Broke, USA

by Gary Rivlin

  Herb Sandler seemed most angry about the article in the New York Times, which ran on Christmas Day 2008. It wasn’t hard to see why. World Savings was an odd choice for anyone looking to single out some of the worst villains of the subprime meltdown. It had not gotten caught up in the securitization frenzy at the heart of the credit collapse. Loans made through World Savings were held on to rather than sold on Wall Street. The Sandlers were pushing adjustable rate mortgages, sure, and they would play a role in the great global recession, but they were not ensnaring people with teaser rates as low as 1 percent annually and then hitting borrowers, two years later, with rates that reset at 6 or 7 or 8 percent. They didn’t target minorities or the working poor like many other lenders. World Savings stood as a perfect laboratory for examining how the housing frenzy overtook even seemingly well-meaning businesspeople but instead World—and the Sandlers in particular—was lumped in to listings of the country’s more reckless, covetous lenders. Among those delighting in the misfortune of the Sandlers was Steven Schlein, who never seemed to tire of pointing out that the “founders of the Center for Responsible Lending” had been exposed as the “toxic mortgage king and queen.”

  As if all the negative reports about the Sandlers weren’t bad enough for the CRL, another major donor, John Paulson, wore a similarly large target on his back. Paulson was a hedge fund manager who so firmly believed that loose lending standards would cause deep troubles in the broader economy that he bet against the real estate market. Paulson & Co. made $15 billion in profits in 2007, $3.7 billion of which Paulson himself pocketed. That is believed to be the largest one-year payday in Wall Street history. In 2008, his firm collected another $5 billion in profits. In different circumstances, Allan Jones might have been impressed, but Paulson had donated millions to the CRL, so Jones was disgusted.

  “It was un-American what he did,” Jones said. “He made his money betting against our country. This is who’s funding the CRL.” Jones then brought up the Sandlers, who he claimed “started the credit meltdown” when they sold Golden West to Wachovia. “You look at how dirty the CRL is,” he said. “And after knowing that, you’d even listen to a word they have to say about us?”

  Thirteen

  Past Due

  COLUMBUS, OHIO, 2002–2008

  Bill Faith didn’t mince words when his fellow activists in Dayton asked him at the start of the 2000s about Dean Lovelace’s plan to introduce a local law to restrict the city’s predatory home lenders. “I told them, ‘No offense, but you don’t have the capacity, you don’t know what you’re doing,’” Faith said. The states and the federal governments have agencies in place to monitor lenders, he told them; cities don’t. But Faith was also the state’s most prominent housing advocate, so when his allies in Dayton moved ahead anyway, he did what he could to help. Faith shrugged when we met in his offices a few blocks from the state capitol in Columbus in the fall of 2008. “I figured if it got attention for the issue, that’d be a good thing,” Faith said. The city councils in Cleveland and Toledo would pass bills similar to Dayton’s.

  In theory, Ohio was a strong home-rule state that granted municipalities broad powers over the regulations inside their borders. In reality, though, the mortgage industry had the cash and the clout to convince the Ohio state legislature, one year after Dayton’s legislation, to pass a law stripping Dayton, Cleveland, and Toledo of the authority to regulate the mortgage lenders operating within their city limits. The boilerplate anti-predatory language its sponsors added to the bill was largely lifted from the 1994 HOEPA statute, and therefore already law, but that didn’t prevent Governor Bob Taft, a Republican, from patting himself on the back. This bill, Taft declared when signing the measure into law, proves that in Ohio “we will not tolerate predatory lenders, or loan sharks, who take advantage of senior citizens, people with limited incomes, or people with bad credit histories.” More revealing, though, were the reactions of partisans to its passage. “We certainly think it’s a good bill,” said Dayna Baird, the head of the Ohio Consumer Finance Association and the chief lobbyist for large lenders such as Household and CitiFinancial. In contrast, Jim McCarthy in Dayton dismissed the new law as a “canard” and Bill Faith dubbed it “the most arrogant bill I’ve seen in all my years in Columbus.

