they’re going to get me out of this house is in a body bag.”

Former Pinellas County Sheriff’s Sgt. Tim Grundmann knew what was at stake each day he sent his deputies to tell homeowners it was finally time to move out.

“One of my deputies knocked on a door to do an eviction, and on the other side of the door he heard a gunshot,” Grundmann recalled. “He had to back out, wait for reinforcements, and then they all went in, and the person who was being evicted shot himself inside the door.”

Grundmann spent 11 years as a detective in the Pinellas sheriff’s office, investigating homicides and other crimes.

When he joined the civil and warrants division in 2011, the crisis in Pinellas County was already waning, but the workload was still high.

No one who got evicted was caught truly off guard, Grundmann said.

Everyone got a big white sticker posted on their front door. Sometimes, people said they had no idea why Grundmann or one of his 10 deputies were there, but he could tell they had tried to peel off their sticker.

“The worst was when we got there and they hadn’t cleared out any of their stuff,” Grundmann said. He would advise them to gather important documents, medication and pets before he escorted them off the property.

The evictions process took several visits, typically over 30 days, to give notice and complete.

His deputies spent their days dealing with people who were about to lose their homes. He reminded his team they were following judges’ orders.

“We never got into the why with people,” he said. “That was none of our business.”

“We never got into the why with people. That was none of our business.” - Tim Grundmann

Some people thought they could physically hide from eviction. Grundmann recalled once finding a woman hiding in a pile of laundry.

“When we moved the towels, she was looking right at us,” he said.

Weidner is still closing out cases from the crisis — the “worst of the worst,” as he calls them.

Since spring 2015, he’s also been working on behalf of the city of St. Petersburg in Pinellas County to put long-empty houses back on the market. Instead of representing the defendant in a foreclosure case, he represents the plaintiff — the city — when it forecloses on abandoned homes with significant unpaid fines and fees.

Back in Lee County, Parsley didn’t abandon real estate and head for safer waters.

By that point, there were none.

“I could go back to selling cars, but people weren’t buying high-line cars then, either,” he said.

He fell back on his relationships with banks that needed brokers to estimate home values for $30 to $50 each. He hired three people to help him spend 12-hour days putting together 100 reports a week.

Eventually, some banks offered to let him sell their foreclosure listings.

In 2009 alone, Parsley closed 235 sales.

“It was a crazy, crazy couple years, but I’m better for it now,” Parsley said. “I stayed in a business a lot of people didn’t. I saw just hundreds of people close up shop and leave.”

When the brokerage he worked for sold to a national firm, Parsley went out on his own, opening an office in 2013 and a second in 2014.

Since 2010, Parsley and his partners have bought, refurbished and flipped about 40 houses in the area, some of which were foreclosures. But those are harder to find now, he said.

He’s skeptical of new construction he sees, but he thinks the market is different from when the housing bubble burst.

“The market isn’t increasing in double-digit numbers,” he said. “We don’t have the wild, Wild West.”

He doesn’t think we’re headed toward another crash. “At least, not anytime soon.”

When Green reflects on how his team at the clerk’s office handled the crisis, he says they did the best they could with the resources they had.

“We had to try and solve the problem, and the problem was not something that we could solve,” Green said. “We could help make it not as painful, and that’s what I think we did in Lee County.”

Doggett says Lee County now sees fewer than 100 foreclosures filed in a typical month. They’re filed electronically now, so the days of files stacked in hallways are long gone.

But she sees construction booming again, even after a tumultuous hurricane season in 2017, and she wonders.

“I feel like we’re going to repeat history,” she said. “I hope that won’t happen, but that’s really what it looks like right now.”

Grundmann retired from the sheriff’s office in 2015, but he still had to deal with one last foreclosure case: his own.

He spent more than six years fighting with his lender over a mistaken claim that he wasn’t paying his mortgage. He settled out of court in early 2018, but as a condition of the settlement, he can’t talk about the case.

Today, he plays softball and runs a small business that manufactures pitching screens. His handlebar mustache — which he only discovered would be curly when he started growing it out past police-regulation length in retirement — appears on the company’s logo.

He also says he’s ready to move. “This house is less of a home,” he said. “We went through so much hell.”

Grundmann said his own situation would make him more compassionate if he were still serving foreclosure notices today, even if he couldn’t change the outcome.

