A decade ago, the Queens Supreme Court handled about 300 or 400 foreclosures a year. In 2007, that number soared to more than 7,500 foreclosures, and the court is on track to see 10,000 foreclosures before this year ends, according to an official.
In the next few years, one out of every 32 homeowners in New York state is projected to enter foreclosure, according to a report issued by the Pew Charitable Trusts.
In New York City, neighborhoods in Queens, Brooklyn, as well as parts of the Bronx and Staten Island, will be the hardest hit: In 2007, for example, foreclosures in Queens and Brooklyn accounted for 40 percent of the state's total. (Co-op foreclosures, which are governed by a different set of rules, are not processed by the court system and are not included in projected foreclosure totals.)
What media outlets call the mortgage meltdown is receiving more and more local and national attention, most of which is centered on the often tragic and personal financial consequences foreclosure presents for individual homeowners. It takes a trip to a foreclosure auction, held every Friday morning in Queens, to see another dimension of the problem: The properties aren't selling.
When the market was hot, eager speculators crowded the auctions looking for a bargain. Today, the overwhelming majority of properties are "bought" back by the bank that made the original loan. The bank must then try to recoup what it can by reselling the property, a dicey proposition in today's market. The result is a growing glut of vacant and unsold property.
The consequences of this foreclosure gridlock can be seen only a few short miles away from the courthouse in South Jamaica, Queens, where a reporter from the Daily News recently counted 32 foreclosed homes in a five-block area. None of them has fared well. A squatter moved into one abandoned property, smashed the front window and scattered trash in the yard. Another home became a crack house. "You see drugs, you see young kids coming through, adults passing through. It's a disaster," one South Jamaica resident told the reporter.
Situations like these have led some housing experts to make grim predictions about the years ahead. "Abandonment of the 1970s, where entire blocks are stripped ... is what this will look like" Sarah Gerecke of Neighborhood Housing Services told the Daily News.
No one benefits from housing foreclosure. For borrowers, it means, at minimum, a lost home and badly damaged credit. Foreclosure is also a losing proposition for lenders. According to the Pew report, the average cost of a foreclosure is $58,759 in foregone interest, court costs and other fees, or between 20 and 60 cents on the dollar.
Yet the highest costs of foreclosure may be borne by the public, in the form of falling property values, higher crime rates and other costs to government. Researcher Dan Immergluck of the Georgia Institute of Technology estimates that property values decline by 1 percent for every foreclosure within one eighth of a mile of a single-family home, meaning that even homeowners who pay their mortgages regularly are hurt by foreclosed house on nearby blocks.
Government takes a big hit as well, in the form of reduced tax receipts, including sale, transfer and property taxes. All told, the Pew report estimates that New York's property tax base will be reduced by $65 billion in the coming years as a result of what they call the "foreclosure effect". And the bill doesn't end there: Researchers at the Harvard Joint Center for Housing Studies identified 26 separate costs borne by government in "foreclosure related services," such as increased police patrols and trash removal, which cost $7,000 on average and as much as $34,199 per property.
While these hefty costs mount up, there is some evidence that foreclosure prevention programs save money for everyone. According to the housing agency Freddie Mac, every dollar spent on a foreclosure prevention program based in the Twin Cities in the mid-1990s saved lenders $3 in direct costs, even though after two years only 224 of the 800 homeowners helped by the program remained in their homes.
Yet a number of obstacles stand in the way to preventing foreclosure. One is financial: Many home loans simply cannot be salvaged. A number of homeowners owe more money on their home than the property is worth or have monthly payments that exceed their income. It's difficult to imagine a scenario where these "bad" loans can be renegotiated, because they should have never been made in the first place.
As housing prices continue to fall, the problem could get much worse: One financial analyst told the International Herald Tribune that an additional 10 percent drop in home prices would lead to 20 million households nationwide that owe more on the mortgage than the value of their home. In that scenario, millions of homeowners could walk away from their homes.