  “There’s this subprime problem going on all over the state and what do our legislatures do?” Faith asked. “They pass a bill that says to the cities, ‘We’re going to preempt you from doing anything about predatory lending, that’s the state’s job, but, oh, by the way, we’re not going to do anything about the problem.” If there was the occasional tale of a borrower harmed by a particularly noxious subprime loan, legislators were told, that was the work of a rogue agent whose misdeeds had been exaggerated by a press corps on the hunt for the sensational. Politicians on both sides of the aisle, it seemed, were inclined to extend the benefit of the doubt to any lender willing to work with borrowers of modest means.

  The bill, passed during the 2002 legislative session, did create a sixteen-person Predatory Lending Study Committee that would travel the state to assess the problem. When they hit Dayton, so many people wanted a turn at the microphone that, despite a strict five-minute limit on speeches, the meeting lasted three hours. The committee chairman Chuck Blasdel, a Republican state legislator who had been the primary sponsor of the preemption bill, told the Dayton Daily News that he was very moved by some of what he had heard that evening, but he warned against any new laws. Tighten regulations, he said, and watch credit dry up in those communities most in need. A year later, Blasdel’s task force made its recommendations but they quietly died in committee.

  Among his fellow activists, Bill Faith, the executive director of the Columbus-based Coalition on Homelessness and Housing in Ohio, or COHHIO, is celebrated for his ability to get along with legislators on both sides of the aisle. Around the state capital, you’re as likely to spot Faith out with a Republican legislator as a Democrat, and over the years he would describe any number of conservative legislators as his friends. Ron Bridges, a lobbyist for AARP, only wishes he could be more like Faith. The AARP was a key ally in the fight against predatory lending and more than once Bridges joined Faith as he tried to work on Blasdel. “I was always two seconds away from wringing the guy’s neck because I see all the people getting hurt,” Bridges said. “But Bill sees the same thing, which is why he makes sure to get along with guys like Blasdel. He sees the bigger picture.” Apparently, though, that means sometimes missing the smaller details. A few years later, Faith and Bridges were on the verge of finally besting the mortgage industry and Bridges looked down to discover that his friend had just spent an hour meeting with the Ohio Senate leadership while wearing two mismatched shoes.

  Bill is different than most activists,” Mike Toman, a partner in the lobbying firm The Success Group, is explaining to me at his office a block from the state capitol in Columbus. “He knows the inside game.” To Toman and his partner, Dan McCarthy, lobbying is best left to the professionals—but Faith is one of those rare social justice crusaders who not only understands how to sell a story to a member of the legislature but also has an innate sense of who to approach and when.

  “Most activists want to be right,” McCarthy said. “But Bill wants to get things accomplished.”

  “He’s still an activist,” Toman said. “He has that passion.”

  “But he understands how to make a deal,” McCarthy said.

  And then both more or less said in unison: Bill Faith likes to win.

  Faith is a beefy man with a bearish physique and white gray hair that seems perpetually unkempt, as if he is suffering from an incurable case of bed-head. He wears a goatee and has a husky, heavy person’s voice that can sometimes makes him sound a bit like John Madden. He’s a talker, so much so that his friends joke that they don’t dare call him unless they know they will be in the car for at least an hour. He smokes, he swears, and he obviously drinks; when we met at the bar at Mitchell’s, a stylish steak
house one block from the capitol, a Ketel One and cranberry cocktail appeared in front of him without him needing to ask for it. He wore a sport coat and tie that night, a common occurrence for someone who runs a statewide nonprofit with a multimillion-dollar budget, yet somehow the outfit seemed wrong on him. It might have been the quizzical, boyish way he examined the toast points and goat cheese that accompanied his beet salad (he may be a regular at the bar but he runs a housing advocacy group, and if he eats at Mitchell’s, it’s a rare treat because someone else is picking up the tab); it might have been the informal “How ya doin’?” greeting he gave most everyone, from the retired Senate president having a drink in the bar area to the hostess showing us to our seats.