“I didn’t want to kick anybody out, but I had to,” he said. “Now I see that these people might be wrongly evicted or foreclosed on. I would listen to a story a bit more now.”

“We followed judges orders,” said Tim Grundmann, a retired Pinellas County sheriff’s deputy. “We never got into the why with people. That was none of our business.” Photo by Tina Russell / THE PENNY HOARDER

Chapter 3

Why Race Mattered During the Housing Crisis

---

As Edith and Jean Saint-Jean’s family grew, their one-bedroom rental apartment felt too small.

They worked tirelessly — Edith as a home health aide and Jean as a library assistant for a local high school — to save $34,000 for a down payment on a bigger home.

They bought their home in the Canarsie neighborhood of Brooklyn, New York, in 1994.

But by late 2007, as the rest of the nation was finally seeing unimpeachable evidence of the coming national crisis, the Saint-Jeans were having a crisis of their own.

The story of how the Saint-Jeans, immigrants from Haiti, fell prey to lending practices that ruined countless black and Latino families during the financial crisis unfolds in thousands of pages of court transcripts.

For years, their utility companies hadn’t been able to read the water and gas meters inside their home; instead, they billed the family for estimates of what they were using. When the meter-reading process was updated, the Saint-Jeans learned they owed more than $36,000 from underestimated utility bills and late fees, and they didn’t have the money to pay.

Their heat and hot water were turned off in the dead of New York winter.

Edith would later tell a jury that her daughters kept getting sick inside the freezing home and needed repeated visits to the emergency room.

Turning to their home equity for cash seemed like their best option.

But when credit scores in the 500s stood in the way of the home equity loan the Saint-Jeans wanted, their mortgage broker recommended they refinance with Emigrant Mortgage Co.

When the 9% interest rate the broker promised was actually 11.5%, the Saint-Jeans nearly walked out without signing. But the broker told the couple that after six months of on-time payments, their interest rate could drop.

Before refinancing, the Saint-Jeans were paying about $2,200 a month for their home.

The couple signed on to their new mortgage through Emigrant Mortgage Co. on Jan. 10, 2008.

By late 2008, their adjustable interest rate spiked from 11.5% to 18%.

Their monthly payments shot up to $6,130.96.

Before taxes, the couple made only $5,500 each month.

The Saint-Jeans quickly fell behind on their mortgage and collected tens of thousands of dollars in debt. By 2009, they faced foreclosure.

The Saint-Jeans, along with six other Emigrant borrowers, sued the bank, accusing it of lending discrimination that violated the Fair Housing Act.

The lawsuit accused Emigrant of systematically targeting minority customers with loans that would strip away their home equity and almost certainly lead to foreclosure.

By the time the jury heard their testimony in 2016, the Saint-Jeans owed $773,353.08, more than double what their house was worth.

In a landmark victory, a jury found the bank liable for discrimination.

While a jury sided with the Saint-Jeans and other plaintiffs and awarded $950,000 in damages, their court battle may not be over. Emigrant could still appeal the decision. With legal proceedings in limbo, the Saint-Jeans and the other plaintiffs declined through their attorney to be interviewed.

Emigrant did not respond to three voicemails requesting comment on the case. A switchboard operator at the company’s corporate office said he didn’t have access to the name or email address of a company spokesperson.

In court filings, attorneys for the bank described the Saint-Jeans’ credit scores as “extraordinarily poor” and said the type of loan they received, which did not require them to prove their income, had been “consistently praised” by federal regulators for allowing the bank to make mortgages more widely available.

The terms did not change based on race, the document said.

The case against Emigrant Bank is not an isolated one.

Lawsuits filed by homeowners, city governments and nonprofits like the American Civil Liberties Union accuse Wall Street banks of targeting African-American and Latino customers with predatory loans leading up to the financial crisis.

“In many ways, we had a dual credit market where they were just getting pushed into the riskier side of the market, and a lot of that activity was stemming from mortgage brokers who were pushing loans,” said Nikitra Bailey, executive vice president of the nonprofit Center for Responsible Lending.

“In many ways, we had a dual credit market where they were just getting pushed into the riskier side of the market, and a lot of that activity was stemming from mortgage brokers who were pushing loans.” - Nikitra Bailey

The damage caused in minority communities across the country was devastating and lasting.

