AMERICAN PREDATORY LENDING AND THE
GLOBAL FINANCIAL CRISIS
ORAL HISTORY PROJECT
Interview with
Stephanie Johnson
Bass Connections
Duke University
2020
PREFACE
The following Oral History is the result of a recorded
interview with Stephanie Johnson conducted by Clare Holtzman on August 11,
2020. This interview is part of the Bass Connections American Predatory Lending
and the Global Financial Crisis Project.
Readers
are asked to bear in mind that they are reading a transcript of spoken word,
rather than written prose. The transcript has been reviewed and approved by the
interviewee.
Transcriber:
Clare Holtzman Session:
1
Interviewee: Stephanie Johnson Location: Virtual
Interviewer: Clare Holtzman Date: August
11, 2020
Clare
Holtzman: I'm Clare Holtzman,
a J.D. Candidate at the Duke University School of Law. I'm also a research
assistant for the Global Financial Market Center's, American Predatory Lending
Project. It is Tuesday, August 11th, 2020. I'm conducting an oral history
interview with Stephanie Johnson, currently Managing Partner with Khoury
Johnson Leavitt, who has joined me through Zoom. Thank you for joining me
today.
Stephanie
Johnson: You're welcome, thank you.
Clare
Holtzman: I'd like to start
by establishing a bit about your background. Could you tell me about your
educational background?
Stephanie
Johnson: I have a business degree
and a minor in marketing. [I] did a semester in London [I was a] foreign
exchange student there, and studied corporate finance, and pretty much went
directly into lobbying from school.
Clare
Holtzman: And where did you
go to school and when were you attending?
Stephanie
Johnson: Davenport University, and
I attended boy, when did I graduate? . . . [T]wo thousand.
Clare
Holtzman: . . . And in the
context of your work life, when and how did you first become involved with
residential mortgages?
Stephanie
Johnson: I was the lead lobbyist
for an organization called the Michigan Advocacy Project; . . . part of their
charge was consumer advocacy in Michigan. And, it included a number of attorneys
that were employed by the Michigan Poverty Law Program. And so that's how I got
into the whole issue of predatory lending. [O]bviously
legislation had been introduced, and [predatory lending] was a real problem in
Michigan during those times. During the mid to late nineties, the banks were
giving loans like they were candy, and they started seeing the effects of that
during that early two thousands, 2004, ‘05, ‘06 period of time; [that] was when
it really started and seemed to hit Michigan really hard, [the] economy
obviously tanked. Here, we are—at that time, much more so than now—very heavily
dependent on the auto industry. And as factories were shutting down, and layoffs
were occurring more and more, people were either underwater in their mortgage
based on the housing market crash, and, or simply lost employment and were not
able to maintain their mortgage.
Clare
Holtzman: Can you tell me a
little bit more about the two organizations you mentioned, the Michigan
Advocacy Project and the Michigan Poverty [Law Program]?
Stephanie
Johnson: Michigan Advocacy Project .
. . was a project formed out of the Michigan Poverty Law Program. Michigan
Poverty Law Program is based at the University of Michigan in Ann Arbor. And
they . . . had five legal issue area focuses. They had family law, public
benefits, consumer law, housing law, and elder law. And so, they covered a
range of issues, with the focus of how they impact the low-income community and
those who are at the poverty level. And so, obviously from the consumer
perspective, Lorray Brown was the individual that led
the consumer law arm of Michigan Poverty Law [Program], and is a phenomenal
consumer attorney here in Michigan, particularly with the focus on how things
impact low-income consumers.
Clare
Holtzman: Can you talk a
little bit more as well about what you did with them specifically?
Stephanie
Johnson: I lobbied for them, for
the Michigan Advocacy Project, I was their lead lobbyist. I at the time was a
multi-client lobbyist. I was a partner at a firm called Capitol Services. And so,
I was their advocate in Lansing and helped navigate the political waters with
them, on behalf of their interests, which was again, low income consumers in
the issue areas that I outlined.