  His mother would drag him to civil rights protests as a kid. His father, a Presbyterian Republican raised in rural Indiana, was unhappy she was bringing their son to places where they were often the only whites in the room aside from the media. His mother was devastated when Martin Luther King, Jr., was assassinated. His father considered the civil rights leader a communist who had brought tragedy upon himself. Faith grew up in the People’s Republic of Youngstown, a staunchly pro-union town and firmly Democratic, but that’s only because his father was a farm implement salesman dispatched to eastern Ohio to grow the market there. “A lot of my relatives still live in rural Indiana and rural Illinois,” Faith said. “So I know those people. I can talk to them.”

  Faith was never much of a student. He dropped out of college at the end of his freshman year, but a year back in Youngstown was all he needed to get serious about his studies. “I didn’t want to work in the mills,” he said, “but that’s exactly where my life was headed.” He was accepted into Ohio State in the mid-1970s, where his future started to take shape. He read about the Catholic Worker movement and imagined himself as a social worker. He liked the fit and even converted to Catholicism. “I was looking at this small sliver of the Catholic Church and ignoring the other ninety percent,” he said. “The first nun I met wore jeans.”

  Faith’s first job after college was at an institution for the mentally ill called Orient, located about thirty miles from Columbus. Orient was a shock to his system. One resident there spent his days chewing his shirt; another, he said, the staff simply tied to a chair. The entire facility reeked from urine. “It’s a lot better than it used to be,” the facility’s superintendent assured him. After Faith discovered that his immediate boss was stealing money from patients, he began surreptitiously removing incriminating documents from work, and eventually a complaint he filed with the state attorney general’s office led to the man’s removal. Faith left Orient after two years to help open an alternative community for the mentally disabled that he and his fellow idealists called The Ark. Among the residents there was a man with Down syndrome named Richard Wilson, who had lived at Orient for four decades. “He lives in this godforsaken place for forty years but he loves life,” Faith said. “He had no reason to but he had this great attitude. He was a kind of life guru for me.”

  Faith lived the life of a committed leftist coming of age during the first half of the 1980s. He got involved in the peace and sanctuary movements; he joined the Committee in Solidarity with the People of El Salvador (CISPES). Now on the other side of fifty, he sometimes wonders what his younger self might have been thinking. One time he traveled to Washington to join a group of Catholic workers who had chained themselves to the Pentagon to protest U.S. policy in Central America. It might have felt cathartic to speak truth to power, Faith said, but they had no real strategy other than voicing their collective outrage. On the other hand, he had good things to say about the two weeks he spent in the D.C. city jail on trespassing charges. “When does a guy like me ever get to see the inside of a place like that?” he asked.

  Back in Columbus, Faith got involved with a group trying to feed and house the homeless. While he was working behind the steam table at one of the soup kitchens, a man pulled out a shiv and slashed Faith’s face from ear to lip. What most amazed the people who worked with Faith is that, despite the hundred-plus stitches it required to close the wound, he took his regular turn serving just days later. Faith said he was fine with it (“Maybe he just wasn’t on his medications that day,” Faith had told the Cleveland Plain Dealer when that paper profiled him as its man of the year in 2003) until the guy tracked him down years later to offer an apology. “I kinda had a fantasy vision of shooting him between the eyes,” Faith said.

  When Greg Haas thinks of his friend back then, he imagines him wearing denim—a denim jacket, a denim shirt, and of course jeans. Faith favored sandals and wore his hair in a fierce bush of curls. The two met when Faith was helping to organize a series of protests at city hall aimed at establishing shelters for the homeless around Columbus and Haas was running the mayoral campaign of an old-school social services Democrat. Faith might have looked like every other protester, Haas said, but even then he stood out from the crowd. “Rather than humiliate people, or just hit them in the face with an issue, Bill seemed to be someone searching for a solution,” he said. It was Faith, Haas said, who hammered out a compromise with the city’s social services director—find a community willing to take a shelter, the agency head said, and we’ll provide the funding—and Faith, after calling what seemed like every landlord and bureaucrat in town, made it happen.