Another obstacle relates to the nature of the loans themselves. About two thirds of mortgage funding is provided by institutional investors who buy mortgage backed securities, and contract out the task of foreclosure to third-party agents, known as "loss mitigators," who, in some cases, are barred from renegotiating with borrowers.
The result is paralysis. "In a healthy market, foreclosure would be rare, because it pays for a lender to forgive, say, 20 percent of a loan rather than booting the homeowner out and seeing 30 percent of the property value evaporate in the process of eviction," wrote Sebastian Mallaby in the Washington Post. "But because mortgages have been sliced up and distributed among far-flung investors, it's difficult to get their consent for partial forgiveness."
Still, there are signs that the foreclosure game is changing: In March, the Wall Street Journal reported that out-of-work mortgage lenders, fueled in part by $180 million in funding for mortgage counseling provided by Congress, are finding work counseling homeowners on ways to hold on to their homes.
New York is one of 10 so-called judicial foreclosure states where courts manage the sad journey to foreclosure and so are struggling to catch up with the rising numbers. Along with Queens, the Bronx is experiencing caseload growth, albeit at a slower rate: 1,247 filings in 2007, compared to 881 in 2006. The increase has led to delays, as court officials are only now getting around to cases filed in December.
The court procedure has not been set up to prevent foreclosures. Officials say it's very rare to see a homeowner show up in court at any point during the process. Most never respond to the initial summons informing them of the court action.
Housing advocates believe that the judicial foreclosure process is fundamentally flawed. "People get overwhelmed when they get served papers, and there's no one they can turn to for help" said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project. The result, according to Zinner, is a "pro forma foreclosure mill" where more than 90 percent of borrowers served with foreclosure notices default.
Ohio is one judicial foreclosure state that is trying to rewrite the rules of how courts respond. Hit by 85,000 foreclosures in 2007 --Ohio has 3 percent of all nationwide home loans, but 6 percent of foreclosures -- the state created an ambitious program, called "Save the Dream," that recruited 1,100 attorneys to provide voluntary legal counsel to homeowners facing foreclosure. Free legal assistance is available to anyone making less than $54,000 a year.
Judges also have the authority to order mediation in cases where they believe a settlement is possible. Summit County, which includes the city of Akron, has been aggressive about using mediation to settle foreclosure cases. In the first three months of 2008, mediators handled 37 foreclosure cases, which resulted in 26 settlements, according to Frank Motz, chief mediator of the Summit County Court of Common Pleas. In some cases, lenders agreed to sharply reduce interest rates on a loan; in others, they've added the unpaid balance and other fees to the end of a mortgage to help a borrower get back on track.
Mediation can even help in cases where loan modification is not an option. In what is known as a deed in lieu of foreclosure resolution, Servicers agree to forgive some debt if a homeowner agrees to an immediate transfer of the property. This has the effect of saving the servicer time and money, while letting homeowners walk away with their credit intact. Not incidentally, it also removes a burden on the court by taking a case off the books.
Motz expects the number of court-ordered mediations to triple in the months ahead. "Lenders are more and more interested in working out settlements," he said. Still, there are limits to this approach, as Motz freely admits. Even in a best-case scenario, according to Motz, more than half of all foreclosures would still proceed over the traditional court path.
Encouraging mediation is just part of what Ohio is doing to stem the foreclosure process. In early April, Gov. Ted Strickland announced a nonbinding agreement with nine large loan servicers to encourage modifications on a large scale, according to the Cleveland Plain-Dealer.
New York is experimenting with a variety of approaches. As Michelle Chen reported in Gotham Gazette, New York City recently launched the Center for New York City Neighborhoods to provide mortgage counseling and legal assistance to at-risk homeowners.
State government has also tried to address the problem, albeit with mixed results. In July 2007, New York committed $100 million to an emergency loan fund, with the goal of helping 500 to 700 families refinance at-risk loans. The program is aimed at converting interest only, adjustable rate mortgages into fixed rate 40-year mortgages. According to the Washington Post, however, only three families have signed up, leading to calls to expand eligibility criteria.
