The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

The Subprime Mortgage Crisis – Taking Detroiters’ Homes to Hand More Land to the Wealthy

Mar 30, 2015

What happened to Cleveland happened to Detroit. Greedy banks ravaged homes, neighborhoods, and people’s lives in Cleveland. Here in Detroit a lawsuit similar to the one in Cleveland has been filed against the Wall Street bank Morgan Stanley.

In the early 2000s, banks around the country increased how often they made subprime mortgage loans. Subprime mortgages made up only 5% of all home loans in 2001. By 2004 to 2006, they jumped to about 20% of all mortgages around the country. Here in Detroit, though, they were closer to 75%.

Subprime mortgages carry a much higher interest rate than standard mortgages; by as much as 2 or 3% a year. What’s worse, about 80% were adjustable-rate mortgages, meaning the banks attracted people to take out these loans with low down payment requirements and low starting interest rates to hide the fact that interest would skyrocket after 2 or 3 years.

The loans were dumped on people and were a disaster waiting to happen, to the people and to whole areas of the city. The lenders went out of their way to hide the reality of what would happen, so people got roped into deals they couldn’t pay for down the road.

The lenders knew some of the borrowers were never going to be able to afford these high interest loans and – to cover up what they were doing – the lenders either encouraged them to lie on their loan applications about their earning potential or did the lying for them.

On top of it, they steered people who could have qualified for lower interest mortgages because they had good credit, especially black working class borrowers, to accept subprime loans with enormous interest rates, thereby guaranteeing that even people with good credit would fail.

Financial Games with People’s Lives

Why were the lenders ready to make so many risky loans? Because Wall Street banks wanted to buy them to bundle them and sell the bundles as what are called “mortgage-backed securities.” Not only did Wall Street know the lenders were making bad loans, they encouraged them to do it. Many of the lenders wouldn’t have been able to make the loans they did, were it not for the capital the Wall Street companies were making available to them.

Lawyers in the current lawsuit against Morgan Stanley have presented emails showing officials at Morgan Stanley knew New Century Financial, the mortgage lender they bought mortgages from, was making overly risky loans. They referred to the loans as “scary” with a bunch of exclamation points, and “crap” or “like a trash novel.” Emails also show that New Century officials knew they were making bad loans, but continued to do it because they knew the banks would buy them.

Wall Street wanted these loans, and Wall Street got what it wanted. We’ve been living through a long-term capitalist economic crisis, and because of the crisis, the banks and investment companies themselves have run up huge amounts of debt.

These financial institutions needed a way to show they had more money coming in than going out, so no one would question how much total debt they had accumulated. Buying subprime loans, packaging them into securities and then selling them was a way to do that. It was a way to make a quick buck. That’s why almost all of them carried out these slimy schemes. It’s how capitalism works in today’s world.

Luring People in by Blowing up a Housing Bubble

With so many more people being able to get mortgages, prices on the housing market kept going up. Mortgage lenders used the rise in home values to convince borrowers that even if their interest rates went up, they could always re-finance later or as a last resort, sell their homes at a higher price, with a profit to pay off part of their loans. It created a housing bubble. When people started defaulting on loans the housing bubble burst, and so did the bubble on the mortgage-backed securities market. And that provoked the Great Recession we are still living through today.

The drop in home values, together with job cuts due to the Great Recession, meant many people could not afford to make the huge payments on these rotten loans. From 2005 to 2009 the banks foreclosed on 67,000 homes in the city of Detroit. Since 2009, Wayne County has foreclosed on over 70,000 homes, not over mortgages, but due to nonpayment of taxes; and another 60,000 are currently at risk of tax foreclosure. While there may be some overlap in some of these figures, it means well over 150,000 homes have been foreclosed on. That’s really an enormous number!

Detroit lost 240,000 residents between the Census of 2000 and that of 2010. The media and the politicians are always talking about how that many people left the city. If every home has on average even 2 people in it, foreclosures have stripped more people from their homes in Detroit than the number who have left the city!

The Wealthy Class is Stealing the City of Detroit

In 2010, Dave Bing, when he was mayor, put forward a plan to shrink the city. Bing was forced to step back briefly from his initial plan when people reacted to part of his plan that called for residents of sparser areas of the city to be “relocated” to denser parts of the city. People rightfully likened the plan to the relocation of the Cherokee Indians along the Trail of Tears.

Nevertheless, a new version of the plan was issued in 2013, just before the city went bankrupt. The planners started from the premise that the city will continue to shrink. And of course it will, if people continue to be driven out.

And this plan – which has been and continues to be implemented – is a way to drive people out of their homes. Some areas will continue to get services, while others will not. The plan for some areas is to simply let them go back to nature. This will be helped by the cut off of city services, leaving abandoned homes to rot and be stripped, and allowing roads to crumble. If a few owners in an otherwise vacant area don’t want to move, the city will simply wait them out until their land can be packaged with others and sold later.

Bing proposed to clear large parts of working class Detroit. Bing was speaking for the ruling class that wants to clear out the city and put it towards its own ends, whether for industrial use, real estate development for wealthy people or real estate speculation like Dan Gilbert is carrying out.

Having driven many working class people out, city officials under mayors Archer, Kilpatrick and Bing, the financial manager, and the new Mayor Duggan, have been handing the city over to the same wealthy class that created the mortgage crisis.

The city gave land to Chrysler and the Renaissance Center to General Motors. It paid 215 million dollars to build Ford Field for the Ford family, 189 million dollars to build Comerica Park and now will pay another 280 million dollars to build a new hockey arena for Mike Ilitch, Little Caesars Pizza and Red Wings owner. It gave Compuware land to build its headquarters downtown and land taken by urban renewal programs to the Detroit Medical Center, which was recently sold to a private equity firm. Now under Duggan, the city is re-doing street lighting and building a light rail system for the more affluent areas of the city.

While areas like the downtown and Midtown are being refurbished, other areas have no street lights, no trash pick-up, and no EMS, fire or police response. City and state officials have worked with the Emergency Manager of the Detroit Public Schools to close many of the neighborhood schools. When people can’t live close to the schools they’re sending their children to, they move.

Whether imposed by city planners, or through theft by ordinary capitalist measures, the result is to take Detroit, a mostly black city, and hand it over to the wealthy. And this isn’t just happening in Detroit. It’s happening in every major city in the country where the working class used to live in the center. The difference is that what took them 70 years to do in a city like New York, they’ve tried to do in a couple of decades here in Detroit.

For working people, and especially the black population, the capitalists’ plan has meant the loss of homes they or their parents worked their whole lives to buy. It means family members moving in with one another and living in more crowded conditions. For those who haven’t lost their homes, the result has been the devastation of their neighborhoods. The many abandoned homes become targets for thieves and drug dealers, making the neighborhoods less safe to live in.

Politicians like Michigan Governor Rick Snyder, along with his Emergency Manager Kevyn Orr, and now Mayor Mike Duggan pay lip service to improving the neighborhoods and helping people to keep their homes. In reality, many more people will lose their homes than will be helped by the schemes these rats have to offer.

Pushing back the bosses and demanding decent housing, schools, and city services will take a real fight by the working class. The working class has pushed the ruling class back before, but it took social movements like those of the 1930s and the 1960s to do so. No one knows what will set off the social movement of our time. But what is certain: Until the working population mobilizes, until we fight, we will have no decent future.