Clare
Holtzman: How would you
characterize . . . the key changes in the Michigan mortgage market between when
you first became involved and 2008?
Stephanie
Johnson: Well, obviously everything
tightened up, the feds got more involved, the banks learned some hard lessons,
the predatory lenders, the states in general cracked down on them. [W]e did
pass a Mortgage [Loan Originator] Licensing Act[1] during that time[2]. I don't know exactly what
impact that had, but I think it did help some. The concern I had, at the time,
was it was just kind of a shift of blame, where the companies were really
pushing these individuals to sell these products, and it was a way to kind of
shift the blame to the individual selling the product, and not necessarily the
company who was really employing these individuals, knowing the tactics they
were using, and condoning the tactics that they were using.
Obviously with the housing bubble,
a lot of banks were left holding the bag. They couldn't unload these foreclosed
homes. I witnessed where when . . . a home was foreclosed on, obviously the
utilities got shut off, sometimes the banks didn't have the best property
managers, so the homes would get destroyed by water. If the sump pump wasn't
working anymore, the basements would flood, and then . . . there was even more
substantial damage to the home, which made it even more difficult to unload. So,
I think there was a whole host of things, not just legislation or law. And in
Michigan, we were not very successful in passing the strongest predatory
lending legislation. And we really got tremendous resistance, and we didn't
have a political climate that was really helpful to us on this. So, we were
able to get some minor things implemented, but not the broad sweeping change
that we were really advocating for at the time, but because of other economic
dynamics, the noose tightened on a lot of these bad practices, and they went
away a lot, without the legislation, frankly.
Clare
Holtzman: I believe you were
involved as well with the Center for Responsible Lending. Can you talk about
when you became involved with them?
Stephanie
Johnson: Well, I wasn't involved
with them per se, only to the point that, Lorray
Brown, the woman who was the lead consumer attorney here in this state, she
reached out to them and they provided a lot of additional support to us. A lot
of data, a lot of studies. [W]e would have several phone conversations, I know
that much, and if I'm not mistaken, they did provide testimony, in the state as
well. So, they were a huge resource for us in going down this road in trying to
craft legislation that had some teeth behind it, frankly. You know a lot of
states—and Michigan was no different—[were] very interested in passing
predatory lending legislation, but not necessarily legislation that did
anything. And so, we were really pushing hard to have something with some teeth
to it. And . . .that was a very difficult fight for us. Hugely difficult.
Clare
Holtzman: Can you talk a
little bit more about that? [S]pecifically the
difficulties.
Stephanie
Johnson: Well, we wanted to hold
these lenders accountable. We wanted to provide longer notice requirements. We
wanted to provide longer redemption processes, for individuals who were going
through a foreclosure. We wanted to tighten up what banks could and could not
do, and what they should provide to the consumer. We were having people
foreclosed on and they didn't really even know, I mean, they knew that there
was trouble, but they had no idea [that] there was going to be a sheriff sale
in three days, until they had a notice pounded on their door. [S]ome of these companies in Michigan—. . . we have a
requirement where you have to advertise the foreclosure in the paper, and they
would pick obscure papers that nobody was reading, and . . . that would meet
the requirement of a notice requirement for some of these individuals.
So, we
really worked hard on a number of things, and to allow consumers an opportunity
to enter into repayment agreements that were sustainable long term, and that
would give them an opportunity. Because again, this was something that really
impacted communities in several ways. It took property off tax rolls for local
governments that were struggling in trying to provide police and fire
protection and everything else. It degraded neighborhoods when a property was abandoned,
and it was no longer being cared for. And so, the appearance and everything
created some real issues. Having a city like the City of Detroit, for instance,
[that] had a huge foreclosure problem, having so much vacant property just
really hurt the community…. And so, we were trying to—the goal was . . . to
allow for opportunities to give people a chance to stay in their home, not to renege
on a mortgage obligation, that wasn't the problem—people . . . had a mortgage
that needed to be paid—but to negotiate with the lender in a way that would
allow . . . both parties to win to some degree, where the lender was still
getting the money, but the individual property owner still had a chance to make
the payments at a different rate, so they could stay there.
