How the Obama Administration Failed Black Homeowners

Before the 2008 economic recession hit, Prince George’s County was one of the wealthiest majority-black counties in America. After the U.S. housing market went into a death spiral, the Maryland county became one of the areas hit hardest by the subprime lending crisis. Between 2012 and 2013, P.G. County saw a 50 percent spike in foreclosures.

We know that the housing crisis disproportionately affected black and Latinx homeowners, in large part due to racist predatory lending tactics practiced by banks such as Wells Fargo and Countrywide. But what could the Obama administration have done differently in responding to the crisis to prevent black and brown Americans from bearing the disproportionate burden of it? And what are the long-term ramifications of the government’s feckless response?

A study released Thursday by the People’s Policy Project tracks African-American wealth during the Obama administration, and finds that rather than delivering the transformative change Obama promised so many black Americans in 2008, the Treasury Department opted to protect the interests of Wall Street over those of people who lost their homes.

Home ownership has long been considered a springboard to accumulating wealth. Rather than giving black homeowners a safety net to fall back on when the recession hit, the Obama administration’s actions exacerbated the racial wealth gap for decades to come.

We talked to Ryan Cooper, one of the study’s authors, about the failures of liberal ideology and why it’s important to reflect critically on Obama’s legacy in the age of Trump.

This interview has been edited and condensed for clarity.

Thanks! Certainly a bigger splash than the average think tank report, I reckon.

I think it’s safe to say you wrote the first think tank report to appear on a Run the Jewels’ member’s Instagram. Let’s start at the beginning: why did you decide to look into the subject of black wealth and housing policy during the Obama administration?

For two reasons: First, housing policy is probably Obama’s biggest domestic policy failure, and black people suffered the most because of it. Looking at black wealth gives you a good sense of how the more vulnerable people in the country got crushed by foreclosure.

Second, I think it’s worth emphasizing how Obama failed black Americans. Liberals sometimes assume that if you get someone of the right identity in power, they’ll sort of automatically understand and cater to the interests of their identity group. What we find is that no, that’s not necessarily true at all. You have to get the policy right, and neoliberal African-Americans can easily preside over policies that wreck the fortunes of their black constituents.

“It’s the politics of neoliberalism, where massaging private actors is regarded as the only legitimate state function.”

As you point out in the study, the percentage of black homeowners whose mortgages were underwater multiplied 20-fold between 2007 and 2013. What could the Obama administration have done differently to ameliorate the impact of the housing crisis on black Americans specifically?

Three things: First, a better foreclosure program. Their thing was called Home Affordable Mortgage Program (HAMP), and it didn’t work because they tried to pay mortgage servicers to do something that was directly against their financial interest. The way to help struggling homeowners was by reducing interest rates, loan principals, and restructuring payments, but servicers have monetary incentives to keep principals high and even to foreclose. Servicers blatantly abused the program, often illegally, and the administration didn’t even permanently take back any of their payments to them. They should have followed the basic model of the New Deal-era Home Owners Loan Corporation and just bought the mortgages and done the modifications directly.

The authorization for HAMP was in the TARP bailout bill, and the legal justification is really sweeping. Almost certainly Obama could have spun up a HOLC-style program on those grounds alone. The authorization and the appropriation (they originally set aside $75 billion for HAMP, and could have done more) was already there when he came into office.

Second, you could have used the legal leverage from the robo-signing scandal. Servicers and banks didn’t have the correct paperwork in probably the large majority of foreclosure cases, and so just forged it. The administration could have used threats of prosecution to accomplish the same objectives as above, only this time for real. The mortgage settlement (what they did get from the robosigning scandal) was so toothless that $12 billion of it was literally fake.

Third, cramdown. That means changing bankruptcy law to allow judges to modify first mortgages during a bankruptcy proceeding, as they can for other sorts of debt. Obama promised he would push for this, but Congressional Democrats later testified that he basically reneged under the influence of Larry Summers and Tim Geithner. Black people have lower incomes and had been disproportionately tricked into these subprime mortgages, so any response that focuses strongly on foreclosures would have been a disproportionate benefit to them of necessity. You could have even focused particular attention on black communities (like Prince George’s County, which got absolutely wrecked by the crisis) since some banks were tricking black people into subprime loans on deliberately racist grounds.

“It’s vitally important for the next Democratic president not to bobble a historic opportunity like Obama did.”

Thinking back to that time, and considering how much the Obama administration had the wind at its back—in Congress, but also legally, as you said—it seems unbelievable that the administration didn’t step in to cover the people being directly affected, and instead opted to pay out the middle man.

That’s right—it’s ideology. It’s just like Obamacare in a way, where instead of just stuffing everyone into Medicare (or going that direction) you set up these janky-ass exchanges, where you have to have regulations stringing out every which way to keep them from just blowing apart immediately. It’s the politics of neoliberalism, where massaging private actors is regarded as the only legitimate state function, instead of just wading in to do what you want to do. And ironically in this case, even on market incentive terms HAMP was a disaster.

Then of course there’s the deference to financial institutions. They got their full nationalizations and huge cash handouts and trillions in discount loans from the Fed. Banks are the only sort of institution that gets that kind of direct state treatment. It’s odd but it’s very consistent under neoliberal regimes across countries.

I want to ask you a facile question: If you could time travel back to 2008 and talk to Tim Geithner and Larry Summers about the consequences of the mortgage collapse, what would you say to them? Or do you think they’d remain unswayed?

I think if you had a real economist talk to Summers, you might have brought him around. He’s an Important Ideas Guy, and especially if you could lay this out and the catastrophic result in the 2010 midterms that was partly the fault of the foreclosure mess, you might have convinced him.

Geithner I think nothing could change. He’s a born financial industry stooge.

I’m sure a lot of people will react to your research (or already have) by saying, “WELL, WHAT ABOUT TRUMP???” Why do you think it’s still important to think critically about Obama’s legacy?

Because it’s vitally important for the next Democratic president not to bobble a historic opportunity like Obama did. He very likely could have locked in Democratic majorities for many years, but he bobbled his away after only two years. The reason is that unemployment was 10 percent on Election Day, and millions of people were losing their homes—many of them after being grossly abused in the HAMP program. If there are Democratic majorities in 2020, they’ll have a brief window to fix about 25 screaming emergency problems, and all the solutions will involve ditching Obama-style milquetoast neoliberalism. If we bobble it again then stuff like climate change starts to look very, very bad.

Read more at People’s Policy Project.