About 8% of homes owned by black and Latino families were lost to foreclosure between 2007 and 2009, compared with 4.5% of white-owned homes, according to a 2010 Center for Responsible Lending study.

The mass of foreclosures erased decades of gains in homeownership rates in the black community, census data shows.

In 2004, the black homeownership rate peaked at 49.1%. By 2016, the rate dropped to 41.6%, the lowest since 1970.

Predatory lending in black communities has a long history nationwide.

In 1933, the federal government created the Homeowners Loan Corp., or HOLC, to help financial institutions determine where to lend money for mortgages during the Great Depression.

HOLC’s lending maps colored white, middle-class neighborhoods green or blue — meaning “best” or “still desirable” — to signify creditworthiness.

Black and immigrant neighborhoods were labeled yellow or red — meaning “definitely declining” or “hazardous” — and denied loans.

Homeowners in those areas faced higher foreclosure rates when their home values dropped during the Great Depression. Potential borrowers were denied homeownership.

Today, the practice of denying loans and services to neighborhoods based on race, income and the general upkeep of properties has a name: redlining.

The University of Richmond partnered with three other institutions to collect hundreds of maps and the corresponding HOLC documentation in an interactive project, Mapping Inequality.

In one of the “best” areas on a 1939 map of Detroit, HOLC inspectors noted that the neighborhood was rapidly growing and filled with mostly high-earning executives and other professionals. It noted that the neighborhood had no black residents, but warned of a slow but growing Jewish “infiltration.”

To the south, another neighborhood was colored red. It was 80% black and had a growing Jewish population. Although it had “fairly good” homes, the documents for that area said foreclosures were high, tenants were unreliable and called the neighborhood a slum.

While the Fair Housing Act of 1968 outlawed redlining, the practice continued across the country well into the 1970s and 1980s, said Rachel Goodman, an attorney for the ACLU.

By the 1990s, the practice had shifted. Lenders instead gave minority borrowers access to credit, but targeted them with fee-laden, high-risk loans. The practice is known as reverse redlining.

“Instead of being denied credit, these same communities of color were being targeted for predatory loans and exploitative credit,” Goodman said.

Goodman represented five Detroit homeowners in a 2012 class-action lawsuit against Morgan Stanley. Each borrower received loans on worse terms than they would have if they were not black, she said.

The class represented more than 6,000 black borrowers who got loans from New Century Mortgage Corp., which created loans for Morgan Stanley and other banks between 2004 and 2007. The lawsuit accused Morgan Stanley of buying more New Century loans than any other bank.

New Century filed bankruptcy in 2007. It topped the Treasury Department’s list of worst lenders for writing subprime loans that led to foreclosures in 2008.

By late 2008, Detroit had seen more New Century loans end in foreclosure than any metro area in the country, according to the Treasury.

But Goodman never got to take the case before a jury.

Judge Valerie Caproni wrote in a 50-page ruling that the individual cases varied too widely to certify a class.

Caproni also pointed out that Morgan Stanley wasn’t the only Wall Street bank that worked with New Century. Further, not all of the plaintiffs’ loans had been purchased by the bank.

But she also acknowledged in her ruling: “The subprime mortgage crisis undoubtedly damaged our economy and may have — as plaintiffs contend — exacerbated preexisting racial disparities in socioeconomic status.”

The ACLU dropped the lawsuit in 2017 after losing an appeal.

Morgan Stanley declined to comment on the case.

The impact of subprime lending stretched further than just those borrowers who lost their homes to foreclosure.

The pain spread to those with perfect credit. It spread to those who never got subprime loans. It even spread to those who were not black or Latino.

“Even in communities where homes are occupied and healthy, having just one foreclosure on the block really depresses the property values of nearby homes,” Goodman said.

Reverse redlining cases can be tough to win because of banks’ resources and the difficulty of proving discrimination occurred. But the win against Emigrant Bank in New York proved it’s possible.

Oliver Gilbert, mayor of Miami Gardens, Florida, is hoping for a similar win against Wells Fargo.

Miami Gardens, a suburb of Miami with a population of about 113,000, is one of several cities nationwide that have ongoing lawsuits against Wells Fargo. The cities are seeking damages for lost property tax revenue following the crisis.

In Miami Gardens, a black person borrowing from Wells Fargo was three times as likely to get a bad loan as a white person, according to the lawsuit. A Latino person was four times as likely, the lawsuit said.

