Life by Algorithms: How Roboprocesses Are Remaking Our World - Softcover

Softcover

ISBN 10: 022662756X ISBN 13: 9780226627564

Publisher: University of Chicago Press, 2019

Synopsis

Computerized processes are everywhere in our society. They are the automated phone messaging systems that businesses use to screen calls; the link between student standardized test scores and public schools’ access to resources; the algorithms that regulate patient diagnoses and reimbursements to doctors. The storage, sorting, and analysis of massive amounts of information have enabled the automation of decision-making at an unprecedented level. Meanwhile, computers have offered a model of cognition that increasingly shapes our approach to the world. The proliferation of “roboprocesses” is the result, as editors Catherine Besteman and Hugh Gusterson observe in this rich and wide-ranging volume, which features contributions from a distinguished cast of scholars in anthropology, communications, international studies, and political science.

Although automatic processes are designed to be engines of rational systems, the stories in Life by Algorithms reveal how they can in fact produce absurd, inflexible, or even dangerous outcomes. Joining the call for “algorithmic transparency,” the contributors bring exceptional sensitivity to everyday sociality into their critique to better understand how the perils of modern technology affect finance, medicine, education, housing, the workplace, food production, public space, and emotions—not as separate problems but as linked manifestations of a deeper defect in the fundamental ordering of our society.

Contributors
Catherine Besteman, Alex Blanchette, Robert W. Gehl, Hugh Gusterson, Catherine Lutz, Ann Lutz Fernandez, Joseph Masco, Sally Engle Merry, Keesha M. Middlemass, Noelle Stout, Susan J. Terrio

About this title

About the Author

Catherine Besteman is the Francis F. Bartlett and Ruth K. Bartlett Professor of Anthropology at Colby College. Hugh Gusterson is professor of international affairs and anthropology at the George Washington University.

Excerpt. © Reprinted by permission. All rights reserved.

Life by Algorithms

How Roboprocesses Are Remaking Our World

By Catherine Lowe Besteman, Hugh Gusterson

The University of Chicago Press

Copyright © 2019 The University of Chicago
All rights reserved.

ISBN: 978-0-226-62756-4

Contents

Introduction: Robohumans Hugh Gusterson, 
Categories, 
1 Automated Expulsion in the U.S. Foreclosure Epidemic Noelle Stout, 
2 Roboeducation Anne Lutz Fernandez and Catherine Lutz, 
3 Detention and Deportation of Minors in U.S. Immigration Custody Susan J. Terrio, 
4 A Felony Conviction as a Roboprocess Keesha M. Middlemass, 
Emotions, 
5 Infinite Proliferation, or The Making of the Modern Runt Alex Blanchette, 
6 Emotional Roboprocesses Robert W. Gehl, 
Surveillance, 
7 Ubiquitous Surveillance Joseph Masco, 
8 Controlling Numbers: How Quantification Shapes the World Sally Engle Merry, 
Afterword: Remaking the World Catherine Besteman, 
Acknowledgments, 
Notes, 
Contributors, 
Index, 

CHAPTER 1

Automated Expulsion in the U.S. Foreclosure Epidemic

NOELLE STOUT

More than fourteen million Americans have lost their homes to foreclosure since the subprime mortgage crash of 2007, the highest rate of bank seizures in national history. Just one year into the crash, one in every 520 homes in the United States was in foreclosure. These rates were doubled in high-growth states such as Arizona, California, and Florida, where entire residential streets suddenly stood vacant. Major cities, once thriving, were forced into bankruptcy. Homelessness surged, and tent cities grew overnight. In analyzing the devastating consequences of the mortgage debacle, scholars and journalists have fingered the failures of greedy financiers, incompetent financial institutions, government agencies, and American homeowners living beyond their means. This emphasis, however, occludes an analysis of the everyday mechanics that triggered unprecedented dispossessions — in particular, how the rise of algorithmic and automated processes has shaped contemporary dispossessions.

