The New York Review of Ideas » Profiles | June 2009
Bad Foundations
Alyssa Katz tells us that the roots of the housing crisis run much deeper than we think.
By Flora Fair
Investigative journalist Alyssa Katz stared across the table at the two developers. “One looked like she hadn’t been out of her car in a month,” Katz recalls. The other, she observed, “had either just come off a bender or needed the services of a top dermatologist.” But Katz pitied the dreary characters—who took over her co-op and were under intense pressure to sell—even though they represent some of the most culpable parties in the country’s recent real estate bust. Katz’s new book, Our Lot: How Real Estate Came to Own Us (Bloomsbury USA, 2009), explores the mortgage crisis’ long history and far-reaching impact. It reads like a post-mortem on the financial mechanisms, government policies and social phenomena that led to the current crisis—ending with Katz’s own experience navigating the shark-infested waters of New York City real estate.
Most Thursdays, Katz can be found at Ditmas Workspace in Ditmas Park, a recently gentrified Brooklyn neighborhood noted for its historic homes and other landmarks. The Workspace, founded by journalist and Politico.com blogger Ben Smith, is an office co-op that rents out desk space by the month. With its dark wood trim and picture windows, the converted Victorian feels more like a bed and breakfast than a neighborhood office. Katz calls the Workspace a sort of newsroom, where she can share ideas and resources with editors, writers and other journalists working there. Writers Nancy Scola and Geronimo Madrid both keep desks at the DW, as do playwright Scott Organ and Smith himself.
“She’s incredibly well-placed to explain the thing that everyone in America wants to know, which is: What the hell happened to the housing market?” says Smith of Katz, whom he met about a year ago through the Workspace. “She’s got a kind of granular knowledge that’s really rare among people who don’t work in the industry, combined with a broader perspective you rarely get from insiders.”
Just weeks from the release of the book, Katz is geared up for promotion. Sitting at a small desk in one of the sunny side rooms, she answers questions at a breathless clip, propelled by the force of the facts she has stored. With unruly hair and wide eyes, Katz looks simultaneously focused and baffled. Her brow furrows as she speaks, her eyes widen, she gestures emphatically with her hands: Every ounce of her being seems consumed with getting her point across.
Katz is, to her knowledge, the first journalist to make the connection between a glut of increasingly risky mortgages and the financial interests of Wall Street. It all began when she was an editor at City Limits in the late ’90s, working on a story about mortgage loan fraud under the government-funded Housing and Urban Development (HUD) program. City Limits journalist Kemba Johnson received a tip from a local lawyer who claimed that tenants living in SRO (single-room occupancy) housing in Harlem were being kicked out under strange circumstances. Katz, who edited the story, said the tenants “woke up in the morning and there were guys literally knocking down their walls and telling them they had to get out.” As it turned out, nonprofits were sometimes buying homes that were not yet vacated, and contractors were unceremoniously running these tenants out once the properties were sold.
Johnson investigated further and discovered that these nonprofits, which were ostensibly helping poor residents, were actually dealing in real estate. Mortgage companies were buying properties cheaply in Harlem and other low-income neighborhoods, and then quickly selling them to nonprofits for prices up to 100 percent more than what the mortgage companies originally paid. Appraisers would approve the values for these homes, which were often rundown and in need of gutting. The nonprofits, believing they were creating more affordable housing, bought the homes using government-insured HUD loans, without seeing them or knowing how much the mortgage companies originally paid. This led to a tidy profit for mortgage companies and the appraisers that served them; and dilapidated, shoddily renovated homes for the nonprofits.
“It’s very similar stuff to that went on recently, lots of flipping and fake appraisals,” Katz says of the story. “When you have a lending program that isn’t very well managed or monitored, this is going to happen inevitably.”
Johnson completed her investigative piece, “The Harlem Shuffle,” in 1999. It led to convictions for several of those involved in the scheme and eventually turned up as a plotline on The Sopranos.
Katz left City Limits in 2005 when she was awarded Columbia University’s prestigious Revson Fellowship for urban studies. She decided to revisit the Harlem story to see how HUD reforms were faring. Soon she realized the subprime market had taken over the mortgage industry. Katz then proposed an investigative piece for Mother Jones in October 2005, with no idea of how timely her work would be. By the time the book was completed, the mortgage crisis had built to a crescendo and crashed, taking the world economy with it.
Katz traces the current crisis to changes in mortgage lending going back to the late 1960s, when riots, white flight and historically inequitable lending led to a Civil Rights Movement for fair access to credit. A political cry raised in the 1920s, again in the ’70s, and once more by Bill Clinton in the ’90s touted homeownership as a way to turn troubled neighborhoods into prosperous communities where residents were invested in the quality of their homes and blocks. Access to fair credit for everyone was presented to minority residents in particular as the solution to everything from poverty to crime. The problem, Katz says, lay in the rapid deregulation of mortgage loans to give urban poor that access.
“This isn’t just the story about a terrible, misguided campaign,” she points out. “One of the great tragedies here was that the misguided efforts that were driven by politics and greed and naiveté had grown out of a Civil Rights Movement push to promote access to home ownership.”
Katz began her research for the Mother Jones article (which would become Chapter 4 of the book) in Cleveland, Ohio. She wanted to discover why there were so many foreclosures in the area. A self-described “data geek,” Katz was content to sit among the stacks at Cleveland Law Library, poring over city records to find the juicy bits of information that, collectively, formed a frightening pattern.