The city says it has identified 629 predatory mortgages that Wells Fargo issued to minority borrowers between 2004 and 2012. Each of those borrowers eventually went through foreclosure proceedings. City officials expect to find more.

A former Wells Fargo loan officer told city officials he frequented gatherings at a black church and events hosted by the Colombian Chamber of Commerce to meet new clients when he worked for the bank in 2004 and 2005.

“It was common knowledge that, to avoid problems, loans from one office were sent to another office to make both look more balanced,” he said, according to the lawsuit. “We needed to put some white loans in that community and some black loans in this community because [otherwise] we’ll get sh#% from the Fed.”

Another former Wells Fargo loan officer, who worked for the bank from 2000 to 2012, told the city that “a Rodriguez in the last name was treated differently than a Smith. The one with Smith would get [approved for a refinance] and the one with Rodriguez wouldn’t.”

Wells Fargo denied both claims in court filings.

As residents lost their homes, or watched their property values tumble because long-abandoned houses on their blocks fell into disrepair, the city lost millions of dollars in tax revenue. It spent about $60 million to improve its infrastructure in hopes of attracting new families to move into the empty homes, Gilbert said.

Wells Fargo told The Penny Hoarder in an email that the city has it wrong.

“The city’s accusations against Wells Fargo do not reflect how we operate in Miami Gardens or in any of the communities we serve,” the statement said. “Wells Fargo has been serving the South Florida community for many years and we will vigorously defend our long-standing record of fair and responsible lending.”

Wells Fargo went on to say the bank “has been deeply disappointed by the city’s decision to file a lawsuit rather than to continue to collaborate to help borrowers and homeowners.”

Gilbert said the lawsuit isn’t going away.

“We have to continue to fight,” Gilbert said. “Otherwise the banks just realize they can do whatever they want to, and they can drag it out and it will go away. A single person may go away, maybe two families may go away, a class may go away, but cities exist in perpetuity. We don’t go away.”

A judge dismissed the lawsuit in June, the second time since it was initially filed in 2014. As it has in the past, the city will appeal the judge’s decision and continue the fight.

The New York and Detroit borrowers are rare in that they had the opportunity to bring their cases to a judge.

It can be difficult for borrowers to tell whether they were discriminated against, according to Keenya Robertson, CEO of Housing Opportunities Project for Excellence, a South Florida nonprofit that fights housing discrimination.

Robertson estimates that about 4 million incidents of discrimination occur across the country each year for a variety of reasons including race, disability and family size. Only about 1% of those cases get reported.

“People either don’t know that they’ve been discriminated against, or they simply don’t report it,” Robertson said.

Her agency works to educate residents in Miami-Dade and Broward counties so they can recognize the signs of discrimination before they end up with an unaffordable loan.

Daniella Pierre is one of the countless minority borrowers who will never know if she was discriminated against.

When she was approved to buy a $238,000 home in the Majorca Isles subdivision of Miami Gardens in 2006, she made about $36,000 a year.

Pierre is not a plaintiff in the city of Miami Gardens’ lawsuit against Wells Fargo; no individual homeowner is. But her mortgage contained many elements identified as potentially predatory in the lawsuit.

Her 620 credit score made her a subprime borrower, defined by government reports as anyone with a FICO score of 660 or below.

Pierre’s mortgage had a teaser interest rate of 8.5%. The lawsuit identified interest rates more than 3 percentage points above the Treasury rate — which was 4.71% at the time — as predatory. Moreover, Pierre also had an adjustable interest rate, another indicator of a predatory loan. Her rate could have spiked as high as 13.5%.

Another warning sign: Pierre’s monthly payment only covered the interest on her loan for the first 10 years. After that, the mortgage bill would rise again when it adjusted to include payments toward the principal.

Pierre knew her payment would increase. She said her lender told her she would be able to refinance within the first two years to get a better loan before that happened.

But even if she had been approved for refinancing, the terms of her mortgage came with a prepayment penalty, another sign of a predatory loan listed in Miami Gardens’ lawsuit. If Pierre refinanced within two years she would have to pay an additional 6% fee — about $12,000.

Judgment clouded by her dreams of a safe neighborhood and a new home that finally allowed her children to have their own bedrooms, she pushed her worries out of her mind.

“I knew I couldn’t afford it,” Pierre said. “I was just hoping for the best.”

