Philadelphia Sheriff John Green, who bills himself as “the People’s sheriff,” decided in the summer of 2003 that the extraordinary mortgage foreclosure crisis rampaging through the city required unprecedented action.
By early 2004, more than 1,000 constituents each month were facing the prospect of losing a home or property to sheriff’s sale. So Green summoned the major lenders to Philadelphia and invited every homeowner facing a sheriff’s sale within the next 30 days to come meet with their bank or a housing counselor.
Many of the national lenders’ sent help in the form of a loss mitigation team – men and a few women dressed conservatively in dark colored business suits. They arrived with colorful, beautifully-written brochures and sat them on tables at the back of the room at the Pennsylvania Convention Center.
As homeowners entered from the rear, they saw the bankers seated beside piles of documents and briefcases. They walked right on past them. I urged a few folks to go back and begin a conversation to save their homes. “No way,” each homeowner said. The jeans- and T-shirt-wearing homeowners were suspicious of the out-of-towners who had arrived in clothing that suggested: “We are NOT the guy or girl next door.”
Good intentions alone can’t save homes. Cities need homeowners, housing counselors, foreclosing attorneys, public officials and loan servicers who are willing to reach across the cultural fault lines, manage their biases, and learn quickly how to forge multi-ethnic partnerships and alliances. The good ones – lenders and counseling agencies - learned this quickly and immediately began to think outside the box. The vast majority of companies were slow to change, however, and adapt to these cultural challenges.
Long before the financial services implosion, urban cities such as Philadelphia watched in horror as property values fell in poor and minority neighborhoods, crushed under the weight of predatory lending and home equity debt. It was a frightening preview of the human suffering and economic pain that was headed straight for Main Street but most folks were too busy spending and making money to notice.
As the coordinator of Sheriff Green’s foreclosure prevention task force, I had a front row seat as the drama unfolded. I would like to share some of the challenges, all of which make the case for having diverse decision-makers.
Diversity Matters: One night, I spoke at a forum designed to protect the remaining real estate wealth in African-American communities. After telling residents briefly about Sheriff Green’s efforts to help residents in foreclosure, I asked if there were any questions. “What’s a foreclosure?” a curious homeowner asked. Homeowners taught me many useful lessons: Use real stories about people to illustrate points and explain legal terms in plain English. Ask audiences what they need instead of telling them what you have to offer. In Philadelphia, 9 out of 10 people sent in to respond to the early crush of foreclosures in minority areas were white. In Philadelphia, 70 to 80 percent of the residents who sought help from our task force were African Americans, Asian Americans and Hispanics. The cultural disconnect hindered communication and increased anxiety for those seeking workout agreements. According to the research, up to 50 percent of homeowners in financial trouble never bother to contact their mortgage companies. We found even homeowners who spoke English often needed a translator to help them understand the legal instructions and lenders’ offers for assistance. The polished, culturally appropriate sales pitches used to market high-risk loan products to minority neighborhoods were not evident in the loss mitigation and risk assessment divisions. This serves as a useful reminder that diversity must be integrated into all business functions.
Community Connections: If you are failing, chances are your customers know why. Non-profit mortgage counselors held the only lifelines of hope for many homeowners, yet the loan servicers and housing groups rarely met to discuss how they might work together to eliminate barriers and challenges. One of the biggest complaints we heard: “Counselors don’t know who to call to get the workout process started.” As mortgage companies and loans were sold and resold, many homeowners and counselors told us they had to walk through legal mazes to determine who owned a loan, which lengthened the process and increased the counseling costs. (Most nonprofit counseling agencies received a fixed rate for counseling individual homeowners.) The housing counselors repeatedly asked the financial services industry to provide lists of contact numbers for loan servicers and spreadsheets detailing company mergers and ownership. In Philadelphia, a compassionate attorney handling foreclosures finally put a list together and distributed it to local counselors. When we first convened out task force, several of the housing counseling groups asked for an opportunity to talk one-on-one with lender representatives so they could understand their culture and work more effectively with their agents.
Governance: The financial implosion occurred in poor and minority communities long before Middle America. If senior managers had been more reflective of the national population, would the dangers have been more fully debated earlier? Congress has been extremely concerned about the low diversity levels in the financial services sector. On Feb. 7, 2008, a subcommittee of the House Financial Services Committee conducted a hearing to determine why the industry seemed to having great difficulty diversifying mid-level and senior-level management. This followed two Government Accountability Office reports that found from 1993-2004, and again in a 2006, that diversity levels had not changed substantially, despite new diversity councils and initiatives to promote inclusion. Property values in minority communities began to fall years before those on Main Street, yet the companies continued to invest heavily in marketing high-risk loans and developing risky products. During that period, loss mitigation departments were complaining they had to claw to get corporate resources. (Increased funding for loss mitigation won’t necessarily result in higher profits so it is not a priority, one executive explained to me.) Homeowners complained the lender’s phone lines were busy and that the staff in the loss mitigation departments changed constantly. In many cases, they talked to a new homeownership preservation agent each time they called. Homes could be saved but you had to have the right people working together. In Philadelphia, roughly a third of the cases filed with the sheriff’s office actually resulted in a sheriff’s sale back then. In the other cases, homeowners sought protection in bankruptcy court or were able to negotiate a loan workout agreement. The quality of the housing counseling group made a big difference.)
Bias: Racial or gender bias can impair decision-making. The NAACP filed a lawsuit alleging that many major banks unfairly targeted minority customers and offered these customers less than their best rate. The question of bias is a real one that all companies need to consider and address. Although computerized scoring removed bias from the loan approval process, the door was left often to customer bias in many other areas. The question of bias is also relevant in regards to promotion and staffing issues.
As executives and business leaders begin to sort out what went wrong and why, diversity officers need a seat at that head table. Could we have slowed the pace of foreclosure and saved more homes and jobs if we have leveraged diversity and used it to help assess risks and create intervention programs when the market first began its downward spiral?
Diversity is not the decorative paint adorning the wall. Rather it is an architect’s tool that designs cutting-edge facilities and ensures they are strong enough to withstand 100-year storms.
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