Detroit — Subprime lending and bargain-basement sales of foreclosed homes by banks and other mortgage lenders have helped create miles of blight in Detroit and a half-billion dollar liability for the city.
The Detroit News scoured thousands of property records to catalog the conditions of 65,000 mortgage foreclosures since 2005. The investigation shows for the first time the extent of damage to neighborhoods and the bill Detroit inherited when foreclosed homes were left open to destruction.
The toll is massive: 56 percent of mortgage foreclosures are now blighted or abandoned. Of those 36,400 homes, at least 13,000 are slated for demolition at a projected cost of $195 million, The News found. The city lost another $300 million in tax payments from foreclosed homes that Wayne County seized for nonpayment of taxes.
There's plenty of blame, from homeowners who signed loans they couldn't repay, to investors who failed to secure properties.
In cities such as Baltimore and Memphis, Tennessee, banks and other lenders were successfully sued over the condition of their properties. In Detroit, few efforts were made to hold institutions accountable for damage after those lenders blanketed city residents with risky loans, and then sold homes for as little as $1 after they were foreclosed on.
"There's an ironclad correlation between subprime lending and abandoned, blighted and in-need-of-demolition houses in Detroit," said Steve Tobocman, former co-director of the Michigan Foreclosure Task Force that was formed in 2007 to respond to the crisis.
"We had an opportunity to move forward on some of those homes and abuses, and we didn't take that opportunity."
Joel Kurth and Christine MacDonald visit Prest Street, where many homes were foreclosed and abandoned, some more than once. Clarence Tabb Jr., The Detroit News
Mortgage industry officials said they are easy scapegoats and worked to prevent foreclosures and maintain properties.
"Once we sell the property, it is someone else's property," said Brad German, a spokesman for Freddie Mac, a government-controlled mortgage company that according to The News analysis also had 56 percent of its foreclosed properties considered blighted and tax delinquent as of last year. "It would be the same if I sold you a house and you walked away from it.
"There isn't a post-sale responsibility."
The News investigation comes as Detroit emerges from bankruptcy and Mayor Mike Duggan is searching for more federal funds to continue a blitz that demolished 3,500 buildings last year at a cost of about $15,000 per home. Tens of thousands remain.
The News based its findings by comparing data from real estate tracking companies RealtyTrac and CoreLogic with a 2014 survey of all city parcels by the Detroit Blight Task Force.
The News found:
■Detroit had one of the highest rates of subprime lending in the country: 68 percent of all city mortgages in 2005, compared to 27 percent statewide and 24 percent nationwide, according to federal records.
Designed for those with damaged credit, the loans have higher interest rates than traditional mortgages and were at least four times more likely to default, according to federal records. Nearly $4 billion of the high-cost loans were written in Detroit in the four years before the 2008 real estate crash.
Blight followed: Up to 78 percent of foreclosed homes financed through subprime lenders are now in poor condition or tax foreclosed.
■Foreclosed homes were sold for a quarter of what city assessors said they were worth. The cheap prices made it less likely for buyers to maintain properties or pay taxes.
■When tax foreclosures are included, more than 1 in 3 city properties have been foreclosed in the past 10 years. Explore a database and map of tax-foreclosed homes.
Experts said that was like adding gas to the fire in a city whose neighborhoods had suffered decades of abandonment. In one triangle-shaped area between Grand River, Dexter and Joy, 80 percent of 200 mortgage foreclosures from 2005-13 are blighted or have been seized by the county for unpaid taxes.
Alfred Pointer is surrounded by empty shells of what were once stately brick homes in his Virginia Park neighborhood north of New Center.
In the 3000 block of Carter, 27 of 49 homes have been foreclosed because of defaulted loans or back taxes. Pointer maintains an abandoned mortgage foreclosure next door, but two more are across the street, including one that looks as though it could collapse in a strong breeze.
It was sold by Freddie Mac to an investor for $1,500 in 2008, three months after subprime lender Washington Mutual foreclosed over an $84,000 debt. Three years later, Wayne County seized the home for nonpayment of taxes.
Financial firms got more than $200 billion from the federal government as part of the bailout to keep the economy afloat after the real estate crash. Pointer said Detroit neighborhoods were left with the mess.