Clare
Holtzman: …[H]ow [did] the
Michigan Advocacy Project … find out about some of these issues?
Stephanie
Johnson: Well, again, we were
heavily tied to the Michigan Poverty Law Program, and so they had cases, they
had individuals, we worked in coalition. We would team up with other housing
and community advocates as well, who had stories…. We had people come to
Lansing and testify to their . . . situation firsthand. But . . . it was not
enough, you know, it's hard to get people to come forward and talk about that,
it’s hard to get people in Lansing if they're coming from a distance away, it's
hard to get them to come to Lansing at ten in the morning, when they have a job.
So, there's all kinds of obstacles in getting individuals to come and testify
to their personal experience. But we had those cases, we had the numbers, . . .
from the Center for Responsible Lending we had further data. [W]e had a lot of
the background that we needed in order to provide a story and to show something
tangible about the problem.
Clare
Holtzman: What stakeholders
did the Michigan Advocacy Project see itself as representing?
Stephanie
Johnson: Well, we represented
low-income consumers. We were the consumer advocacy arm. We were probably one of
the only—other than maybe CEDAM [Community Economic Development Association of
Michigan] . . .. [T]hroughout the course of the
advocacy on this, other groups formed, they were kind of loosely formed. And
again, they had more stories and more personal pieces to share. None of them
lasted very long and they were sort of loosey goosey
as far as their organization structure. But other people did get involved, but
. . . our focus was always on the low-income consumer, the individual who may
have entered into one of these loans without all the information, without all
the facts, maybe [they were] even purposefully misled into thinking that these
were good loans. And then the underwriting processes that were nonexistent,
frankly, at the time. So, we represented the individuals, consumers.
Clare
Holtzman: In what ways did
you engage with decision makers within state government?
Stephanie
Johnson: Well, I was a lobbyist, I
was directly [involved]. Meeting, after meeting, after meeting, distributing
reports, all the processes that you would go through when you're . . . doing
legislative advocacy and hardcore lobbying, so to speak. I mean, we were
present at all the committee hearings. We were there to testify and there were
numerous work groups, which are processes that take place behind the scenes
that are just shorter committees, where all the stakeholders get in a room and
try to negotiate agreements on legislation. We did it all, we talked with the
Michigan Bankers Association almost on a daily basis, we were always trying to
find common ground with them and figure out a way to get the results we wanted.
You know, the legislative process is give and take, and we were right in the
middle of all of that, throughout the whole process. We worked with both state
representatives and state senators, as well as the Governor's office, as well
as the department within the state that deals with insurance and financial services.[3] We did it all.
Clare
Holtzman: Can you talk a
little bit more about how your organization was responding to the changes in
the mortgage market during the two thousands?
Stephanie
Johnson: Well, we didn't see any
changes for a long time, right. The bubble burst, and we were trying to clean
up the aftermath. And again, that was trying to create some better notice
requirements for when a property was being foreclosed on, trying to require
lenders to negotiate alternative payment plans with mortgage holders, giving
them a structure in order to do that under, so it was fair and uniform, all of
that, those redemption plans, all of that, we were in the process of. Obviously,
we came to the table when we all found out this was a problem. I think in the mid-nineties
and late nineties, there were people who were forecasting some future issues
with that, but the loans were happening, and people were in on them and they
were accepting them.
And,
it wasn't until the two thousands that . . . everything came to a head. So, we
were constantly responding to the here and now, not necessarily preparing or
not necessarily, well, we didn't have the advantage to do anything to stop it, it
had already happened by the time we were involved. So, we were trying to clean
up the mess and figure out ways of how we can keep the property in the
purchasers hands, allow them some flexibility in how they can pay it back, and
keep the property with a resident in it [so] that [it] was being cared for, and
that the communities would get the property tax based off of it, so they can
also provide the services they need to provide that everybody depends on.
