The last installment of the MTB interview. 

Ray: I think we have more than the flu. I like to view the court as the emergency room. The housing conditions and a number of the patients are DOA as they arrive in court. The property cannot be saved, they cannot go back to that property, and why did this happen? The sub-prime industry came in to lend money in the City of Cleveland at a rate that wasn’t greater. There’s an article today in the Wall Street Journal about Detroit and how Detroit has a problem; Buffalo, urban centers, there’s even rural places where, cheap money, where people are able to obtain sub-prime mortgages, not only a first mortgage; I had a defendant in court today, that had a first mortgage but they also had a piggy-back mortgage which gave them their down payment to get into the property. But, if you talk to Jim Rokakis, of the sub-prime mortgages, only 10% of those are for people that purchase houses. The majority of those mortgages are people who are refinancing their properties and so they are pulling equity out of their properties. And once they’ve pulled the equity out of their properties, something may happen in their life, or adjustable rate mortgage will kick in and their mortgage payment will go up by $500. They can’t afford it.

Ray, you’re saying that 10%, according to the WSJ, only 10% of the loans are for people to get INTO houses. Because the main defense you hear on the sub-prime market is that it makes home-ownership available to people that would otherwise NOT have home ownership. So you’re saying the main thing that sub-prime mortgage has done is to strip equity from people?

Ray: It strips equity out of neighborhoods.

We’ve got neighbors that have been there 30, 40 years. I talked to my 75-year old neighbor the other day. And he’s been approached on a refinance basis; they had no debt before, they took money out and then they’re slammed. You’ve got predatory loan servicing going on here, too. Once they go ahead and make the deal, people send the money in, they say we didn’t get your money, it’s your responsibility to make sure that it gets here. And guess what? Now you have the default rate.

Ray: You have to pay more interest now, because we didn’t get your check.
It ratchets and ratchets and ratchets and all of a sudden, they own the house that was supposed to be inherited by his three kids. And it’s getting in the way of the transfer of wealth that supposed to happen between generations.

Gloria: The ARMs, in our neighborhoods, with the refinancing? There are people that are literally walking out of their houses and saying, you can have it back. I can’t pay it, and that is happening.

Ray: When I see defendants in our court, that are still in their house, I may fine them, but will not execute on the fine, and I caution them, do not leave that house until the Sheriff tells you to get out. Do not walk away from that house, you stay in that house, and that’s a mitigating factor. Because if you leave that house, and it is stripped out, you’re gonna be responsible. And what’s more, I had a woman last week, elderly woman lived in the house for 37 years, refinance a house off of Myers, she couldn’t then afford the payment, filed bankruptcy, she walked away from the house because her attorney told her to walk away. Well, guess what? She’s hauled into Housing Court. She has a house that all the plumbing’s been stripped out of, falling apart and, what’s worse, and I’m seeing this increasingly, the mortgage company is dropping the foreclosure action. They don’t want the house. There’s no equity in the house. But, what do you do with that house, because you still have that lien on it. Even after bankruptcy, you still have that lien, a toxic lien on it. The lien is far in excess of the value of the house. So what do you do…?

So, no one can go in and redevelop that house? That house is now doomed. Because the amount of money owed on it is greater than (the value) of the house.

Ray: Unless you can work with the bank, or mortgage company to negotiate a short sale. Sometimes you can, many times you can’t contact the mortgage company. Sometimes you’ll send them a deed in lieu of foreclosure, they won’t file the deed, keeping you on the hook.

I had a gentleman in court yesterday who was cited for having all his garbage out on his tree lawn, and he had moved out of his house 6 months ago. The mortgage company, they bought it back at Sheriff’s sale, never filed the deed. So, they were flying below the radar. So, they weren’t cited. But what do you do about this? Well, there has to be some accountability for this direct and collateral damage that has descended upon our neighborhoods. Not only here in Cleveland, Ohio, in the inner ring suburbs, in other places throughout the state, but in other urban areas.

Ray, “accountability for direct and collateral damage”, what does that mean?

Ray: I think what it means is all of the profits that have been made we need to document how much has been made by the investment banks, here selling those mortgages on the secondary market, (and writing derivatives on the employees three times?)…even after they’re in foreclosure they’re still selling those mortgages. So, some of those companies make money when you pay your mortgage and some of them make money when you don’t pay your mortgage. But it was a wildly profitable venture. So, what do you do? Well, in order to do a sub-prime mortgage, maybe you should pay into some sort of fund. A municipal court judge doesn’t have the ability to order that fund be set up but maybe a state legislature would order something along those lines to require that there be a fund. In fact, the governor is looking at setting up just such a fund, to help people who have been victims of this. And sometimes they’re willing victims. In the early days of the neighborhoods movement, we couldn’t get a bank loan. It was tough to get a bank loan. Cardinal’s Federal. In fact, you had to prove that you didn’t need the money in order to get the money. So we fought and we filed CRA actions and threatened CRA actions and then, what happens? Some of the banks that do business in our city, they filtered out and didn’t do as many loans and in ’95 you see the swoop of sub-primes coming in and there are areas that are particularly hard hit, harder hit than certain areas in the city, and those are the minority communities, where daily you get phone calls for sub-prime mortgages, refinance a house, and so what do you do? You hold the banks and mortgage companies who are taking these properties accountable for the properties.