Most states can afford to help only a limited number of homeowners - and only if lenders are willing to take steep price cuts. "The numbers don't add up," said Sarah Gerecke of Neighborhood Housing Services of New York City. "The prices are too high and the conditions of the properties aren't good," she said.
A third, and more controversial, solution involves creating a one-year moratorium on foreclosures in New York. Such legislation already has 60 Assembly co-signers, according to the New York Times, and advocates believe the bill has a good chance of passing this summer. Although the Times reported that the moratorium would apply to all court-ordered foreclosures, the language of the bill seems to suggest that it would apply only to owner-occupied homes where the homeowner does not own any other property. Industry representatives have argued that, by making it harder to foreclose on a property, the moratorium would raise borrowing costs for all homeowners.
In New York, court-ordered foreclosure already takes 12 to 18 months to complete, which presumably gives borrowers time to work out a solution. And a moratorium alone is not a panacea, as officials in Philadelphia discovered after they introduced a one-month moratorium on foreclosures in March. "A moratorium just causes a freeze -- and then what," Judge Annette Rizzo told the Philadelphia Inquirer.
Many experts believe that, if anything, the foreclosure process is too long, particularly for homes that are not owner occupied. Ohio is considering creating a separate track for investor-owned properties that will allow foreclosure proceedings to occur more quickly, which, they hope will reduce the time that many properties stay vacant.
Advocates want the federal government to take a more comprehensive approach to the foreclosure problem. "[States] don't have the resources or the regulatory authority or leverage with the industry," Bill Faith, Executive director of the Coalition on Homelessness and Housing in Ohio, told the New York Times. "Much more serious progress is only going to be achieved if the feds take appropriate action."
The Senate and the House has each passed different measures to address the foreclosure crisis by providing money for pre-foreclosure counseling. The House bill includes $15 billion in loans and grants for local government and nonprofits to buy and renovate vacant foreclosed homes. The Senate bill has a $7,000 tax credit for purchasers of foreclosed homes, while the House version dedicates its tax credit to first-time homeowners.
Both the House and the Senate are considering creating a $300 billion to $400 billion loan fund to encourage the pre-foreclosure refinancing of 1 million at-risk home loans. The loans would be guaranteed by the federal government and would be rewritten by lenders at no more than 90 percent of their current value.
Competing proposals in Congress will set off a major political struggle, as Americans debate whether the fund amounts to an unfair bailout for troubled homeowners and lenders. For New Yorkers, it may represent the only means available to hold off a wave of foreclosures with negative effects for everyone.
Aubrey Fox is project director of Bronx Community Solutions, aimed at changing the Bronx court system's approach to low-level crime. Â
Harlem's low-story buildings and epic institutions will now get a so-called facelift -- at least in the view of city officials and some developers -- as the City Council approved a rezoning plan for the neighborhood's busiest boulevard last week.
The council on Wednesday approved a rezoning plan reaching from the Hudson to the East River that would include an unprecedented mandate for affordable housing and height limits on 125th Street, where large developers are eyeing towering commercial centers and condos.
The plan was met by extensive community opposition when first proposed years ago. The rezoning passed by council was a compromise between the area's council members, the administration and community groups. Even so, community support is split -- evident from the dozens of vocal critics at the City Hall meeting.
The council also approved several other pieces of legislation last week, including one that makes the mayor's Office of Long Term Planning and Sustainability permanent.
Though a raucous crowd in the council chamber's balcony was thrown out of the meeting, the council approved the "river to river" rezoning for Harlem by a vote of 47 to 2. Council members Tony Avella and Charles Barron voted against the rezoning.
Known as the center of black culture in New York City, possibly in the entire country, 125th Street in Harlem hosts historic and cultural landmarks, like the Apollo Theater. Because of its cultural and iconic role in the neighborhood and the city, the rezoning was highly sensitive throughout the neighborhood and sparked extreme community opposition.