Pierre’s lender, D.R. Horton, did not respond to seven emails and two phone requests for comment on its lending practices or Pierre’s specific case.

Within six months, Wells Fargo purchased the loan and managed it through her foreclosure.

“I knew I couldn’t afford it. I was just hoping for the best.” - Daniella Pierre

In April 2010, after two years of denials, Wells Fargo approved a loan modification that stripped many of the high-risk factors from Pierre’s loan. Her foreclosure proceedings began in 2011 and dragged on through spring 2014.

But until she shared her story with The Penny Hoarder, Pierre assumed her final loan modification application had been denied like all the others. She said she didn’t remember signing the document eight years ago and wondered if that meant she could still be living in her home today.

Pierre hadn’t considered whether she was discriminated against until recently. She simply thought that a lender saw a chance to close on a mortgage with a big down payment.

Instead of worrying about that, her mind has been occupied by finding a safe and affordable place to live.

Pierre now rents in a subsidized housing apartment complex in Liberty City, a mostly low-income neighborhood in an unincorporated section of Miami-Dade County about 20 minutes from Miami Gardens.

Tamiya Parker, 16, gets ready for school as her mother, Daniella Pierre, prepares for work. The family lives in a subsidized housing complex in Liberty City in North Miami, Fla. Photo by Tina Russell / THE PENNY HOARDER

“In Majorca... you have resources,” Pierre said. “You have families that are whole... In Liberty City, you have broken families. You have people getting shot, killed, you name it. This is almost like a forgotten place directly in the urban core where people are just considered to be less than, and that’s not the case.”

Since leaving Majorca Isles, Pierre earned her master’s degree in human resources and now makes about $45,000 each year as an academic adviser at Miami-Dade College. She has also served as the housing chair of the Miami-Dade NAACP since 2015.

Pierre said she now stays up most nights searching online for a safer place to live within her budget.

Today, she measures housing affordability by the number of paychecks it takes to cover the rent or mortgage.

By that measure, homeownership feels impossible.

“I would buy a home again if it was affordable, something I could pay out of one paycheck,” Pierre said. “Given the times we’re in, that’s not even realistic.”

Chapter 4

This Is What the American Dream Looks Like in 2018

---

Steve and Christy Bagasao had a clear plan for the future.

They were going to create a real estate empire. They were going to make enough money to build a ranch in Montana with plenty of space for their family. Christy was going to home-school their eight children. And Steve was going to play music in his free time.

And they knew how they would get there.

They planned to rent out investment properties in Phoenix, flip houses in Las Vegas, and build and sell homes where they lived about 60 miles away in Pahrump, Nevada. At the same time, they’d run their residential real estate appraisal company.

But then the U.S. economy imploded.

The value of the Bagasaos’ home dropped from $450,000 when they built it in 2006 to about $170,000 five years later. Steve could no longer find work as a property appraiser to keep paying their upside-down mortgage. The home went into foreclosure, the business went under, and the couple filed for bankruptcy in 2011.

Like so many families across the nation, the Bagasaos had to find a way to reimagine their lives.

Today, the family lives in a 250-square-foot trailer with their eight kids and their orange cat, Tuppence. They cart their home around the country behind a white 15-passenger Chevy Express van, setting up in campgrounds, national parks and church parking lots.

Steve, sometimes joined by their children, performs free hourlong sets for churchgoers. They live off the money they earn from selling their four CDs at $10 a pop and donations provided by the people who come to hear him play.

Before, “I was working 16 hours a day and even though I worked out of my house, I never saw my family,” Steve said. “And now we’re together all the time… It doesn’t get any better than that.”

But the ideal of the white picket fence isn’t for them anymore.

The American dream was never about material excess or even about owning a home. It was more noble than that.

Coined in 1931 by writer and historian James Truslow Adams, it was about the hope that with enough hard work and talent, anyone could live a better life than their parents. It was up to the individual to define what “better” would look like.

But somewhere the idea got lost in the advent of consumerism, of planned communities and credit cards.

“The American dream didn’t always include the single-family home and the white picket fence,” said Sean Snaith, an economics professor at the University of Central Florida. “That was something that was added to the dream, and the government played a big role.”

Suburbs started spreading after World War II, providing a new vision of the American dream.

“All these GIs were coming back from World War II,” Snaith said. “Housing and the construction of housing was part of the way to reabsorb all these men back into the economy to help provide them with jobs.”