"The banks walked away and left us high and dry," Pointer said. "We all got juked."
Lenders blanketed Pointer's neighborhood in the mid-2000s: Nearly 80 percent of mortgages to homeowners there were written at subprime rates.
His neighborhood is one of eight in Detroit that were among the top 20 census tracts nationwide with the highest rates of subprime lending in 2005, according to The News' analysis of federal loan data. Others were in enclaves of St. Louis; Houston; Memphis, Tennessee; Jacksonville, Florida, and Jackson, Mississippi. All are overwhelmingly African-American neighborhoods, data show.
Until the collapse, the loans were lucrative: Monthly payments on a $100,000 loan at 9 percent are $200 more a month than those at a 6 percent rate, or $73,000 over a 30-year mortgage.
"The stage was set with gross irresponsibility by the banking industry, and I still think that they ought to be made to pay cities that are left to clean up the mess," said Frank Ford, a senior policy adviser for the Thriving Communities Institute, a nonprofit land protection group based in Cleveland that has studied vacant land and foreclosures in northern Ohio. "This was done by people making bad decisions, repeatedly, in some cases knowingly."
In Detroit, subprime lenders left a string of problem properties: 78 percent of the Long Beach Mortgage Co.'s foreclosed loans are on homes that are now blighted or abandoned, while the rate is 67 percent of those by New Century Financial Corp. and 70 percent for Ameriquest and Argent.
Those companies, along with many others that dealt primarily with subprime loans, are out of business. Other subprime lenders such as Ameriquest were accused of inflating appraisals, failing to verify income of borrowers and deceiving them about terms of loans.
When loans failed, financial firms practically gave away some homes in Detroit.
Warren landlord Alan Thorne said he bought 50 homes for $1 apiece in 2007 from subprime lending giant Ocwen Financial Corp. of Georgia.
A year later, his company paid $9,600 for 10 foreclosed homes from Novastar Financial, a Kansas City-based subprime lender, records show.
Since then, all but one of the properties have been foreclosed on by the county for nonpayment of taxes.
"I just don't see how the city can charge you $3,000 per year in taxes for a house you paid $1 for," Thorne said. "If you're getting $600 a month in rent and paying $3,000 in taxes, the math doesn't add up."
Thorne blamed renters and scrappers for blight at his former properties, saying "you always have to worry that everything will be stolen overnight."
The mortgage industry divides roles among financial institutions, with some owning loans, others accepting payment and still others holding title for several investors. The system wasn't established to handle widespread foreclosures and couldn't handle the volume in Detroit and elsewhere, said Guy D. Cecala, CEO and publisher of "Inside Mortgage Finance" that tracks the industry.
Citywide, lenders sold foreclosed homes for $10,500 on average, nearly $30,000 less than city assessors believed they were worth, according to city data from 2012 and 2013. The average foreclosed home in Detroit had an $83,000 mortgage, according to RealtyTrac data from 2006 to 2014.
"There comes a point in time … the bank will just say, 'We have to get these toxic loans off the books,' " said Harry J. Glanz, co-founder of Capital Mortgage Funding in Southfield.
John Llewellyn, a spokesman for the Lansing-based Michigan Bankers Association, said member banks maintain properties, provide neighborhood groups with contacts to call if there are problems and donate properties to nonprofits. But when banks try to sell to qualified buyers, few are interested, driving down prices, he said.
Dan Gilbert, founder of Quicken Loans and a co-chairman of the Detroit Blight Removal Task Force, said there's not enough data to conclude mortgage foreclosures caused blight in Detroit. He blamed high taxes and other factors.
"Existing blight causes other blight. Poor city services. All of it together," Gilbert said.
All told, 52 percent of Quicken mortgages that ended in foreclosure from 2005-2014 are now blighted. Gilbert said his company made good loans to qualified borrowers and sold mortgages soon after writing them, and isn't responsible for foreclosed homes' current condition.
The arguments don't make life any easier for Edda Dickerson, a retired school teacher, or her neighbors on Birwood Street in Northwest Detroit that was decimated by foreclosures.
"I don't think anybody did enough to hold banks responsible," Dickerson said. "There should be a lot more (bankers) out there doing hard time who are out living in mansions."
Her former neighbor of 20 years, Ronda Morrison, visited her foreclosed home for the first time this year at the request of The News.