On Wednesday, dozens of attendees were cleared from the council chamber after boos, hisses and cheers reverberated off the walls one too many times.
The agreement, which was negotiated by Harlem council members, particularly Inez Dickens, requires that 46 percent of all new apartments be affordable and sets height restrictions of 190 feet, or about 16 stories, on the north side of 125th Street and 160 feet, or about 13 stories on the south side. Before the rezoning, said Dickens, 125th Street had no such restrictions.
"When a law has no protection for the community, it must be changed," she said.
The rezoning also includes an arts bonus, which will ensure the cultural qualities of the neighborhood remain. For the first time, the city will require certain spaces be dedicated to arts groups, who will be reviewed by a local arts council whose members are selected by the local councilmember. The agreement also includes funding for capital improvements to Marcus Garvey Park.
Though the affordable housing and arts provisions are unprecedented for any city land use agreement, some members continued to oppose the rezoning, arguing it would fundamentally change the fabric of Harlem forever.
"Some people see this as a river to river success," said Barron. "Others see it as a river to river sell out."
Across the city, front yards are being cemented over to relieve the home's owners of a perpetual urban challenge: the search for a parking spot.
But while single property owners benefit, some residents and officials argue the neighborhood suffers as green space slowly dwindles away and street parking is lost. Currently, there are no zoning regulations that address the amount of pavement allowed on front yards.
Now, a zoning rule revision will prevent property owners from paving over their entire front yards and require they keep between 20 to 50 percent as green space. Homes that have already created their own driveways will not be affected. The council approved the change by a vote of 48 to 1 with Councilmember Simcha Felder dissenting.
The council unanimously approved a bill (Intro 395) permanently creating the mayor's Office of Long Term Sustainability and Planning, which was established as a part of Mayor Michael Bloomberg's PlaNYC 2030. Officials said making the office permanent would mean the city would always keep sustainability as a priority, regardless of who occupies City Hall.
At large-scale residential developments, common sewers are often placed deep below the property. But when problems occur, their location pose challenges.
Now, under legislation (Intro 657) introduced by Councilmember Maria del Carmen Arroyo and unanimously approved by the council, common sewers must be outside of the property's boundaries, so they can be accessed for repair. Â
In recent years, few issues have divided residents of downtown Brooklyn more than the $4 billion, 22-acre Atlantic Yards project being developed by New Jersey Nets' owner Bruce Ratner. Ratner's company, Forest City Ratner, reached a deal with the city and state to develop a high-rise commercial office tower, affordable housing units and a basketball stadium, the Barclays Center, in the heart of Downtown Brooklyn in just a few years.
Local community groups and residents, concerned that such a large-scale development in a partially residential area could harm their quality of life and change the neighborhood's character forever, have tried to stop the project through litigation, as well as seeking to influence public opinion and pressure decision-makers in City Hall and Albany to reconsider the project's risks.
While these concerted efforts have proved largely unsuccessful, key components of the development are now on hold -- not because of public outrage, but rather due to increasing construction costs, a slowing economy sliding toward recession and a tightening credit market.
To different degrees, the very same economic challenges facing Atlantic Yards confront real estate projects both big and small throughout the five boroughs. As the Metropolitan Transportation Authority faces a budget crisis, long-planned developments, such as the Fulton Street Transit Center, face delays and revisions. The original plans for Hudson Yards have been thrown into disarray, while individual apartment buildings in Queens and Brooklyn have been put on hold due to a lack of available financing.
As the economy turns toward recession, developers, community groups and city officials alike are questioning whether these projects will go through at all -- or at least in the way many had previously imagined.