Let me push you on this subject: How do we find out who these banks are? And then, how do you do what you said we should do? Which is get the information about how much money they’re making on this stuff?

Ray: Well, some of the information is private between the borrower and the bank.

And that’s why I’m asking.

Ray: So, for defendants before the court, we can get the information if they still have the papers, if they can find’em. Many of them don’t even know what company their mortgage is with, who is foreclosing on them. But if we can get that information and track, who has a mortgage and, in fact, in the (Wall Street)Journal article today the mortgage broker made $5000 on a loan. If you’re making $5000 on a loan, where did that money go? One of the studies that we need to do is follow the money. Where did the money go? Where did all those fees go? Where did the profit from this over-appraised house go? Once we’ve been able to do that, then determine if there’s any way we can get it back.

Oh, I love that sound. I guess the question that I’ve always had with those things is, as a property owner, if you’re in your home, you’re responsible for your home or we go and see you. But ultimately, when it’s not working out for that individual, for whatever reasons, I think, most of the time, they’ve been slammed, they’ve been told it’s one thing, they don’t understand all the writing, they sign it, it looks great. Then all of a sudden, we’ve got this person in court, and then here’s the people that have the title, that’s really the true owner…

Ray: Well, they don’t have the legal title, unless they take it through Sheriff’s sale, and buy it back. Then they have title. And one of the things that I require, and not all of the inspectors who cite, the way the system works, I don’t go out and get the cases, the inspectors have to cite people and get them into court. Some inspectors have felt, if it’s a bank or mortgage company, we’ll give’em time. Some of the banks and mortgage companies say, ‘Well, could ya just hold off on these code violations until we can sell the property to someone?’ Well, no, that’s not the way it works. Every title property owner has certain responsibilities, and the longer they own it, the longer their responsibilities. So I look for every defendant, whether it’s a owner-occupied structure or a corporate-owned structure, investment structure: How long have you owned it? How many days out of compliance? And did you have the resources to put in it, but you chose to use those resources somewhere else?

That’s one thing that I can do, is hold everybody accountable in the same way. That’s what I’m attempting to do. Now, the good news is some of the banks and mortgage companies are working with some of the groups. The Eastside Organizing Project, they’re working on restructuring loans. The formerly Lutheran Housing, Community Housing Solutions working with people to restructure their loans. Because they can’t take back all these properties. We have such a soft real estate market, they’re just gonna sit. And then what happens? They’re going to have to see me, if the property is not up to code.

Do you know the percentage of people, that you see, that have spent their money on everything else, rather than their home, versus those who they really did try, and it’s obvious that they tried…

Ray: I don’t know the percentage, I know there are instances rain water is flowing into the house, and they have a big screen TV, so obviously the big screen TV took priority over repairing the roof.

Except that your housing specialists have your first-time prevention program, selective intervention, you’ve put a lot of programs into place to make the distinction between somebody who’s trying and somebody who can’t versus somebody who is just not complying and buying things elsewhere.

Ray: We do screening of people, we do screen them, we go out to their property, take a look, who is helping you with this property, anyone can step forward to help you? And we try to gleen resources: Fresh Coat Cleveland, Rebuilding Together, Habitat for Humanity, in fact, for our defendants, we set up a voucher system where they get a voucher for Habitat for Humanity, they can go over to the store on Saturdays and get a step kit, or get materials and that’s worked out fairly well.

Ray has a very proactive court, I believe he tries to maintain housing.
When you’re looking for compassion, where does the compassion come in?
What I was trying to figure out is how many of them are really trying and how many of them is it just like every single day, these people do no care. Or no, we’ve got a healthy number of them that DO care, it’s just that they didn’t know what they were getting into, or life threw’em some curves and they just weren’t prepared for it.

Ray: The Housing Court sees cases on an address-by-address basis, and a defendant-by-defendant basis, so each day a person stands before me and I have to make evaluation. I have to do a screening. But that’s a new case unless they’re repeat offenders, then we have a little different road that we go down.

A hat tip to Meet the Bloggers for a great interview with Judge Pianka, and a thanks to George Nemeth for granting me permission to use this interview.