In the wake of the crash, a dynamic interplay between automation and expulsion has emerged as calculative systems were imbued with the illusory authority of objectivity, displacing human actors and defying common sense. In this chapter, I show how the automated processes exemplified by the governmental–private-sector loan modification bureaucracies established in 2009 and the robosigning scandal emerging in 2010 systematized and standardized the foreclosure process. New systems designed to maximize efficiency and thus profits for investors often introduced rampant errors, prevented humane decision making, and punished those homeowners who most qualified for mortgage assistance. To illustrate how automated processes have led to unparalleled numbers of bank seizures of American homes — in the millions — I draw on long-term research beginning in 2012 among homeowners applying for loan modifications and the lending employees processing their appeals in California's Sacramento Valley, one of the hardest-hit regions in the nation.

Here I focus on the automated systems that have enabled millions of foreclosures, but it is important to recognize how similar algorithmic processes played a significant role in the expansion of high-risk subprime lending and the Wall Street financialization of U.S. mortgage markets that led to the 2007 mortgage crash. Wall Street investment firms used technological innovations to relax underwriting standards that determined a mortgagor's qualifications. Within months after a new homeowner signed a subprime mortgage contract, mortgage loans were bundled into collateralized debt obligations and sold as securities in a secondary derivatives market, which relies on algorithmic technologies to trade in contracts, such as futures and options, based on other assets. The pools of mortgages would be divided into tranches, often organized around their risk level. Through this reselling, high-risk subprime loans were mislabeled as safe investments and enmeshed in high-value stocks in retirement and other investment funds. At each step in the process, investors and loan officers depended on algorithms and automated systems to transform mortgagors and their long-term debts into abstract payment streams.

In a system where incentives depended on commissions and transactions, lenders and mortgage brokers could take advantage of so-called creative mortgage products — technologically driven formulas that produced mortgage loans — while deferring the decision making, and the responsibility, to automated systems. Pressured to keep up with Wall Street's demand for mortgage loans to feed secondary markets, many brokers and lending employees pushed high-risk, high-interest loans on mortgagors who would ordinarily not qualify for them. Underwriting algorithms allowed borrowers to qualify against their best interests, such as elderly couples living on fixed incomes who were convinced to take a second mortgage on a home that was already paid off. Other homebuyers who qualified for conservative, fixed-rate mortgages with lower interest rates were duped into taking high-risk loans with introductory teaser rates that would balloon within a matter of years because commissions were higher for these subprime products. Meanwhile, mortgage brokers and lenders exposed themselves to little risk: within months the mortgage loan would be securitized and sold on a booming derivatives market. What's more, when the scheme collapsed, Wall Street investors correctly surmised that a government bailout would rescue them.

Whereas before the 2007 collapse, automated underwriting standards were relaxed to saddle homeowners with loans they could not afford, after the crash, different algorithmic formulas forced millions of homeowners seeking to modify their loans to default. At first glance, these foreclosures might seem straightforward: a homeowner falls behind on mortgage payments and a lender seizes the home, which served as collateral for the loan. But in the aftermath of the crash, lenders and loan servicers employed algorithms to determine whether to proceed with evictions and relied on automated protocols to carry out bank seizures that are anything but commonsensical. According to many bank employees adjudicating these processes, before the use of these automated systems, employees had more leeway to decide the worthiness of homeowners seeking assistance. Lauded for their ability to limit human error and increase efficiency, these automated practices have triggered the dispossession of millions of Americans, embroiling mortgagors in byzantine dramas leading to illogical outcomes and ethically suspect home seizures.

The Maze of Loan Modification

With plans to expand their family, Susan and Rick Condit, a white married couple in their late twenties, purchased a modest three-bedroom home in a lower-middle-class Sacramento suburb for $250,000 in 2006, at the height of the market. Their monthly mortgage was a stretch, but they cut back on expenses to cover their payments. By 2009, as mortgage markets collapsed, their home was worth less than half of the amount they paid, with no hope of recovering its value. Due to severe California state cutbacks during the Great Recession, Susan lost her job as a first-grade teacher in the public schools. Rick, who had made a decent living installing air-conditioning units in new houses during the construction boom, found work drying up as the mortgage crash took its toll on housing stock in the region. Shortly thereafter, Susan gave birth to their second daughter, who was diagnosed with a severe cleft palate. No longer able to rely on Susan's health insurance, they amassed hefty insurance bills to cover their daughter's corrective surgeries.

