OK, we all get it. Banks, corporations and Wall Street types in general, are out to make money. They’re good at it. In fact, the Atlantic recently announced big banks could currently boast of a “golden age.”
At the same time, the well-heeled insist, their vast accumulation of wealth is their own private, personal business.
But, we know making money often means subverting the general good as in displacing thousands of poor seniors and moderate-income families from their homes.
And that, we must insist, makes it our business.
So said several dozen San Francisco affordable housing activists descending on the doorsteps of one of the country’s largest banks, First Republic Bank, on Tuesday, August 18. They came from a number of tenant rights’ organizations, including some belonging to a statewide coalition of over 300 groups called the California Reinvestment Coalition(CRC).
There were signs, drum beats, bullhorns and speeches.
A favored chant led by an elderly Latina 50-year tenant, who successfully faced down her landlord’s eviction threats, expressed growing resistance in San Francisco to banks funding property speculators – “Aqui Estamos; Y No Nos Vamos!”
Kevin Stein, associate director of the coalition, explained to me his group’s purpose is not that difficult to understand, “we just want banks to invest to improve communities and to cease practices that are harmful.”
“That’s why we are standing today outside the headquarters of First Republic Bank,” he made clear.
Specifically, First Republic is accused of knowingly funding unscrupulous real estate investors who purchase rent-controlled apartment buildings, evict long-time tenants and re-sell the buildings to higher-income people as “Tenants in Common” (TICs) properties, a type of condominium with dramatically increased market value above rent-control buildings.
A gaping loophole in the Ellis Act, California’s state law regulating rent control, allows en masse evictions of tenants when an investor converts residences into either TICs or regular condos, thus earning the state’s once highly regarded rent-control law the unpleasant distinction of having these vastly unpopular displacements termed “Ellis Act Evictions.”
Here’s how banks and investors make the system work so profitably.
Benefiting from large bank loans, investors purchase multi-unit buildings that have lower market-value and a lower selling price because of their current rent-control restrictions. The building is then converted for quick sale into much higher-market value TIC units that have no troublesome Ellis Act price ceilings for occupancy.
“This is bad,” Stein told me, “for the evicted tenants, bad for first-time prospective homeowners who face extremely high condo purchase prices and bad for the community as a whole” because thousands of rent-control living spaces are being removed from the market at an accelerating rate.
This is cause for great alarm and concerns are not exaggerated.
Displacement of California Tenants
And, it won’t stop in California specifically, as long as property speculators are flush with “displacement loan dollars” that fund the removal of rent-control buildings from the market.
Activists tell me the disparaging term “displacement loans” is deserved because it accurately reflects their nefarious role of subsidizing the assault on affordable housing.
In Los Angeles, for example, the problem goes back several years. In 2005, 5,425 rent-control units were taken off the market. In 2006, another 4,206 units dropped off. More recently, in 2014, there were more than double the number of evictions as in 2013, which was in turna 40 percent increase over 2012.
Worse, the eviction numbers in the nation’s second largest city are expected to keep rising in 2015 as shameless bank practices continues unabated.
San Francisco offers another bad example.
According to data analyzed by San Francisco Tenants Together and theAnti Eviction Mapping Project, over 3,600 units have been removed from the rental market under the Ellis Act and, overall, 10,000 tenants have been displaced from 1997 through 2013.
Many of these evictions would not have happened without investors first obtaining loans from banks like First Republic.
What Can Be Done?
CRC specialize in researching banking practices and how it impacts working class communities. This is “our world,” Stein told me.
Through examination of the vast public record and through innumerable horrific and very personal stories of evicted tenants, the CRC characterizes First Republic loans to speculative investors as shirking their obligations under the Community Relief Act (CRA), a federal law that requires banks to satisfy certain community standards.
This was very dramatically explained at the Aug. 18 rally by Maritza Osorio, the 50-year San Francisco tenant who faced Ellis Act eviction from a building whose purchase was financed by First Republic.
“I have lived in my building and this community for 50 years,” she said. “Banks who lend to speculators are not investing in our community or city, instead, they are helping remove people from it.”
By contrast, according to federal law, CRA is “intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods.”
Disclosure of distressing business practices is not good for business and for First Republic in the “golden age,” business has been really good.They reported last quarter that “core revenues were up 11.7% compared to last year’s second quarter.”
But, First Republic clearly understands its business plan must also include improving its current low community standing.
In a remarkable twist not often seen at protests, a bank representative actually spoke to the rally at the very end and issued a statement I will quote at length:
“First Republic understands the community’s concerns about the implications of the Ellis Act on tenants. Sensitive to these concerns, we have changed our lending policy to minimize the repurposing of units under this law. If we are aware that the owner intends to utilize the Ellis Act before a loan is made, we will not make the loan.”
In addition, the bank agreed to clarify their new policy in a meeting with protest leaders.
There is no question, I would say, that activism was having an impact on First Republic Bank but organizers warned me about getting too excited.
“We still have many questions,” they cautioned.
In direct response to a new policy announced by First Republic Bank, Paulina Gonzalez, executive director of the CRC immediately released this statement:
“The new policy announced earlier today by First Republic Bank to stop providing so-called “displacement mortgages” to investors has the potential to be good, but lacks details and leaves many unanswered questions.
“We look forward to learning more about the specifics and working out key details when we, our coalition partners, and affected tenants meet with the bank later this week.”
When I again suggested somewhat enthusiastically that this all seemed to indicate some movement, Stein reacted with the calm demeanor and skeptical eye of an experienced advocate – “We can be hopeful but we shall see how much actual progress there is on Thursday,” he told me.
In any case, “we are determined to stop the problem of tenant displacement at its source,” he stated with renewed conviction, “and it all starts with the banks!”