While much of Atlantic Yards project is sliding to the back burner, the $950 million arena is moving forward and slated for completion in 2010 for one main reason: The financing for it is already in place. Unlike the private financing needed for the commercial and residential buildings, Forest City Ratner already has secured $670 million in tax-free bonds to cover the costs of the arena's construction beyond the $200 million in subsidies already in place ($100 million from both the Empire State Development Corporation and the city). Additionally, unlike the commercial tower centerpiece known as Miss Brooklyn, the stadium already has its anchor tenant lined up (the Nets) and Barclays has ponied up a reported $400 million specifically for the stadium's naming rights.
But many projects, including other components of Atlnatic Yards, do not have such secure financing. The credit crunch facing financial institutions that typically lend money for real estate deals is making it extremely difficult for many developers to secure financing. There is unusual volatility in the financial markets,the result of banks havin taken on enormous amounts of debt and engaged in risky and complex financing activities. Economists are unsure when the situation will stabilize.
James Parrott of the Fiscal Policy Institute said, "There are significant financing challenges facing New York real estate developers including difficulty rolling over debt and manifesting in a general reluctance to lend money on projects, because of the necessity of conserving capital to cover losses from previous loans."
Additionally, the outlook remains gloomy for employment in the financial services sector where a recession scenario estimates job losses at 30,000 to 50,000, not including the massive layoffs already in effect from JPMorgan Chase's acquisition of Bear Sterns. The loss of these high paying jobs erodes tax revenues for the city and significantly lowers the demand for the expensive housing and commercial space.
At the same time, construction costs, including the price of concrete and oil, continue to rise -- a result of increasing global demand and decreasing supply . Turner Construction's Fourth Quarter 2007 Building Cost Index shows that costs rose 10.6 percent nationally in 2006 compared with the previous year. This is a significant increase for builders attempting to hammer out large projects, according to the city comptroller's chief economist Frank Braconi.
Increasing labor costs also could contribute to the possible demise of the city's major projects. Many of the relatively few unionized, talented workers with experience in building large-scale projects are already booked for the next few years. According to Harry Chernoff, a professor at New York University's Stern School of Business and a real estate developer, it is unlikely that we will see an increase in this labor supply in the near future because of the practical difficulties of bringing in workers from outside the city. "If you are a builder from another city or region, it is difficult to come here and do this type of work without having the prior experience of working in New York market," said Chernoff.
All of this has taken its toll on some of New York's high profile projects.
Such problems threaten the very aspects of Atlantic Yards -- affordable housing and expanded office space -- that were its chief selling points, according to a report in the New York Times.
Ratner has publicly stated that until he secure an anchor tenant for Miss Brooklyn, construction will remain on hold. The bond market is being blamed for slowing down the pace of the residential buildings.
New York City Councilmember Letitia James, who represents the area and is an outspoken opponent of the project, is concerned that affordable housing, which was integral to pitching the project, has taken a back seat. "What do I think about this arrangement?" she asked . "I think it is totally unacceptable." James said she, along with New York State Sen. Velmanette Montgomery, hoped to meet with Gov. David Paterson to encourage the state to take closer look at the project and possibly renegotiate the original contract.
Opponents to the project are also pushing for the U.S. Supreme Court to take up the case after several appeals lost in .
Another high-profile project affected by the precarious economy is the Fulton Street Transit Center. When plans for the transportation hub on Broadway between Fulton and John streets in Lower Manhattan were first announced in 2004 it was envisioned as a central element in the recovery of the area after of the Sept. 11, 2001, attacks.
The project, which the Metropolitan Transportation Authority now estimates will end up costing approximately $1.2 billion, had included a 110-story glass dome as well as a hub for several different subway lines and PATH trains to New Jersey. It was originally scheduled for completion last year. Now it's expected to be done by September 2010, and its price tag has swollen by more than $400 million from the original $700 million cost estimate projected back in 2004.
As part of the project, 148 businesses were razed or relocated under the city's use of eminent domain to build the hub.Now, though, the dome they had been forced to make room for had been deemed too expensive and was permanently scrapped back in January. Ironically, one reason blamed for the cost overrun was the expense of completing these relocations. The authority recently announced that it would indeed build some sort of structure above the subway connection, but details about its size, cost and usage have not been publicly revealed.