  That fight was winding down when Faith was offered a job running the Coalition on Homelessness and Housing in Ohio. He moved out of the Ark and started wearing a tie to meetings, and eventually added a sport coat to his wardrobe. He focused on affordable housing and the homeless through most of the 1990s but by the end of the decade he started talking about predatory lending as well. He thought he had a simple and elegant solution to the problem: Simply apply the state’s existing consumer protection laws to the mortgage business. How could it be, he asked, that Ohio protects its citizens from getting ripped off when they plunk down $25 for a toaster but not when they sign papers committing themselves to an $80,000 loan?

  Faith shifted strategy after the 2002 legislative session. If the legislature refused to intervene, Faith said, he would “pound the issue in the court of public opinion” until elected officials relented. He began contacting reporters he knew, hoping to get them interested in the issue. He offered the same message to each: The poverty industry is far more pervasive than you think. “I kept telling them, ‘Don’t talk about black folks,’” Faith said. “There are these loan sharks in the suburbs. There are loan sharks in the town squares of rural areas.”

  While he was working the phone, he learned that two reporters at the Columbus Dispatch, Jill Riepenhoff and Geoff Dutton, were already starting to look at the dramatic spike in foreclosures in the Columbus area. He might have made a pest of himself during the nine months he worked with the pair on their series but it seemed well worth it. The resulting series, “Brokered Dreams,” published in September 2005, seemed to have exactly the kind of impact Faith was hoping for. “All of Columbus read it,” AARP lobbyist Ron Bridges said of the Dispatch series. “Or at least all of political Columbus read it.” Bridges, who is black, grumbled that it wasn’t until a series of articles showed that the problem had spread to the white suburbs and rural areas that the legislature felt it needed to act, but when I visited him in his office several years later he still had a small stack of reprints right behind his desk.

  The two reporters didn’t completely ignore the center of town, of course. Dutton’s “Flipping Frenzy” piece revealed how wealthy investors with money in a New York–based hedge fund called Stillwater Capital Partners profited from subprime in Columbus, and that kept him running around some of Columbus’s poorer neighborhoods in search of vacant properties and the “straw buyers” whose names and signatures were needed to bid up the prices of these boarded-up messes. But the shock in the series was its finding that foreclosure filings had risen faster in the state’s suburban and rural counties than in urban ones. “Foreclosures were predictably concentrated in poor, inn
er-city neighborhoods,” Dutton wrote. “But, surprisingly, clusters of dots circled the outskirts of the city, in the newest subdivisions of suburbia.” Even a small Amish community in the northeastern corner of the state felt so under siege that the county posted public service billboards on the more popular horse-and-buggy routes. “You can be robbed when you are away from home,” the signs read, “or you can be robbed over pie and coffee. Be skeptical of door-to-door mortgage salesmen.”

  In her reporting, Riepenhoff focused on a single subdivision on the city’s far western suburbs, called Galloway Ridge. It had been developed by Dominion Homes, a publicly traded real estate development company that built subdivisions in central Ohio and Kentucky. Galloway Ridge was a relatively new development but one in six homes were already in foreclosure or part of a bankruptcy proceeding. When Riepenhoff asked the executives at Dominion for an explanation, they blamed it on the irresponsibility of their buyers. “These people are not of the same credit quality, the same earnings level, the same understanding of credit as people in other parts of town,” company CEO Douglas G. Borror told the Dispatch.

  However, the credit counselors, bankers, appraisers, and others in the real estate industry appearing in Riepenhoff’s article offered an alternative explanation for the high rate of foreclosures: a lack of checks and balances in the company’s sales transactions. Five years earlier, Dominion had created a new division, Dominion Homes Financial Services, to act as a mortgage broker for those looking to buy any of the properties they built. That meant a single company was constructing the homes, setting the prices, and playing a large role in establishing the loan terms. Dominion even went one step further by helping those without any money raise a down payment—or, as Riepenhoff wrote, the home builder “found a way around a federal law barring sellers from giving money directly to buyers for a down payment.”