John Green’s Plan to Eliminate Predatory Lending Practices

For more than a century, low-income and moderate-income families across the country have fallen prey to distressed mortgages and land sale contracts—representing about 5% of all housing sales—that strip away the benefits of homeownership and make it harder to build wealth. It’s a problem that John Green, managing principal of Blackstar Stability, wants to address with a comprehensive business model that puts at-risk Americans on a path to homeownership and financial stability.

Blackstar Stability’s revolutionary approach to refinancing and restructuring distressed debt products earned the company a 2022 Ivory Prize for innovation in finance, but Green says the work has only just begun.

PRO BUILDER: Can you give us an overview of what Blackstar Stability does, from development and acquisitions to asset management?

John Green: Blackstar Stability is a real estate investment management company working to expand the ownership of affordable, single-family homes. We focus on properties encumbered by forms of seller financing that are often problematic. In many of those cases, buyers have the obligations of homeownership but not the actual benefits of it. The seller still has title to those homes, but the buyer is responsible for the maintenance, insurance, and taxes.

This is a problem with deep historical roots. It has existed for more than 100 years in this country and it disproportionately affects low- and moderate-income families and Black and brown communities. We focus on purchasing large pools of properties covered by these problematic contracts and work with the families who occupy them to extinguish their existing contracts and replace them with traditional purchase and sale agreements.

During that process, we transfer equity to those families and we’re also able to reduce monthly mortgage payments. If a property is financially underwater, we absorb the negative equity. The difference between being able to actually buy the property is not an issue of creditworthiness or financial wherewithal; it’s just the availability of the loans. That’s a failure we can address.

PB: How severe are the predatory lending practices you’re working to resolve?

JG: We think it’s a more than $200 billion market space. Roughly 5% of all single-family homes nationally that are not renter-occupied are financed through these problematic contracts. Again, it’s a problem that has existed for more than a hundred years, and one we think was resurgent following the global financial crisis.

PB: Is this problem in any way exacerbated by the rate volatility we’re seeing now? How can homeowners and homebuyers avoid the distressed mortgages that Blackstar Stability is confronting?

JG: It absolutely is made harder by the current environment because interest rates are always higher on those smaller balanced loans. But in an environment where risk-free rates have gone up but the risk premiums have gone up as well, what tends to happen is the rates jump and then they just become unavailable. The lenders pull back and aren’t willing to issue those loans because they’re so hard to price.

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When there’s a broad expectation that housing prices are coming down, lenders get nervous that loan-to-value ratios are falling and the loans that were only sparingly available before become even less available. That reduces the capacity for any family to be able to finance and purchase using those loans. It doesn’t matter that your credit is in fantastic shape and you’ve saved up enough and are now ready to responsibly buy a home. You can’t get a loan anywhere and actually pull the trigger.

PB: What is the trickle-down effect of the work that you're doing? How does this initiative ultimately impact the U.S. housing market and the economy at large?

JG: The cost of delivering affordable housing has skyrocketed over the last several years and that doesn't seem to be abating relative to the scale of the demand for that housing. Material and labor costs also haven't come down meaningfully for the delivery of new housing. Meanwhile, there’s a huge, largely unaddressed existing housing stock that exists.

With current market conditions, the investment motive for these properties is fading, and landlords have found ways to to deflect the obligations of addressing any sorts of deferred maintenance issues or investing in these properties or these communities onto renters and contract buyers, and then those buyers and renters have no incentive or capacity to invest in the properties. It hurdles this huge, naturally occurring, affordable housing stock toward a functional obsolescence.

Among the issues that we are addressing is to demonstrate that there are scalable, market-driven ways of serving this population through wealth-building opportunities. We’re also shining a light on the real behaviors of those communities and those borrower cohorts to establish cogent policy for their benefit. The better that's understood, the better the protections that can be crafted around it. The more that we can do to demonstrate that there is a viable market here and that there are clear and market driven ways to serve this population without simply extracting from these communities, the more we can create a proactive environment of crafting solutions.

PB: What has changed since Blackstar earned an Ivory Prize? What’s next for the program?

JG: Another aspect of your question about market volatility is whether it breeds opportunity. We’re trying to look at it as a way of potentially playing offense. Ultimately, the scale and scope of both the problems we confront and the solutions we’re trying to provide are ones that require partnership, so we’re really excited about the visibility the Ivory Prize provides because it has helped us meet so many fantastic companies, entrepreneurs, vendors, and idea generators who we think can be a part of solutions for these communities as well.