City Hall

West Dallas Landlord Spots Good Credit Among People With Lousy Scores

Jim Schutze
Every single thing the city has done to West Dallas has had the effect of ethnic cleansing.
People can say anything, but if you want to see what people really mean when they talk about improving poor neighborhoods in Dallas, look at State-Thomas, look at Little Mexico, look at what’s going on today in West Dallas.

Don’t even call it gentrification. Nobody who used to live there ever got gentrified. They just got gone. Even the names of their neighborhoods were erased, replaced by slogans. Uptown. Trinity Groves. East Hoity-Toity-ville.

In order to improve a poor neighborhood and keep the people who were there originally, you have to do some kind of business with those people. Take West Dallas, for example.

West Dallas is an area of poor and working families, many of them renters, occupying frame cottages built during and just after World War II. So if City Hall wanted to convert that neighborhood to have a higher percentage of homeowners living in better-quality structures, then somebody at some point would have to lend the current residents some money.

That’s where it falls down. People at the very poorest end of the economic scale tend to have terrible credit ratings, for reasons that ought to be obvious. They wind up having to choose between food and shelter on the one hand and some overdue bill on the other. But the dings to their credit scores, along with limited income, make it impossible for them to qualify for mortgages.

The fact remains that Khraish’s plan preserves neighborhoods where his former tenants have lived for years, some of them for a half-century.

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I talked about it this week with Khraish Khraish, the managing partner of HMK Ltd., a real estate company and major landlord in West Dallas. He is doing what City Hall never has managed to do: creating hundreds of new homeowners by selling houses to the current tenants. I wanted to know how he handled the issue of credit worthiness.

If you haven’t followed this, Khraish has been involved in a running battle with the city over a new, more rigorous building code that would have required him to substantially rebuild many of his properties. He decided the wiser business move was to take several hundred houses off the rental market and redevelop the land.

The city accused him of acting out of vengeance because of the tighter building ordinance. He reacted by offering to sell his houses to some of the tenants. It was a shrewd move because it took the building code problems off Khraish’s shoulders and bestowed them on the shoulders of the new homeowners.

But the fact remains that Khraish’s plan preserves neighborhoods where his former tenants have lived for years, some of them for a half-century. They have leaped at the chance to buy their homes and generally have blessed Khraish for giving them the opportunity.

Compare that to everything City Hall has done. By enacting tougher building codes while simultaneously declining to expand subsidized low-income housing stock, all of City Hall’s actions have had the effect of ethnic cleansing. The only beneficiaries in West Dallas have been the megadevelopers scraping block after block of old neighborhoods, replacing them with vast, multistory, high-end residential and commercial projects — places where the old West Dallas residents can’t possibly afford to live.

The killer of neighborhoods is the city, which one might have expected to be their protector. The savior of neighborhoods is this landlord, whom the city has portrayed as a merciless miser. That’s beyond ironic.

But it leaves the question of how. How can Khraish make mortgage loans to his tenants if nobody else would lend them that kind of money?

Last May, when Khraish Khraish announced his plan to sell houses to his current tenants, the tenants leaped at the opportunity. - JIM SCHUTZE
Last May, when Khraish Khraish announced his plan to sell houses to his current tenants, the tenants leaped at the opportunity.
Jim Schutze
His deals are not scammy, land-contract boondoggles disguised to look like real sales, according to knowledgeable people who have looked at the paperwork. These are legitimate deed-of-trust sales.

The question is whether the loans underlying the deals will work. Will Khraish receive on-time payments for his loans? Or will the properties descend into a cycle of foreclosure and eviction that will get even uglier than the bad scenario the city was about to enforce?

He says his deals are good, and he has a theory about why: “Of course, everybody that I loan money to has an absolutely abysmal credit score,” he says. “They do.

“However, they also have, on average, over 11 years of rental history with me. These are renters who have paid 11 years like clockwork, on average. Some have 40 years and 50 years of rental payment history like clockwork, but they still have really crappy credit scores.”

He says he knows why they have bad credit scores: “They invariably have a bad cellphone bill or unpaid medical bills or unpaid water or electricity turned off. That totally sabotages your credit score.”

What he sees, in spite of the bad scores, is the rental payment history: “I based my credit worthiness for their mortgages based on what I thought was the most appropriate metric, which was rental payment history.”

Khraish says his faith in rental payment history is buttressed by a personal eyeball-to-eyeball familiarity with all of his tenants. His company does not accept rental payments by mail or online. All payments must be made in person at the company’s office in West Dallas. That way, he and his staff get a moment to chat and keep up with each tenant at least once a month.

“We know who they are. With the renters who are now homeowners, we maintain this same very close relationship,” he says.

Khraish's theory is that personal relationships ultimately are what drive banking relationships in any community: “Let me tell you, this is how standard banking works, typically. I know a little bit about banking. I have invested in some banks. Community bankers like to know very well who they are lending to. That’s my whole point, how lending typically works.

“Look, Jerry Jones’ bankers know who the hell he is. They know who he is very well because they golf with him. They know his family. They’ve gone to his vacation home or his ranch. That’s what it takes.”

He sees the so-called science of credit scoring as a kind of legal and technical due diligence that can’t replace personal relationships. “Modern-day banking also requires you to have all these other credit scores and income verification, but that’s the paper trail that kind of covers them legally but doesn’t substitute for the real relationships," Khraish says. "And that’s what we can claim.”

He says personal contact also is the way he and his father, who founded the company, enjoy doing business. “We always like getting to know our renters,” he says.

In addition to being a kind of legal cover-your-ass mechanism in the making of loans, Khraish thinks credit ratings also function as an excuse the big banks can use for red-lining neighborhoods where, in reality, they just don’t feel like doing business:

“In terms of these big banks, in black and Hispanic neighborhoods, the reason Wells Fargo and Bank of America and these guys don’t make loans out there is because they don’t want to get to know those folks," he says.

“Do you think any of those folks are golfing at the Dallas Country Club or going to SMU with their kids or high school with their kids? It’s not happening."

Being in the community, he says, provides an all-important insight: There is business to be done. There are loans that can be made successfully. Some people will leap at the chance to own their own homes, will do the necessary repairs themselves and will make the payments on time. But in order to lend money, you have to know who those individuals are. And to do that, you have to want to know.

Of course there is a tougher edge to this, as there is to all business. You also have to collect your money. Most of the city’s subsidy programs have gone straight down the tubes because the people running them have never learned that it is easier to lend than to collect.

But somewhere in the sand and muck of this whole West Dallas displacement saga, a jewel sparkles up at us. Neighborhoods can be saved. Poor people can own their own homes. The end of the story does not have to be the erasure of entire communities and the forgetting of their names. Somebody just has to know what in the hell he is doing.