The cost of repairs left Evans strapped for cash. "I could fix the house so the kids would be safe," she explains, "or I could pay the $500 mortgage." While the investor walked away with a hefty profit, Evans now faces foreclosure. And should she lose her home, taxpayers will pick up the tab to pay off her defaulted loan.
Evans is among tens of thousands of low-income homeowners victimized by a scam called "flipping" that is being repeated every day in inner-city neighborhoods from Syracuse to Los Angeles. To resurrect blighted urban areas, the government sells abandoned houses to real estate investors for renovation. But some speculators simply slap on cosmetic repairs and "flip" the properties, reselling them for many times their true value. Because the FHA co-signs the loans, it gets stuck with the bill when homeowners can't pay the inflated mortgages. Last year the agency spent $6.5 billion to bail out 78,890 home loans that went bad-up 30 percent in three years. The foreclosed homes are seized, boarded up, and put back on the market, and the cycle starts all over again.
"We have found flipping scams in every city we've investigated," says an official with the Department of Housing and Urban Development, which recently indicted 41 Realtors, lenders, and appraisers in California. "What has me shaking is that we have these kinds of numbers on defaults and we are in a bull market."
Federal investigators call flipping more lucrative than bank robbery -- but it was mortgage bankers who lobbied to make the scheme possible. Historically, the FHA assigned independent appraisers to inspect houses and set a fair value. But lenders wanted to select their own appraisers. They claimed it would streamline the process. But it would also make it easier to find someone who would ignore shoddy repairs and approve jacked-up prices.
The industry certainly had plenty of clout on Capitol Hill. From 1991 to 1994, lenders handed out $2.3 million in campaign contributions, and the investment paid off. At a meeting of the Mortgage Bankers Association in 1993, the FHA unveiled a "lender select" policy allowing bankers to choose appraisers. The news was greeted by a standing ovation.
Because the FHA supports low-income home buyers with shaky credit, defaults on agency loans have always been above the industry average. But since lenders have been allowed to handpick their own appraisers, investigators say, foreclosures have skyrocketed. In Baltimore, lenders filed 5,000 petitions for foreclosure on FHA loans last year, up from just 1,900 in 1994. In Chicago, 150 homeowners in a single neighborhood are suing a realty firm called Easy Life that they accuse of selling dilapidated housing at inflated prices. In Milwaukee, lawmakers are investigating investors who bought up entire city blocks and fixed prices -- sometimes buying homes for as little as $3,000 and reselling them weeks later for $40,000.
Appraisers are supposed to serve as the FHA's last checkpoint against such fraud. But a review of federal records and interviews with dozens of housing inspectors and federal regulators reveals that some lenders are pressuring appraisers to overlook defects and inflate values. "One guy threatened to break my legs if I didn't pass his house," says Jim Hawthorne, who inspects repairs for the FHA in New Jersey. "Another pulled a gun on me because I wouldn't pass his house."
In one loan document obtained by Mother Jones, a Florida lender added a handwritten note instructing the appraiser to pass a house at a set price -- or pass up the job. "Please do not complete this appraisal," the note reads, "if you cannot get the value I need."
"Lenders and brokers are dependent on each other for their income," says Michael Comstock, a former FHA appraiser in California. "It is pretty well recognized by everyone that this relationship is corrupt."
The FHA is supposed to review 10 percent of all appraisals to ensure that homeowners and taxpayers aren't being cheated -- but sources familiar with the agency say such reviews rarely take place. "There just isn't the staff or the know-how to pull off that kind of thing," says a former official who asked not to be identified.
As a result, lenders are using the federal loan program to cheat the very people it is intended to help. Families "place their trust in someone they thought was an agent of the government, and they get taken for a ride," says Cleary, the housing counselor.
The government has attempted to address the loan crisis by penalizing appraisers and lenders who have disproportionately high default rates. But when a firm called Capital Mortgage and 19 other lenders suspended from the FHA program sued, the agency backed down and reinstated the companies.
"It's the perfect scam, really," says Ira Rheingold, an attorney representing hundreds of homeowners in Chicago. "Appraisers need the work, the real estate agents get their commissions up front, and FHA cleans up the mess. I call FHA the enabler in this scam. There are lots of people preying on poor people, but for the government to approve these shoddy loans is a disgrace." -- Kathryn Wallace
Two Bushes in the Everglades
George W. Bush has rarely encountered a public problem that the private sector, in his view, cannot solve. Now the Republican presidential hopeful wants to unleash market forces on the Everglades. During a campaign swing through Florida in March, Bush made clear he believes the state should involve private enterprise in the effort to save the imperiled ecosystem.