Clare
Holtzman: Just for
clarification, what was the period of time that you were working with the
Michigan Advocacy Project?
Stephanie Johnson: I worked with them from . . . early in 1999 to about 2014.
Clare
Holtzman: [C]ould you talk a little bit more about the specific policy
adjustments you were pursuing whether involving monitoring, enforcement, or
changes to regulations?
Stephanie
Johnson: All of the above. We tried
to create some enforcement mechanisms. Again, that was one of the real
challenges, that was one reason I believe the response to having the mortgage
brokers license came about, was that it was a way to appease us on the
enforcement piece of it, even though that's not really what we were targeting;
it was the companies, and we wanted to hold them financially responsible when
they did not follow the protocol that we were advocating for. We wanted to
require them to enter into some sort of mitigation process with the mortgage
holder. We were working on steps that the mortgage holder needed to take in
order to qualify for a mitigation process. We were trying to set up criteria
for the mortgage companies to adhere to. One of the challenges we had with all
of that though, was these mortgage companies were bundling and selling these
loans so fast, sometimes it was really hard to hold them accountable on that
front, there were a lot of complicating factors involved in that. But you're
asking me to think back 10 years ago and I'm having a hard time, but yeah we
tried to do all of the above and then some, I mean, there was no stone unturned.
And this was man, we advocated on this for probably three or four years. It was
a long time, very long time.
Clare
Holtzman: Did you mean [you
worked three or four years] on that specific bill?
Stephanie
Johnson: No. Well, . . . there [were]
pieces of things that were passed along the way, but never a whole package.
And, well there was the first foray at it, it all fell apart. We were gaining
some ground, we had some good champions on our side, as far as the legislature
went. But at least in one chamber, and then another chamber, we didn't. So,
they ran the clock out on us, and the bill died, so, we were right back at the
table again. And all during this process, we were dealing with predatory
lending, but we also had thrown into the mix, the whole payday lending piece. So,
we were trying to work on the payday lending process, and create some rules and
some accountability in that, because payday lending in Michigan was sort of the
wild west, they could do anything they wanted. And then predatory lending came along,
and we were spread pretty thin across the board on all of those issues.
Clare
Holtzman: Can you talk a
little bit more then about the predatory lending reform and about the
challenges?
Stephanie
Johnson: Well, obviously the
banking industry was a huge challenge. The mortgage brokers, they had their own
association, even bigger challenge. They, how do I put it— the fact that they
had all that flexibility, they did not want to give [it] up. They did not want
to give up any of the ground that they had gained by all of the curbing and the
lessening of the restrictions over time that sort of opened the door for
predatory lending. And then banks are also, there's a challenge between, there's
state laws that they have to abide [by], but then there's federal laws that
will trump state laws. So, . . . they would kind of go back on those federal
laws quite a bit with us. But they didn't want any. . . restrictions placed on
their business and their business model. And then the mortgage brokers were
twenty times worse. And the banks were, sometimes, trying to give the
impression that they were the clean ones in all this, it was after it was
bundled and sold off that the real problems would occur, or it was these
mortgage brokers and these mortgage companies that were the real problems. They
weren't the problem. And in some ways, I don't think that that was necessarily
wrong, but they were unwilling to place any restrictions on them that
would impact the mortgage business, that would curb this. So even though they
may not necessarily be doing it, they didn't want to have anything passed that
would prohibit them from doing it.
