James Madison Medal winner Martin Eakes GS ’80 talks home ownership and wealth inequality

Homeownership is one of the most important factors in breaking the cycle of poverty because it can stabilize the family and neighborhood,James Madison Medal winner Martin Eakes GS ’80 said at an Alumni Day lecture on Saturday.

The James Madison Medal was established in 1973 and is conferred upon a Graduate School alumnus who has had a distinguished career, achieved a record of outstanding public service or advanced the cause of graduate education.

“Economist and community builder, tireless advocate for social progress, and economic justice and opportunity,” reads the inscription on the medal.

Eakes received a Master in Public Affairs from the Wilson School. He said he was at first unfamiliar with life away from home, and that his Southern accent and careful manner of speech did little to help him fit in.

“When I first came to Princeton, I considered myself a foreign student; even the students from India, when I first started arguing with them, were not sure that I was speaking English,” he said.

The year he earned his graduate degree, he established two organizations in Durham, N.C. — the Center for Community Self-Help, where he continues to serve as CEO, andthe law firm Gulley, Eakes, Volland & Calhoun. Self-Help had humble origins in a $77 bake sale, but grew to become worth more than $2 billion, loaning over $7 billion to businesses, non-profits and low-income people, according to Eakes.

Eakes insisted on providing fair mortgages and allowing everyone the opportunity to own a home through Self-Help to address the fact that, among American families, 73 percent white, 50 percent African-American and 42 percent Latino, were homeowners.

“I don’t covet your money, what I covet is your distribution network — you have branches and loan offices in every corner of the United States — and if you will make these loans to low-income Americans, I will make you a Godfather-like proposition: you get to have the credit, you get to charge the loan percent fee, you get to have your community reinvestment obligation, and I’ll take all of the risk,” he said.

His program was successful, with an annual return on equity of over 23 percent since the founding of the organization in 1980. Although Eakes faced threats by the Ku Klux Klan, lending companies and various drug dealers, he said he was not fazed because he knew that he was doing right.

Over the course of 11 years, he added, he had not lost any money through faulty loans. He even found that many of the recipients of the loans not only paid back in full, but also approached him for help in refinancing their homes in order to save money for the family.

“Income gives a family the resources to make short-term choices, but assets and wealth give a family the choice to make long-term investments,” he said.

Eakes cited his personal experiences with inequity as illuminating. As a child, he had moved to a community in Greensboro, N.C., where the citizens were approximately 99 percent African-American, Eakes said. He expressed faith that poor people were better borrowers than rich people were, citing a bet he had made that single African-American mothers would pay off any loan given to them on fair terms.

Get the best of ‘the Prince’ delivered straight to your inbox. Subscribe now »

African-American or Latino families have approximately one-tenth the wealth that white families have, Eakes noted, adding that these families often have almost zero or negative cash wealth, which often excludes them from purchasing a home due to the high down payment necessary.

He added that minorities have suffered from pernicious lending practices in America, where 52 percent of African-Americans and 40 percent of Latinos received faulty loans or subprime mortgages, compared to 19 percent of white families.

Eakes also saw a correlation between areas of high minority concentration and home foreclosures.

“These communities were utterly destroyed; if you have foreclosures one after another within a block, you have what they taught me at Princeton in the Woodrow Wilson School: an externality,” he said.

On a broader level, Eakes noted that income inequality has increased to pre-Great Depression levels, despite the recent recession. He added that 43 percent of financial wealth is concentrated in the top 1 percent of wealthy Americans, contrasted with 7 percent owned by the lowest 80 percent.

“ ‘It is easier to build strong children than to repair broken men,’ Eakes said, quoting Frederick Douglass, a leader of the abolitionist movement. “I think this is the challenge of our time, whether it’s in the villages of Iraq or Libya, or in the inner cities of Los Angeles, Chicago or Baltimore.”

Abandoned young men who were not raised with hope or ambition will often find affiliations in other forms of family, like gangs. He said that without the means to provide for a family, many turn to violence, drugs or theft.

“I believe that suffering and self-sacrifice can heal the corrosion that has taken hold of this world,” he said. “If struggle is the defining characteristic of life, let’s make that struggle worthwhile.”

The lecture, titled “Homes, Lending, and Wealth Inequality in America,” took place on Saturday at 9 a.m. in Richardson Auditorium.