Anyone could get a job and buy a home in the 1950s, said Lawrence Samuel, author of “The American Dream: A Cultural History.”

The government had offered a mortgage interest deduction from annual tax returns since the 1800s. A new wave of eager homeowners in the 1950s took advantage of the tax break.

The National Interstate and Defense Highways Act of 1956 built highways to allow for quick escape from cities in the event of an attack. The new roads encouraged people to buy homes in the burgeoning suburbs, he said.

The Federal Housing Administration had insured 30-year mortgage loans since 1934. The government created Fannie Mae in 1938 and Freddie Mac in 1970 to make it easier for banks to issue mortgages.

As the government made loans more accessible, the American dream became synonymous with homeownership.

The Bagasaos reworked their dream during a family meeting nearly seven years ago.

At the time, they had seven children. Their youngest was 2 months old; their oldest was 14.

As Steve’s appraisal business declined and the Bagasaos fell further behind on their mortgage, Christy and Steve tried to keep life at home as normal as possible. But the children knew something was wrong.

“It’s not like we were keeping secrets, trying to put on a happy face or anything like that,” Steve said. “We were letting them know we were having some problems and we may lose the house. So when it came time… I don’t think it was a major shock.”

For a while, Steve could get a bit of work from banks that needed foreclosure appraisals. When that dried up, Christy tried managing a crew of freelancers who wrote website content for businesses. But money from that trickled in too slowly.

Finally, the family had the idea to take their lives on the road.

Eliana Bagasao jumps off the steps as she and her mom, Christy, and brother, Elijah, leave the RV to go into Living Savior Lutheran Church for Sunday school and services. Photo by Tina Russell / THE PENNY HOARDER

Steve had been playing music for local Lutheran churches for the past six years. He already owned all the instruments and equipment he needed to put on small concerts. He had even released an album and created a website under the stage name Stephen Bautista, pulling from an old family surname that his grandfather had changed generations ago.

They also had a small RV trailer that was already paid off. The kids were used to spending time in the small quarters when they took it on family vacations.

It felt a little far-fetched, but Steve and Christy decided to take it to the kids for a vote. The family gathered in their living room on their brown couch that was big enough for everyone to get a seat.

“We said, ‘If everybody is not on board with this, we’re not going to do this,’” Christy recalled.

The kids agreed to give it a try.

First, using a national directory of Lutheran churches, Steve emailed pastors and told them about his music ministry and his family’s story. A handful agreed to let him come play, and Steve went out alone on a short tour to churches in Nevada and California.

When he came back, he was sure he could support his family with his music.

While they still had the house, Christy and the kids packed up for a test tour.

First, they went out for about a week and came back. Then two weeks. The shorter trips taught them what they needed to take and what they could live without, like the big-screen TV or dozens of pairs of shoes.

Finally, in early 2012, they set out for an eight-month trip through Colorado, Nebraska, Arizona and Wisconsin.

Steve quickly realized that offering free concerts made it easier for pastors on tight budgets to book him, and that his audiences were happy to buy his CDs and give donations.

“We came back in November of that year, knowing that we had one last Christmas there, and then we had to pack up and get out,” Steve said. They stacked the remaining contents of their house in a storage unit, where they now joke their belongings are probably turning into dust.

Since then, they have visited all 48 contiguous states, and their children have been everywhere from the Olympic National Park in Washington and the Grand Canyon to the heart of New York City.

“We still get the eye rolls sometimes,” Christy said, from people who think their way of life is unrealistic or impractical. But even the family and friends who had their doubts in the beginning have mostly come around.

University of Florida economics professor Mark Flannery said the ideal of the American dream is so ingrained in our society that it’s only natural to doubt those who deviate from it.

“Some people think that buying a house is the best investment you can make and that everybody should own one,” he said. “I think that’s too strong a generalization.”

It’s a deeply personal decision, one based on your values and lifestyle goals, he explained. “I wouldn’t uniformly suggest that everyone should own one.”

Still, many people who lost their homes during the financial crisis never forgot the traditional American dream. Instead, they spent years working to get it back.

Kay Averett used to think there was no such thing as a problem she couldn’t solve by earning more money.

The Georgia attorney had been working since she was 14.