And not because they wanted to,
but because they just don't want regulation. They didn't want any more
regulation. Everything was all about regulation. And, they argued a lot that
these were intelligent people that entered into these mortgages, knowing full
well what they were getting into. And they were clearly explained [to] what a
balloon loan was all about. And that they ought to have the right to enter into
these types of arrangements, if that's what's best for them. They made those
arguments. We had a situation where there was a very large law firm, that
specifically handled mortgage brokers and mortgage companies, that was a very
high donor to a committee chair that we had to go through, which was a huge
problem. And it was just basically consumers wanting more regulation, business
entities saying no regulation. And we were in a Republican environment, with a
Democratic governor. It didn't get any more complicated than that, frankly.
Clare
Holtzman: What kinds of
strategies were you utilizing to try to work through some of these challenges?
Stephanie
Johnson: A lot of grassroots, lot
of grassroots, a lot of data and statistics, a lot of trying to convince people
the economic harm, not just to the individuals—everybody knew there was
economic harm—but the community impact that these foreclosures were having, and
to convince them that there were ways that we can mitigate this without
breaking the bank, . . . without people not fulfilling their obligations under
a contract. And in the process say, there are certain practices here that
should never be done again, and we want to make sure that we have statutes in
place that guard against that.
Clare
Holtzman: What were the key
stakeholders involved in working on the bills you were supporting and in
lobbying for their passage?
Stephanie
Johnson: Again, it was primarily Michigan
Advocacy Project. We were the key stakeholder. Period. We had others—CEDAM—and
there were other nonprofit groups that had formed around the issue. Again, they
were all very loose. But we became, Michigan Advocacy Project was it, we were
the cat's meow. It was really a David [and] Goliath type situation.
Clare
Holtzman: Can you talk a
little bit more about that?
Stephanie
Johnson: Well, I mean, we were up
against all the big business, right, all the big banks, we were up against the
credit unions to a degree. I mean, they were a little less active because
they're credit unions, right, they’re so much better than all this. I said that
sarcastically. But we were up against the big mortgage companies, the big law
firms that represented the mortgage companies, the big mortgage broker
associations, as well as the Michigan Bankers Association. And then it was us,
essentially. And again, we had CEDAM . . ., sometimes AARP [American
Association of Retired Persons], they'd jump in and out. Boy, those are the
only ones coming to mind right now.
Clare
Holtzman: And so, to what
extent do you see the efforts in Michigan to accomplish anti predatory lending
reform as successful?
Stephanie Johnson: Well, . . . for a short while we were able to get
legislation passed that allowed for a mitigation process [90-day law][4]. It
expired, it had a sunset on it, and we were not able to get that renewed. But
there was a period of time where people had the ability to reach out to their
lenders and work out an agreement on repayment. So that was huge, that was a
big win considering the dynamics that we were under. And we worked that
agreement out with the Michigan Bankers Association, we all came to agreement
on that. We could not get an agreement to extend that, but it lasted for two
years, and, that was the end of it. I think that was probably one of our bigger
accomplishments.
Clare
Holtzman: . . . Over the last
decade, we've seen a number of different narratives emerge to explain the
financial crisis. How do you understand what caused the crisis?
Stephanie
Johnson: Well, I think that . . .
the economy was going so well, the housing prices . . . were
rising exponentially, the values of them were rising much faster than what
reality was showing. But because we had the Dot Com era, and the stock markets
were going so well, and unemployment was very low, everybody just started to keep
going, going, going. So then as these values kept increasing, people had more
equity and so they could borrow more and they would extend that equity, you
know, they would borrow up to a hundred percent of their equity. There were a
number of federal regulations and things that were lessened or laxed to allow
for this, the basic general principles of history and background on income and
everything. . . . [U]nderwriting processes . . . that
were well established and generally followed, just all those kind of went out
the window, right, because everybody was doing so well. Then, because of that,
you also had . . . the opportunity for fraud to really play a significant role.
Housing values were artificially increased so a person could meet the criteria
needed to get that loan. Then the whole process, the balloon payments, and
consumers were like, “Well, that doesn't sound so bad, I can now have the money
at the end of the loan. Okay, that'd be great. I can do that.” And it was
really sold to them very aggressively. And again, I think probably fraudulently
in many ways.