But the key challenge remains the MTA's capital budget. At $29.5 billion, it has t a projected $14 billion shortfall for this operating year. In addition, the city had planned to use $500 million in congestion tax fees to sell bonds to finance the capital budget. Because the congestion pricing plan failed, the estimated $4 billion to $5 billion these bonds would have raised for the capital budget for the next four or five years is lost, representing an even larger than expected hole in the agency's coffers.
Currently, the transit hub is undergoing a 30-day "review period." It is unknown how much— if any — additional money could be provided by the federal government and the Lower Manhattan Development Corp. and how much of a role public opinion and state leaders, such as Assembly Speaker Sheldon Silver, could end up playing. The idea of bringing in additional funds by turning the Fulton Street terminal into a public-private partnership is reportedly being floated.
Rising costs may also adversely affect other proposed transportation projects such as the Second Avenue subway line, the westward extension of the 7 train into the West Side and a Long Island Rail Road link to Grand Central Station in Midtown.
The Jacob K. Javits Convention Center, located at 11th Avenue between 34th and 39th Streets, was supposed to expand to become one of the largest convention centers in the country. By November 2007 the plan had been scaled down. Now the focus has turned to renovating the convention center, which will cost about $800 million, compared to about $3.1 billion for the original plan.
At one point, former Gov. Eliot Spitzer had intended to sell off a parcel slated for the convention center's expansion, further jeopardizing the project. Spitzer put that plan on hold after a protests by city officials earlier this year. Now, under the Paterson administration, it is unclear what could occur.
Economic conditions are partly to blame for the uncerttainty. New York City simply unable to afford the original project, forcing the scaleback. The Empire State Development Corp. spent more than $30 million to determine whether the project was feasible under the current budget, with the state agency ruling after more than a year of study that it was not.
Also, local economic strains have created some friction between two of the center's largest revenue sources: exhibitors and hotel owners. Both groups are arguing over what redesign might produce the most revenues. With a slowing economy, there are concerns among observers that the Javits Center might be unable to hold on to its current slate of conventions, let alone pick up additional ones.
But the economy is not solely responsible for the Javits Center missteps. Poor oversight also is to blame. Directors of the center have complained the project was poorly planned and that they were asked to approve "millions of dollars" of expenses — after they had already been incurred. Further, the chairman of the center's board reportedly held most of its meetings behind closed doors.
Now, city planners are looking to a 61-acre site at Willits Field in Queens as a possible site for a satellite convention center for New York, but officials are not in agreement about this option or whether the possible Queens site would complement or replace the Javits Center. Last week that proposal started its formal Uniform Land Use Review Procedure, much to the chagrin of a majority of the City Council.
With Paterson now in Albany and a new head of the corporation to be named, it is unclear what the future holds for New York's convention center on the West Side.
At the end of March, the MTA signed a tentative deal with real estate operator Tishman Speyer Properties to work on the Hudson Rail Yards, a 26-acre site on the Far West Side. The plans are to develop the former rail yards into a number of both residential and commercial buildings as well as some green spaces. But much remains uncertain
The deal is still tentative because an agreement must be worked out between the city and developer to ensure public access to parks and the Hudson River. According to a report by the New York Times, land-use and environmental studies are still forthcoming, and City Council will have to rezone half of the site.
Current plans call for construction to start at the beginning of 2009.
While the stock market bobs and weaves, and city officials continue to warn of the recession's impact on the city's revenues, developers and potential commercial and residential real estate buyers are likely to move forward cautiously.
The fate of these monumental projects -- many of which were meant to be the signature accomplishments of the Bloomberg and Spitzer administrations -- will not only affect some political legacies, but our streetscapes for decades to come.
Steven Josselson is a New York City-based freelance journalist and a recent graduate of New York University's Robert F. Wagner Graduate School of Public Service. Â