So when her mother had a stroke in 2008 and needed the constant care of an assisted living home, Averett covered her mother’s mortgage and the cost of the elder care home, along with her own expenses: a mortgage plus the normal upkeep of their five-bedroom home in Marietta, Georgia; ongoing medical care for her youngest daughter; a horse and stable fee.

“Whatever the issue was, give it some money and calm it down,” Averett said.

At the same time, the company she worked for moved operations to Canada. Her manager tried several times to get her to relocate until finally, her job was the only one left in the U.S.

In 2009, when the country was deep in the recession, Averett was laid off.

“I went to start looking for jobs, and there were no jobs,” Averett said. “Week after week after week, there was nothing. Because I’ve always worked so hard… I always thought when you need money, you just work. That’s what you do. It was a huge shock to find out you can’t just do that.”

Around the same time, Averett’s husband, John, quit his job only to also discover it was nearly impossible to find work elsewhere. First, the Averetts lived off her unemployment check, but the $300 she got each week wasn’t even enough to cover their $1,500 mortgage. Her unemployment benefits ran out before she or John could find new work.

Finally, the couple realized that bankruptcy and foreclosure were their only options. They left the house on New Year’s Day in 2012.

“I just didn’t have any feelings,” Averett said. “I couldn’t have any feelings. It was just a house. It was just walls. It was really a relief, because I knew whatever nightmare it was, this was one of the steps to getting out of the nightmare.”

For a while they lived in a tiny home on a friend’s horse farm. Then they moved into Averett’s mother’s house and had to scrape together money to pay the $500 a month mortgage while eating whatever was available for free from the food bank at a local church.

“We just had no money left,” Averett said. “I couldn’t see that I would ever have work again. I felt like I had a bag over my head and I was looking at everything through burlap. I couldn’t see any kind of future at all.”

Averett took whatever contracts she could get. She worked sporadically.

She would start to see the future again. “Then all it would take is maybe a week that I didn’t bill so many hours, and I was immediately back into that… fight or flight mode. ‘How are we gonna survive? How are we gonna survive? I didn’t work this week.’ So, it seemed like it dragged on forever,” she said.

Finally in 2013, a client started to give her enough work to provide her with a full-time salary. Still for years after that, her emotions remained tied to her income.

“I felt like I had a bag over my head and I was looking at everything through burlap. I couldn’t see any kind of future at all.” - Kay Averett

But in 2017, the Averetts hit a milestone: They became homeowners. Of all the families that shared their foreclosure stories with The Penny Hoarder, the Averetts are the only couple who managed to buy another home.

After searching for most of 2017, the Averetts decided to leave Marietta and found a small home in northern Georgia. They closed on the house and started to move in on Jan. 8, 2018.

This home is more modest than the “McMansion” Averett described losing — 2,000 square feet instead of 4,000. A well-maintained older home instead of a new build. Three bedrooms instead of five. A carport instead of a garage.

“I found that we just filled it up with a bunch of junk,” Averett said of the massive home that was lost to foreclosure. “I remember thinking ‘This is more house than I ever want to take care of. Someday, I’m going to live in a small home.’ … Well as luck would have it, I’m going to get to live in a small home.”

But their move wasn’t all about what they were giving up. Less house meant more land. Rather than a half-acre lot, Averett now has 4 acres of land and plenty of room for the garden of her dreams.

When they finally started looking for this house, Averett only had one rule: Even if it was the best deal they could find, they would not buy a foreclosed property.

“There’s something about that that just makes me uncomfortable,” Averett said hours before she headed out to sign the paperwork for her new home.

“You’ll be living in someone else’s misery.”

Homeownership is still a pillar of American life, a way to build wealth and pass it down through families.

“It’s not just personal security, but there’s also a public policy interest in encouraging homeownership,” Flannery said.

Ownership stabilizes neighborhoods, builds community networks and gives people better places to work and live, he explained.

But continuing changes to financial regulation and the lingering specter of the crisis have some Americans doubting that homeownership is a sure bet.

“The shine of homeownership has been diminished somewhat by the collapse of the housing market,” Snaith said. “It’s a narrative that has been altered by the housing bubble, but the question is by how much and for how long.”

Samuel says the core idea of the American dream is actually alive and well. “Younger people are seizing this concept of choosing your own path,” he said, instead of defaulting to wanting a car and a house and the trappings of middle-class life. “Taking on a consumption-based model doesn’t work for them.”