And then all of a sudden, a lot of
things came to a screeching halt. And in Michigan, especially, I think you can
see, we felt the effects of— if you look through other data points [and] researched
it, Michigan was sort of disproportionately hit harder than other states
because of our economy based largely on manufacturing, and manufacturing just
went down the drain. And all of a sudden, a lot of people were in trouble. [Even]
if they could make their mortgage payment, they were still upside down on their
mortgage. So, you couldn't even unload your home for what it was [worth], what
you owed on it. And it all came to a head, it all came to a head very quickly
and it appeared to be pretty much at once. It was really sad. It was really,
really, really sad. And the number of foreclosed homes was unreal. Something we
had never really seen before.
Clare
Holtzman: To what extent do
you see your personal experience as adding something important to our
understanding of what happened in the run up to 2007 and '08?
Stephanie
Johnson: My personal experience?
Well, you know, I guess I came from a fairly humble background. My dad worked
in the auto industry and my mom worked in a factory, and they were always
extremely careful with their finances and there wasn't a lot of extra finances.
And I think that, although we never went through that as a family, thank
goodness, I had a way I really related to the people who were facing these
situations, and the anger and the desperation and the hopelessness, . . . where
you work so hard all your life, and then you have the one treasure—most people
their greatest, their most valuable possession is their home, no matter how big
and how modest it is, it's usually their most valuable possession. And to see
them struggle to keep it, and lose it, and have families that are displaced—it
was, it was really sad, very hard, very hard.
Clare
Holtzman: And can you talk a
little bit as well about your personal experience, within the context of your
work, and where you see that as adding to our understanding of what happened in
the run up to 2007 and '08?
Stephanie
Johnson: Well, it taught you that
no one's immune from the circumstances, it happened to people that were, [in a]
much higher economic situation than—it didn't just impact low income
individuals who struggle, and kind of that paycheck to paycheck— well I guess
it also showed that even higher income people are living paycheck to paycheck. It
really hit home. There were engineers that were getting six figure salaries who
were standing in line at the food bank and couldn't find work. They had
master's degrees in education, and they were accepting jobs that were being
filled by high school people just to get some money coming in. It really
drilled home to me that nobody's immune and this could happen to anybody. And
it did. It happened to people that you did not expect it [to]. And I
represented the Food Bank Council—and still do—at the time. And these stories
of people going to their facilities for help, for assistance, were crushing. And
again, these were people who never had to go to a food bank before in their
life. They had great jobs, they worked, they had nice homes, they had good cars—and
they were losing it all.
Clare
Holtzman: Looking back on the
crisis over a decade later, what do you see as its most important lessons for
state level policy makers?
Stephanie
Johnson: Not to get lax on
regulation. I mean, companies, businesses, there's regulation for a reason. And
granted it can, you can overregulate, there's no question about it. But regulation
is not bad. How it's applied, and is it regulation that makes sense? Those are
fair questions, and those are things that always need to be examined and
studied, but regulation is needed and it's necessary. And, sometimes, you do
have to protect people from themselves. And that was a huge argument, where
people ought to have the right to enter into these loans. Well, maybe not.
[END OF
SESSION]
[1] Mich. Pub. Act No. 75 (2009), http://www.legislature.mi.gov/(S(r1tov3pdc4ehjbkendqbbahw))/mileg.aspx?page=GetObject&objectname=mcl-Act-75-of-2009#:~:text=AN%20ACT%20to%20provide%20for,and%20officials%3B%20and%20to%20provide.
[2] 2009
[3] Michigan Department of Insurance and Financial Services
[4] Brenda Long, “Changes in Michigan’s Foreclosure Law,” MSU Extension, February 3, 2014, https://www.canr.msu.edu/news/changes_in_michigans_foreclosure_law (accessed Aug. 24, 2020).