November 13, 2012 Months of being far away from home seem to have made me more patriotic than I have ever been. I now care more about what happens in my country and I simply can’t help but read the newspaper every other day. As I perused through the Kenyan Daily Nation newspaper, a headline caught my attention “US agency in Sh620m test of new land laws”. The content of the story turned out to be a discourse that has become mundane here in the US and Kenya since the Economic recession set in 2007. Home foreclosures and forced evictions have become commonplace and the following tale of several court battles is just the tip of iceberg of what has been happening and is expected in the housing industry.
According to the article, Overseas Private Investment Corporation (OPIC), a U.S Government development finance organization devoted to providing private investment capital, has sued a real estate developer in Kenya. The developer allegedly defaulted on a loan, and OPIC is seeking to auction the developer’s property, valued at $12 million, to recover its $2.8 million investment and interest of about $2.2 million. This is however proving difficult due to provisions enshrined in the newly enacted Kenya Land Act, which bars lenders from unilaterally disposing off property used as collateral in case of default before meeting certain conditions. Already, OPIC’s lawyers have entered into a pact with an investment company willing to purchase the property at $6.2 million. At the same time, the borrower has identified a financier to acquire the land which the property sits on at $9million. He has also filed a case in court on the basis that OPIC is undervaluing the property.
The Land Act is deemed one of the most progressive legislation the country has ever had. OPIC, through its lawyers, is now seeking amendment of the Land law or having that law declared unconstitutional. An astounding 100% of the contested property units had been purchased by clients off plan and they have been waiting for the completion of the development. Given the current circumstances it’s only safe to assume that these aspiring homeowners have lost their investments.
In a different case, residents of Mukuru, an informal settlement in Nairobi, are faced with eviction notices. They have launched a case in court against mighty and powerful landholders who had irregularly allocated slum land to themselves and used the titles as collateral for hefty loans. Residents can only hope that the court will come through for them and give them the right to develop decent homes on the land they have squatted for generations.
The housing story here in the United States is not any different from the Kenyan context despite the diverse development background. The global economic recession of 2008 emanated here in the US, and with it came to light the defects and malpractices in the housing industry that have kept minority families out of homeownership. Monday, October 15th saw the filling of a landmark case by the American Civil Liberties Union against Morgan Stanley alleging violation of the Fair Housing Act. Morgan Stanley is accused of racial discrimination in the secondary mortgage market by pooling and selling securitized mortgages primarily to black neighborhoods. Predatory and subprime lending is understood to be one of the major causes of the recent home foreclosure in the US. Majority non-white households were subjected to subprime loans despite their qualification for prime loans, thus exposing them to the risk of foreclosure. According to an article by Elvin, et. al. at the International Journal of Urban and Regional Research, the share of African-Americans pushed to high cost loans went up from 37% in 2004 to 54% in 2006, while that of Latinos shot from 25% to 46%. Both of these groups are high relative to White households, which increased from 13% to 22% in the same period.
He notes that subprime lending and Wall Street securitization have replaced the local loan sharks and slumlords of old with entrepreneurial brokers and lenders to push high cost credit backed by mortgage companies and other financial investment institutions. The Morgan Stanley case is just one of the many cases that have been reported or should have been held against several investors.
Generally, a large number of borrowers in the US have lost their homes to the foreclosure since the economic downturn began. In mid-2008, the number of homes at risk of foreclosures jumped 57% and bank repossessions doubled. The distressed homes were sold at an average of $161,214, which was 27% below the average market rate.
Owning a home is one of the dreams every family hopes to achieve regardless of their economic status or nationality. Homes account for about 60% of the total wealth of American households. These statistics indicate that middle class households invest all their savings in acquiring a home, and if there is anything to protect, then it should be a home. On the other hand, investors should be able to get back proceeds from investments even after borrowers default. However it is disturbing just how far they can go to recover money, including going for below market prices and evicting families.
As Kenyans take refuge in the Land Act and the new 2010 Kenya constitution, Americans too got a bunch of laws to rely on. In response to ills that led to the recession, the US Government enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. The statute seeks to promote financial stability by improving accountability and transparency in the financial system and to protect consumers from abusive financial services practices. Although the enactment of the 2010 Kenya constitution was in no way influenced by the recession, the laws emanating from it have shown great interest in individual right protection and especially in issues affecting the ordinary Citizen. The discussed court scenarios provide opportunities for these laws to be tested on the delivery of their promise.
It’s the hope of every Kenyan and American that such policies will be used to enhance home equity and the protection of property rights. We can only watch and see how the courts and policy makers will use such tools to rescue those caught up in the complex web of land and mortgage investments.
Keziah Mwelu is a First year master’s student in the Department of City and Regional Planning, UC Berkeley Interested in Urban Development and Housing Policy.