One of Bush's biggest campaign contributors couldn't agree more. Azurix, a Houston-based company formed by the energy giant Enron, has offered to pump millions of dollars of its own money into building reservoirs and storage wells designed to restore the Everglades. In return, the company wants permission to sell the water that supplies 6 million residents of South Florida.
Enron, which controls more than two-thirds of Azurix, is Bush's No. 1 corporate patron. Federal records show that as of January the company had contributed $555,275 to his campaign. In Florida, Azurix officials have already met privately with Governor Jeb Bush, the candidate's brother, to pitch their proposal for privatization.
Everyone involved in the restoration plan agrees that the Everglades are close to collapse. More than half of the original wetlands are gone. The population of wading birds has dropped to 10 percent of what it was a half century ago. Pollution is poisoning fish; tree islands that dot the saw grass prairies are rotting.
Last year, state and federal officials agreed to split the tab on a $7.8 billion plan intended to reverse the environmental disaster and ensure water supplies for the next 50 years. Essentially a giant plumbing project, the plan would capture water flowing out of the Everglades and channel it back into the system, making the wetlands wetter.
Enter Azurix. Last November, company executives met with Governor Bush to try to cash in on the Everglades. They offered to help the state pay its annual $200 million share of the restoration project -- in return for a state permit to sell the water to third parties for up to 30 years.
It was as if a plumber had offered to do an expensive home-repair job for free -- as long as he could slap a meter on the sink. The state water district in South Florida normally grants water permits for no more than five years. Consumers are not charged for the water, only for the infrastructure to clean and deliver it. Under the Azurix plan, customers could end up paying not only for the pipe but for the water as well.
According to Azurix officials, Governor Bush was open to their idea. "Jeb challenged us to be creative," says John Wodraska, managing director of Azurix. A former Florida water official who backed the Everglades restoration plan, Wodraska has also worked to befriend the governor's brother, giving the maximum $1,000 to the Bush presidential effort and $2,000 to Enron's political action committee. As Wodraska sees it, the issue is simple economics. "It's a question of do you believe in market concepts or do you believe in socialism," he says.
But environmentalists worry that the free market will damage the Everglades rather than repair them. If a private company controls the flow of water in the Everglades, they note, it could have a financial incentive to route water to paying customers rather than to replenish the needy wetlands. "The highest bidder gets the commodity -- that's how the marketplace works," says Richard Grosso, executive director of the Environmental and Land Use Law Center in Fort Lauderdale. "Obviously the ecosystem doesn't have a lot of money, so it is going to lose."
The Azurix initiative met with withering criticism when it became public last November. Jeb Bush has taken a wait-and-see approach, and for the moment the proposal appears to be on hold. But given Enron's campaign giving, the company may be hoping for a better reception with a Bush in the White House as well as the governor's mansion.
"The camel's nose is in the tent on this, and I would not assume that the issue is going away," says Grosso. "There is way too much money to be made here." -- Jacob Bernstein
In March, the nation's second-largest insurance company made a startling confession. Aetna admitted that shortly after its founding in 1853, it had insured Southern farmers against the death of their slaves.
The corporate mea culpa was forced by Deadria Farmer-Paellmann, a New York lawyer who stumbled upon the practice while researching her own family history. "It was right there in a book on black genealogy," she says, "listing Aetna as a source for finding your ancestors based on old insurance policies."
Outraged that the company might have profited from slave insurance, Farmer-Paellmann asked Aetna to make restitution by establishing a multimillion-dollar trust for minority education and businesses. Instead, Aetna issued a quick apology. "We express our deep regret over any participation at all in this deplorable practice," the company said in a press release.
Further research has revealed that Aetna is not the only company currently in business that owes at least part of its fortune to trafficking in human lives. Farmer-Paellmann says she has compiled a list of dozens of other companies that she believes benefited from slavery -- in industries ranging from railroads and coal to textiles and tobacco.
Her findings have energized a movement that has long existed on the political fringe. For decades, many black nationalists have argued that the federal government should pay reparations to African Americans for the suffering of their ancestors and the generational aftereffects of slavery. But calls for modern-day taxpayers to fund reparations have generally been dismissed out of hand. "I never owned a slave," Rep. Henry Hyde (R.-Ill.) once scoffed to the Washington Post. "I don't know [why] I should pay for someone who did generations before I was born."
With the acknowledgment by Aetna, the reparations movement can focus instead on corporations that owned slaves or profited from them. Survivors of the Holocaust have used a similar approach in Germany, where major companies -- including Volkswagen, Siemens, Deutsche Bank, and DaimlerChrysler -- agreed last year to pay more than $4 billion in reparations to their Nazi-era slave laborers. Restitution is now a "more mainstream issue," says Adjoa Aiyetoro, an attorney with the National Coalition of Blacks for Reparations in America.
