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Understanding the Origins and Impacts of the Economic CrisisPresentation Transcript
Understanding the Origins and Impacts of the Economic Crisis…and Moving Forward with Justice 2009 Washington State Access to Justice Conference Justice: Hope and Help in Hard Times john a. powell Executive Director, The Kirwan Institute for the Study of Race & Ethnicity and Williams Chair in Civil Rights & Civil Liberties, Moritz College of Law
Deregulation: In the 1980s, federal deregulation removed state caps and limits on mortgage lending, preempting, in many cases, state laws
Rise in Real Estate Values : The rise in real estate values in the 1980s created much new wealth. This led to “asset-based” lending, loans based on the value of the security rather than the borrower’s ability to repay. This was a crucial change that led to the subprime market
Rise in the secondary market : In the 1980s, mortgage companies began bundling mortgage loans into large portfolios and selling them on a secondary mortgage market
This let mortgage companies specialize in home equity lending and make a lot more money. They could make loans and quickly resell the loan into the secondary market
The Foreclosure Crisis
Securitization and Capital Markets : Because mortgages were viewed as safe collateral and increasingly profitable, Investment Bankers became hungry for mortgages for use as collateral in the sale of mortgage backed securities to investors
Wall Street’s hunger for mortgages led to asset-based lending, which fueled the subprime market.
This phenomenon took off in 1994 when $10 billion worth of subprime home equity loans were securitized
By the end of 2005, the volume of securitized loans leaped to $507 billion
Evolution of the Housing Market The Post Depression FHA Era: The Three Party Mortgage Market Pre Depression: The Two Party Housing Market Based on research by Chris Peterson, University of Utah Law School
Created by Chris Peterson, University of Utah Law School Today: The web of actors and institutions involved in the sub prime lending and mortgage securitization market
The Foreclosure Crisis
Communities of color and low-income communities were physically, socially and economically segregated from prime credit markets
People in these communities were subject to sub-par lending from rent-to-own to payday lenders to check cashing places that all charged exorbitant interest rates
And finally…subprime home loans
john a. powell
The typical legal advocate thinks of problems from a individual perspective rather than a systems perspective.
The legal framing of a claim has the potential to restrict inquiry into the nature and depth of a problem as well as a proper solution.
Traditional non-discrimination models encourage lawyers and organizations to see issues as potential legal claims rather than as problems in need of systemic resolution.
Lawyers must think and act globally to produce community-wide change. The consequences of the crisis are not limited to a client or even a family, but wash over entire cities.
Lawyers building a case tell a story. Lawyers can use media to shine a light on the plight within their community. Lawyers must create and sustain good working relationships with media by being honest, accurate, and timely.
Lawyers must looking beyond the legal community, and work with housing counselors, neighborhood organizations, and local government. Building coalitions is key.
john a. powell
Moving Beyond Reactionary Recovery
Recognizing our linked fate
Developing equitable systems
Ensuring sustainable investment and recovery
Towards an Equitable Recovery
Transparency and Accountability
Help Those Most in Need
Equity and Opportunity for All
Communities of Opportunity
Everyone should have fair access to the critical opportunity structures needed to succeed in life
Low-opportunity neighborhoods limit the development of people and neighborhoods
A Community of Opportunity approach can develop pathways that result in increased social and economic health, benefiting everyone
Thompson v. HUD : Proposed remedy
Submitted expert reports in both the liability and the remedy phases of the litigation, on behalf of plaintiffs
Used GIS to analyze current conditions of segregated public housing (liability phase) and frame solutions for desegregation (remedy phase) in a regional context