Faced with an impossible mortgage payment, Susan learned about government-sponsored homeowner assistance programs through television and billboard ads that had become ubiquitous in Sacramento following the crash. Between 2007 and 2008, mortgage defaults in Sacramento had increased sixfold, with foreclosures jumping 482 percent. By 2008, one in every 67 households had filed for foreclosure. For the next five years, California's capital city would consistently rank in the top ten in foreclosures per capita in U.S. metro areas. The ads targeting the many Sacramento homeowners losing their homes showed mortgagors calling their lenders and loan servicers, the financial institutions managing mortgages, and receiving swift assistance. After reading the checklist online, Susan decided that she and Rick were ideal candidates for the Home Affordable Modification Program (HAMP) administered by private lenders. As the advertisements suggested, Susan and Rick were "hardworking Americans struggling with a health crisis and sudden unemployment" who had never missed a mortgage payment — the precise candidates HAMP was designed to serve.

HAMP was part of the economic recovery legislation proposed by the Obama administration, in which banks requesting bailout funds received financial incentives to modify homeowners' underwater mortgages. A temporary salve to address the subprime crash, the programs were set to expire in 2016 and encouraged lenders to calculate whether they would save money by modifying qualifying mortgages and, if so, to halt foreclosures. The Treasury Department asked, though did not mandate, lenders administering HAMP programs to adjust homeowners' monthly loan payments to no more than 31 percent of their income. If by accepting reduced payments lenders would collect more money over the life of the loan, lenders were required to approve the modifications under Treasury guidelines.

Susan spent hours on the phone with various service representatives at Goliath Bank, her mortgagor administering HAMP, trying to decipher the cryptic application instructions on the website. Each time she called she was asked for the same information regarding her case. Eventually, she compiled the necessary application materials and carted her daughters to a copy center to fax the paperwork, which included a letter detailing her qualifying hardship, which in her case was loss of income; a detailed expense sheet with the family's monthly expenses, including car loans, credit card debt, gas, water, internet, groceries, and school expenses; a tax authorization form; recent pay stubs that showed year-to-date earnings; a statement of unemployment benefits; the last twelve months of bank statements, noting large deposits and where they came from; and federal tax returns. On the cover sheet, Susan was instructed to include the number associated with her mortgage. She waited a week to follow up and called to confirm that the paperwork had been received. The friendly customer service representative said it was too soon to confirm either way and to call back in a couple of weeks.

A month after she had submitted the paperwork, Susan still had heard nothing and called again. A sympathetic employee told her there was no record of her application. She should fax the paperwork again. "My name is Ladonna," the representative said, "This time, call back right away and ask for me to make sure we got it." Back to the copy center Susan headed. She called the Goliath Bank number after the fax went through and asked to speak to Ladonna. "That won't be possible," the man on the line told her, "but I'll be happy to help you. First, I'll need some basic information about your case to find out if you're eligible for assistance." Susan hung up the phone. She waited three days and called again. "Yes, we've received your paperwork. Everything is in order," a chipper representative reported. "We will be in touch shortly with a decision."

Susan felt immediate relief. She allowed herself to focus on her daughter's upcoming surgery and recovery, putting the thought of losing their home in the back of her mind. After a couple of months she called to check on her application. The service representative explained that in order to qualify, she had to be at least three months behind on her payments. Once she had missed three mortgage payments, she should resubmit the paperwork to begin the application process. "Why hadn't anyone mentioned that to me before?" Susan yelled into the phone, to which the representative responded, "My apologies, ma'am. Is there anything else I can do for you today?"

Despite their frustration with the process, Susan and Rick were relieved to stop paying their mortgage. They could put mortgage payments toward medical expenses. After three months, Susan called Goliath Bank before sending the paperwork. Since her mortgage was now delinquent, they transferred her to collections. After taking her information, the person on the phone began advising her on how she might find a way to make the payments. She insisted that she was interested in and qualified for a loan modification. The representative put her on hold to transfer her to an account specialist. After seventeen minutes of listening to music and advertisements for Goliath Bank services, the line dropped. She would have to start again. This time, she called the toll-free number and insisted on talking to someone in the loan modification department rather than collections. "Please give me your mortgage number so we can verify that that would be the best way to assist you," the representative repeated. "If you're delinquent, you have to go through collections."