Farmer-Paellmann agrees. "Normally when you start talking about reparations, it's perceived as a black-and-white issue," she says. "This way the issue is not about race, but about companies who benefited from slavery and who owe restitution."
One of the companies that Farmer-Paellmann believes proted from slavery is Fleet Boston Financial Corporation. According to her research, the founder of the bank that later became Fleet made much of his fortune in the slave trade. A Fleet spokeswoman says the company can neither confirm nor deny that assertion. Farmer-Paellmann won't reveal other companies on her list until she's had a chance to approach them herself. But Mother Jones has uncovered documents that indicate Norfolk Southern, a Virginia-based railroad giant with $5.2 billion in revenues, is descended from a firm that profited from slavery. As detailed in a turn-of-the-century history of the Cotton Belt, the South Carolina Canal Railroad Company -- which became part of Norfolk Southern through a series of mergers -- owned dozens of slaves.
"We were marginally aware of it," says Frank Brown, vice president of public relations at Norfolk Southern. "But no one has come to us with anything. If they raised the issue, we would try to give them an appropriate answer."
What constitutes an appropriate response remains the subject of vigorous debate. Despite entreaties to make financial restitution, Aetna maintains that an apology is sufficient. "Our commitment to diversity speaks for itself," says company spokesman David Carter. "We give to the Thurgood Marshall Scholarship Fund, the NAACP Earl Graves Scholarship Fund, and the Arthur Ashe Foundation. Arthur Ashe was even on our board. We don't think we need to do anything beyond this."
Aetna may have the law on its side: The statute of limitations could derail any class-action claims. But Farmer-Paellmann hopes that by exposing the historical practices of corporations on her list, they will feel morally obligated to make restitution. "These companies made money off the blood and sweat of black people," she says. "Just because slavery ended over 100 years ago doesn't excuse them." -- Ron Nixon
August Hellraiser: Reverend Billy
At the height of last year's holiday shopping blitz, a white-collared minister and 30 disciples filed into the Disney Store in Times Square. Equipped with toy cell phones, the Reverend Billy and his followers made mock calls to their children. "I don't know, honey," they fretted in tones sure to be overheard by fellow shoppers. "I mean, I hear they use child labor to make these things." Then the reverend hopped up on a counter and began evangelizing, Jimmy Swaggart style, to the startled clientele.
"There is only one sin, children," he thundered. "Shopping! That utopian jolt you feel when the product smiles up at you -- you are actually at that moment walking in the lake of fire! Mickey Mouse is the Antichrist!" Bedlam ensued. The magic retail kingdom shut down for 45 minutes until police dragged the minister and his merry apostles to the nearest precinct.
Reverend Billy is the nom de guerre of Bill Talen, the charismatic ringleader of an anticonsumerist following known as the Church of Stop Shopping. An actor and veteran of San Francisco's theater scene, Talen founded his comic "church" in 1997 as a vehicle to resist the dehumanizing aspects of corporate culture. Since then, Talen has led two dozen "shopping invasions" of Disney, spreading the buy-nothing gospel.
The collar may be fake, but the issues and the idealism are real: Talen has used his pulpit to rally against sweatshops, fight for community gardens and parks, and protest the privatization of public spaces in New York. Talen regularly preaches mock sermons -- replete with campy gospel music -- and leads his flock in acts of civil disobedience. After a sermon last March, 150 church members watched as several of the faithful hurled paint pellets at an About.com billboard defacing a New York neighborhood.
In the New York of Mayor Rudolph Giuliani, Reverend Billy's art is not without risk. In addition to a mounting arrest record, Talen was recently slapped with $10,000 in fines for the time-honored act of posting notices of his performances on lampposts.
Undeterred, Talen is waging a summer-long revival against Starbucks, delivering sermons at each of the 97 shops on Manhattan. He reserves his most fiery vitriol for Hell's Kitchen and other neighborhoods where he says the megachain has opened unprofitable branches to drive local cafes out of business.
Though he's made powerful enemies, Talen also has admirers. "Reverend Billy's is a much savvier kind of radicalism than anything you would have seen in the '60s," says Jonathan Kolb, theater critic for the alternative weekly the New York Press. "You don't expect this sort of community cohesiveness in acts of civil disobedience in this day and age."
A real man of the cloth puts it more simply. "When it comes down to it," says Peter Laarman, senior minister of Judson Memorial Church, "Reverend Billy is a great preacher." -- Monique Murad