Why Thousands May Lose their Brooklyn Homes

This article appeared in the CanarsieDigest on April 12, 2007

"Going From boom to bust - Why thousands could lose their Brooklyn homes
By Gary Buiso 04/12/2007

The next two years could leave thousands of Brooklynites homeless, as the aftermath spawned by a “rogue” industry comes to light, a federal lawmaker recently warned.

A rash of foreclosures fueled by subprime mortgages is the cause, according to Senator Charles Schumer.

And for many, the future could be grim.

Schumer, who recently released an analysis of the crisis, said that by the end of 2008, 6,100 families in Brooklyn could be at risk of losing their homes.

“It’s long overdue that we ensure that working people across Brooklyn are protected from loans that promise them the world and instead give them a mountain of debt, leaving them homeless,” Schumer said.

Schumer said he has a three-point plan that calls for federal regulation of “rogue mortgage lenders;” the elimination of liar loans, or loans that are mathematically designed to fail the homeowner; and the establishment a foreclosure prevention task force.

The “impending avalanche” of mortgage foreclosure can be directly linked to the popularity of costly non-traditional mortgage products offered over the past decade, Schumer said.

While they offer attractive and easy lending terms, he continued, these products, including hybrid adjustable-rate mortgages, include excessively high interest rates that can sharply spike, leaving new homeowners struggling to meet escalating payments.

The problem is magnified in the subprime mortgage market, where borrowers with weaker credit histories and lower incomes have flocked to mortgages that have higher interest rates than prime mortgages.

While industry backers say the subprime market has enabled millions to become first time homebuyers, Schumer said subprime loans leave borrowers in an “extremely precarious financial state.”

“Despite subprime loans being universally more expensive than prime loans, they still remain a main source of capital for millions of low-income Americans, especially minorities, who wish to fulfill the American Dream and purchase a house,” Schumer said.

The most popular “affordable” subprime loans are adjustable rate mortgages that offer an initial fixed rate that is set low.

But the rate resets after an initial fixed rate period to a more onerous rate that leads to a significantly higher mortgage payment that low-income borrowers will have difficulty affording, Schumer said.

Schumer’s analysis showed that in the next two years, 91,000 families will be at risk of foreclosure because of these lending practices. In the New York Metropolitan area alone, an estimated 53,000 families will see their mortgages reset to onerous rates, he said.

“The bottom line here is that the subprime bust is leading us right into a foreclosure boom, and thousands of Brooklyn residents will be left in the lurch,” Schumer said.

Oda Friedheim, a staff attorney with the Legal Aid Society said the issue is nothing new.

“Too bad it took Wall Street’s pain to put the problem on the spotlight,” she said. “They have a bellyache because they swallowed too many bad loans,” she said.

“Our clients have been suffering for years under these abusive mortgages,” she added.

Deyanira Del Rio, the associate director of the Manhattan-based Neighbo-rhood Economic Development Advocacy Project has been tracking mortgage lending and foreclosure data for the past seven years.

“What we have seen is that consistently higher priced mortgage loans are overwhelmingly concentrated in neighborhoods that are overwhelmingly black and Latino,” she said, noting her group will soon release a study showing this trend.

For the longest time, she said, mainstream banks were not making credit available to these neighborhood. “There was a void,” she said.

In the mid-1990’s, a new crop of mortgage lenders started flooding these same communities with aggressive sales pitches, and “high cost and exploitative loans,” she said.

Del Rio said that even when income taken out of the evaluation, the pattern still remains the same.

“This is not just an income issue. This is clearly a civil rights issue,” Del Rio said.

“So many of the mortgages we saw were not based on the homeowner’s ability to repay the loan, but rather just based on the equity in a person’s home and the [overall] rise in home prices,” she noted.

Over the last few decades, longtime homeowners have seen the value of their properties skyrocket, and these businesses capitalized, “sapping the equity form these homes.”

“It’s win-win, really. Either they get the high fees, or they refinance and eventually foreclose,” Del Rio said.

NEDAP, is a founding member of New Yorkers for Responsible Lending, a statewide coalition that in 2002 helped get passed an anti-predatory lending law.

Del Rio said that the next few years will show more of the fallout her group has already observed.

Already, she said, compared to prior years, the rates of foreclosure for the first few months of 2007 are almost 50 percent higher than the comparable period last year, Del Rio said.

More work needs to be done.

“We have to find newer strategies,” Del Rio said.

Meghan Faux, an attorney with the Court Street-based South Brooklyn Legal Services Foreclosure Prevention Project said she sees firsthand how the dream of homeownership can turn into a nightmare.

Over the past few years, she’s seen a higher volume of foreclosure cases.

Low income borrowers and seniors are most often the targets of exotic mortgages that can be confusing, “completely unsuitable” for their needs, Faux said.

The impact, she said, has been devastating.

“Some people have had their homes for 30 years or more and are now at risk of losing them,” she said.

In some instances, there have been multiple foreclosures on the same block, she noted. “It effects the entire community and prevents it from stabilizing,” Faux said.

Before settling on a loan or a mortgage, reach out to a consumer advocate, Faux recommended.

Call 311 and ask to be put in touch with the Preserve Assets and Community Equity Program, which can offer guidance and assistance. Her group’s foreclosure prevention hot line is 718-246-3279."www.canarsiedigest.com