Susan's application would eventually reach the loan modification office of Goliath Bank. But since thirty days had passed trying to get the paperwork recognized, her application was now considered outdated, or "stale," in the lingo of mortgage modification specialists. The representative explained that she and her husband could have started working in the past thirty days or had come into money that wouldn't be reflected on her previous bank statements. She would have to update the forms and resubmit them by fax. "I'd be happy to provide you with that fax number," the representative chirped. Susan hung up the phone.

Susan and Rick were eventually approved to begin a trial loan modification; they would pay a reduced amount with a guarantee that after three months their application would receive a final decision. Seven months into the trial plan, Susan and Rick were denied. The service representative explained that the investors who actually owned the mortgage refused to sign off on the modification. In this case, Goliath Bank was simply servicing the loan but did not have the authority to approve the modification. They had thirty days to pay the missing balance on the past seven months of modified payments, in addition to the three months in arrears. Outraged, Susan and Rick decided to stay in their home without paying until they were evicted in 2011.

Since HAMP was established in 2009, private lenders administering the federal program have rejected 4 million of the 5.7 million homeowners who have requested modifications. The frustrating experience of being caught in a roboprocess that Susan Condit experienced in attempting to stave off foreclosure was universal among homeowners embroiled in modifications whom I interviewed. In a 2011 study of California housing counselors, 94 percent reported that homeowners were losing their homes while negotiating for a loan modification with their servicers. One white working-class freelance journalist in her thirties never missed a payment but was foreclosed on by JPMorgan Chase while paying into a trial modification program. A seventy-year-old Latino veteran who applied for a modification after losing his wife to cancer faxed his loan modification paperwork four times, only to have Goliath Bank deny the application because he had failed to provide his wife's signature. A forty-year-old white preschool teacher was instructed that she couldn't qualify for a modification until she was behind on her payments, and then she was sent to collections, where Golden Gate Mortgaging refused to offer her a modification because she was too far in arrears. A sixty-six-year-old African American medical technician caring for her ailing mother was denied a loan modification because TrustWorth Financial continuously overestimated her fixed Social Security income.

In a stark departure from previous government actions that addressed the foreclosure crisis of the Great Depression, government assistance programs established in the aftermath of the 2007 crash left loan restructuring in the hands of the very mortgage industry giants that had destabilized mortgage markets in the first place. Whereas in the 1930s the government had bought homeowners' toxic mortgages and leniently cooperated with them to help them pay off their debts, recent corporate modification bureaucracies behave in ways dictated by the profit motives of private lenders. Given the high rate of denial, the rise of publicly funded private-sector loan modification bureaucracies did little more than create new algorithmic processes that worked against homeowners attempting to stay current on their mortgages. Writing about similar housing assistance programs for residents of New Orleans after Hurricane Katrina, Vincanne Adams describes privately organized, publicly funded bureaucratic failures as "the inefficiencies of profit." Adams acknowledges that subcontracting government work to the private sector is not new but criticizes how for-profit businesses have "come to be involved in public-sector activities in largely unregulated ways."

Misplaced documents, errors, and misinformation led many Sacramento homeowners to lose faith in lending institutions and financial processes that they had once assumed were fair. In response, some homeowners, including Susan and Rick Condit, squatted in their homes without payment for months at a time, waiting for evictions. Others moved what money they had left to local credit unions that were uninvolved in the lending crisis, and still others pledged never to purchase a home again. These actions, while perhaps minor in their own right, reflect a collective belief that entanglements in roboprocesses inspire mortgagors to repudiate the social contracts implicit in contemporary American debt obligations. Few homeowners I interviewed advocated radical stances toward debt; in fact, most had never missed a credit card payment. These homeowners facing foreclosure in lower-middle- and middle-class neighborhoods often explained that they had once labeled people who failed to repay their debts as "deadbeats," but their views had changed during the protracted experience of being caught in the automated maze of loan modification appeals.

(Continues...)

Excerpted from Life by Algorithms by Catherine Lowe Besteman, Hugh Gusterson. Copyright © 2019 The University of Chicago. Excerpted by permission of The University of Chicago Press.
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Edition details

• Publisher: University of Chicago Press
• Publication date: 2019
• Language: English
• ISBN 10: 022662756X
• ISBN 13: 9780226627564
• Binding: Paperback
• Number of pages: 226
• Editor: Besteman Catherine, Gusterson Hugh