The latest iteration of the American dream might not be about owning a house at all. It might just be about financial stability.

“To some extent, if you’ve got the financial security to buy a house and take on those financial commitments, that means in some sense that you have made it,” the University of Florida’s Mark Flannery said. “It’s not the house that means you’ve made it. It’s your ability to finance the house that means you’ve made it and you’ve attained part of the American dream.”

“Some people think that buying a house is the best investment you can make and that everybody should own one,” said Mark Flannery, an economics professor at the University of Florida. “I think that’s too strong a generalization.” Photo by Tina Russell / THE PENNY HOARDER

Averett was afraid to make the financial commitment to buy another house, “and probably will be for the rest of my life,” she admitted. “But I’ve done so much homework on knowing every penny that we will have coming in for the rest of our lives.”

Averett’s math included how much she and her husband expect to bring in until they retire and estimates of what they’ll receive from their pensions and Social Security. She’s nervous, but her confidence is growing.

“We’ll always be able to pay for this house.”

Every so often, after a particularly good performance at a church, a pastor will offer Steve Bagasao a job to lead the music ministry at their church. Sometimes, Steve and Christy even do the math and think about it. So far, the answer has always been no. They still home-school their children and still hope to one day retire to the Midwest. They love their lives right now too much to be tied down.

Now, it takes less than 10 minutes for the Bagasaos to pack up the trailer. They’ve had a lot of practice.

The younger kids collect any stray balls, blocks and the measuring cups they use to build campground sandcastles.

The older ones grab the laptops, secure Tuppence in her cat carrier, bring in the awning that covers their outdoor “living room” and seal off the storage compartments near the front and back of the trailer.

Christy and Steve do a quick headcount. They lock up. They hitch the trailer to the van.

Then they’re off to Steve’s next concert at another church in another town.

Epilogue

---

Banks filed lawsuits to foreclose on 9 million homes between 2007 and 2010. Millions more went into foreclosure later, in the period lauded as recovery.

First, the federal government investigated the banks. Next, it created foreclosure prevention programs.

Then it passed sweeping financial reform to make sure Americans would never face a crisis of this magnitude again.

Some of it worked. Some of it didn’t.

The Dodd-Frank Wall Street Reform and Consumer Protection Act became law in summer 2010.

Of the offices created to facilitate the new regulation Dodd-Frank brought, the most polarizing is the Consumer Financial Protection Bureau.

The bureau’s main mission was to protect consumers from financial institutions looking to take advantage of them. It has distributed more than $11.8 billion in settlements of lawsuits, not only against mortgage lenders, but also payday lenders and student loan servicers.

The CFPB’s existence has repeatedly been threatened by officials — including its interim director, Mick Mulvaney — who say the watchdog bureau has too much power. Every year since Dodd-Frank’s inception, Congress has seen at least one bill asking to limit the law’s power or do away with it altogether.

A 2017 bill proposed to weaken a Dodd-Frank ability-to-repay standard requiring mortgage lenders to judge the financial stability of potential borrowers. That meant banks would no longer have to ensure that a borrower could afford a loan before approving it.

Proponents of the bill said the Dodd-Frank regulation made it hard for small lenders to do business.

Opponents said relaxing the law would expose borrowers to some of the same dodgy lending practices apparent during the last housing boom.

In May, President Donald Trump signed the bill into law.

The Home Affordable Refinance Program, or HARP, was created in 2009 to offer refinancing to homeowners with underwater mortgages. It promised to help 5 million borrowers in two years.

As of May 2016 — seven years later — only 3.4 million homeowners had refinanced through the program. HARP was extended several times and is set expire in December.

None of the people who shared their stories with The Penny Hoarder were helped by this program.

The banks that managed to survive the crisis saw hefty fines and strict regulations.

The five largest mortgage lenders agreed to the $50 billion National Mortgage Settlement in 2012. That money, the largest financial settlement in history, was split between the federal government, state governments and wronged borrowers in 49 states.

The typical settlement payment to an eligible borrower was only about $1,400.

The Independent Foreclosure Review identified borrowers who had been wrongly denied mortgage refinancing or were victims of other errors in the foreclosure process. Fifteen banks paid almost $4 billion to more than 4.4 million borrowers who had experienced errors.

Daniella Pierre of Miami Gardens received $300. Jeanne Johnson in rural Georgia also submitted a review request. She got nothing.