The home she once adored was now full of dirty clothes, rubbish and ashes.
It was foreclosed in 2012, after negotiations failed for a short sale to sell it for less than she owed. For months before, Morrison said she tried to work with Bank of America to reduce the $64,000 debt on the home appraised at $28,000. She said the bank wouldn't budge unless her mortgage was in default.
"I need help. That's what I said. I didn't want to leave," said Morrison, 52, who owns a nearby shoe repair shop. "Let's renegotiate to what the house is worth. ... I am not going to be 90 years old paying a mortgage on Birwood."
Fannie Mae owned the loan and is controlled by a government group, Federal Housing Finance Agency, that opposes reducing homeowners' debt. Bank of America, which serviced the loan, said Morrison only reached out when she attempted a short sale.
A year after the foreclosure, Fannie Mae sold the home to an international investor for $13,500. It will cost more than that for the city to tear it down.
"If we could have sold that property for a higher price, we absolutely would have. … It is very, very difficult circumstance that we are doing everything we can to address," said Andrew Wilson, a Fannie Mae spokesman.
Drag cursor to see a 360-degree view of Ronda Morrison's former home.
Fannie Mae paid $4,700 of the city tax bill for Morrison's home and spent $1,500 in repairs before selling it, Wilson said. When it was empty, scrappers plundered the home and it was set on fire.
Now, it's scheduled to be demolished, as tires and debris cover the mint she planted around her cedar wood deck. A room she used to meditate in is now damaged by fire. And the kitchen sink is gone.
"This is becoming too much for my stomach," said Morrison in tears. "I used to have such a life here."
The Detroit News spent six months investigating the impact of a decade of mortgage foreclosures on Detroit neighborhoods. To do so, The News used three data sets: Detailed records of Detroit mortgage foreclosures from California real estate company RealtyTrac; tax foreclosures from the Wayne County Treasurer; and a parcel-by-parcel inventory of city properties by The Detroit Blight Removal Task Force.
Eric Seymour, a University of Michigan doctoral student writing his thesis on foreclosure and blight, also assisted in the project by analyzing a separate set of mortgage foreclosure records, from California data company CoreLogic through the Social Compact, a nonprofit focused on inner-cities, as well as data from the Wayne County Register of Deeds via Data Driven Detroit. Data consultant Gregory Parrish also assisted with the analysis.
The analysis found that 56 percent of mortgage foreclosures since 2005 met one of three criteria for "problem properties" — they were foreclosed by Wayne County because of taxes and fees, recommended for demolition by the blight task force or considered blighted by the same group.
The News' findings are conservative. The figures don't include so-called "zombie foreclosures." Those are homes in which lenders initiated foreclosure, and may have evicted tenants, but abandoned proceedings before they were complete. Mortgage holders did that in Detroit more than anywhere else in the nation, according to a 2010 Government Accountability Office report. The $300 million in tax revenues lost on 24,300 mortgage foreclosed homes does not include the money that the Wayne County Treasurer recovered by selling the properties at auction. Generally, many properties don't sell and, the ones that do, sell for a fraction of the debt owed.
The News also combed public records from the Federal Financial Institutions Examination Council to catalog all subprime loans in the city of Detroit from 2004-06. Using both data sets, The News built maps detailing areas of subprime lending as well as neighborhoods hit the hardest by foreclosures that followed.
The News defined subprime loans as "high-priced" loans as identified by an annual percentage rate that was 3 percentage points or more above Treasury securities of comparable maturity when the loans were originated. It's a benchmark established by the government and endorsed by researchers.
The News only included loans made to owner-occupants for home purchases, home improvements or refinancings.
The project is the culmination of more than 100 interviews with neighbors, former homeowners, academics, lenders and city officials. Investigative reporters Christine MacDonald and Joel Kurth wrote and reported the project. It was photographed by Clarence Tabb and edited by Assistant Managing Editor Walter T. Middlebrook. Other contributions came from Tim Summers, graphics editor; Tom Gromak, director of digital innovation; Jean Johnson, page designer; Rob L'Heureux, online graphics editor; and copy editors Stacy Sominski, Keith Roberts and Steve Wilkinson.
East side decimated by foreclosures; city does little