As a flurry of foreclosure papers blasts New York from Wall Street to Myrtle Avenue, anxious homeowners are flocking to community organizations for relief. They're hoping for someone to walk them through the labyrinth of lenders, investors and loan agents propping up the sub-prime house of cards.
At the office of Neighborhood Housing Services of Jamaica, Queens, which counsels families on home financing, it's not unusual to see a client with an annual income of $30,000 suffocating under a $400,000 mortgage.
"When you do the math," said program coordinator Cerinelly Disla, "basically, the income is not there to support that mortgage plus all of the household expenses." Yet, she added, as shaky loans rupture throughout the neighborhood, there are "no programs out there to help these clients."
The city is trying to weave a new safety net for communities like Jamaica, where nearly half of home-purchase loans come from sub-prime lenders. The recently launched Center for New York City Neighborhoods ties together government, community groups, and the philanthropic and business communities in an effort to soften the mortgage market's hard landing.
As one of the first major citywide responses to the foreclosure crisis, the center is designed as a nonprofit hub for government, researchers and organizations to coordinate and improve services across different neighborhoods. A board representing community groups, the financial-services sector and foundations will direct the center's long-term work.
Although it will have a small central staff, the center primarily will be a broad network of service providers focused on mitigating foreclosures. The linchpin of the initiative is its $5.5 million budget, funded mainly through the City Council, the city Department of Housing Preservation and Development, and the Open Society Institute, with additional support from Freddie Mac, HSBC Bank and Citi Foundation.
Almost all the funds will go to organizations serving in hard-hit communities, which the center will select in the coming months. Grantees will administer programs ranging from legal advocacy to financial education.
The center plans to fund three dozen counseling and support staff to deliver advice to several thousand consumers annually. Additionally, it will provide the organizations with 22 new legal personnel to handle about 1,000 cases. The main goal is to help borrowers renegotiate loans or refinance troubled properties.
Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project, one of the groups that helped design the program, sees the center as a vehicle for both protecting neighborhoods and helping policymakers gauge the problem on a citywide level.
"The vision," she said, "is to provide comprehensive and high-quality foreclosure prevention services that are also linked to more systematic policy reform and innovation."
Figures released on March 6 found that defaults on home mortgages hit an all-time high in the final months of 2007. Recent estimates revealed that about 14,000 foreclosures were filed in New York City in 2007, compared to fewer than 7,000 in 2005.
The crisis here has fallen along predictable demographic lines. An analysis of lending in the city by New York University's Furman Center for Real Estate and Urban Policy reveals that blacks were four times more likely as whites to have sub-prime home-purchase loans, and Latinos were three times more likely. Recent research on mortgage data shows that sub-prime borrowing has been concentrated in lower-income and predominantly non-white neighborhoods, like Fordham and Bedford-Stuyvesant.
While Albany and Washington mull policy measures to clean up the sub-prime mess, in the city's struggling neighborhoods, service organizations can barely meet the growing need for assistance, let alone approach the crisis on a structural level.
"There are certainly issues around reforming the law, but a critical issue is that there just aren't enough counselors or legal advocates available," said Furman Center research fellow Solomon Greene.
To remedy this, the Center for New York City Neighborhoods will reach out to counsel borrowers at every stage of crisis-whether they are just starting to fall behind on payments or verging on losing their homes.
Counselors will seek to fend off foreclosure by bridging the communication gap between borrowers and lenders. When it comes to readjusting mortgages, loan "servicers" -- the agents hired by lenders as the collector and go-between for borrowers - are notoriously bureaucratic and unresponsive. Ludwig said the challenge of just getting through to a servicer on the phone, even for seasoned advocates, "can be maddening."
Ideally, she said, a coordinated citywide response would enable advocacy groups to bring "incredible pressure to bear on mortgage servicers and on other entities within the industry to step up and address the crisis."
The center is designed to evolve over the long term, potentially adding more extensive measures to help people keep their homes. According to an outline issued by the mayor's office, the center's partner groups could connect distressed borrowers to new government-backed refinancing programs. Albany's recent expansion of the state's "Keep the Dream" program, meanwhile, may boost city property owners' access to special refinancing options. The program's recently broadened eligibility criteria will cover a wider range of credit ratings and multifamily properties.
Eventually, the center might work with the industry to develop a streamlined plan for modifying loans on a large scale.
To aid borrowers who cannot avoid foreclosure, counselors might help negotiate sales to minimize homeowners' losses, while also guarding against developer land grabs, by focusing on local buyers tied to the community.
A key goal is preventing bad loans in the first place. To preempt looming predatory lenders, programs run by community organizations will work to educate consumers about the mortgage process and their rights.
Philip Lentz, communications director for the State of New York Mortgage Agency, which assists distressed homeowners in the refinancing process, said "the real tragedy" of the sub-prime crisis is that many people duped into risky mortgages could have qualified for prime loans. "But unfortunately," he said, "too many people were taken in by mortgage brokers or other institutions that offered them low rates. And it sounded too good to be true, and it was."
Beyond aiding individual borrowers, community groups want policymakers to confront the roots of the problem: the combination of flimsy regulation and Wall Street greed that greased the engines of the sub-prime market.
Fair-lending advocates hope to give borrowers facing foreclosure stronger legal recourse against exploitative lenders, by revamping New York's anti-predatory lending law, which now covers only the costliest and riskiest sub-prime loans. Proposed legislation would establish responsible-lending principles for mortgages across the board, including standards for transparency, affordability and corporate accountability.
"You could do financial education and homebuyer workshops, which are great, but you're never going to reach everybody," said Gregory Jost, deputy director of University Neighborhood Housing Program, a northwest Bronx-based community development organization. "The fundamental problem is that that whole system of making mortgages without accountability doesn't work."
While the foreclosure crisis has wrought disaster on thousands of individual homeowners, the ripple effects may soon engulf the entire city. As foreclosures consume neighborhoods, property-tax revenues evaporate, utility bills go unpaid, and buildings deteriorate under the neglect of debt-strapped owners. A study of 2005-2006 mortgages by the national advocacy group Center for Responsible Lending found that in Brooklyn alone, the roughly 4,000 homes lost to sub-prime foreclosures would affect more than 740,000 other neighboring properties, draining over $12.5 billion from home values and the tax base.
And since many of the city's foreclosures are multifamily properties, advocates warn that a second wave of hardship could affect renters: Distressed properties could be taken over by exploitative landlords, leaving tenants vulnerable to mismanagement or unfair evictions.
Renato Jordan, an advocate with the tenants' rights group Bushwick Housing Independence Project, predicted that, over next several months, "we're expecting more people to come in saying, 'I'm being pushed out because of this.'"
Some housing experts hope the foreclosure crisis will prompt deeper discussions on how to create more sustainable paths to homeownership.
Advocates point to development schemes that pool vacant land for community-led housing development to help ward off blight or gentrification. In Flint, Michigan, for instance, the state-sponsored Genesee County Land Bank redevelops foreclosed properties to preserve affordable housing and local ownership.
Though this "land trust" concept hasn't yet taken off in New York, community development organizations like the Fifth Avenue Committee in South Brooklyn and the Harlem-based Abyssinian Development Corporation have converted dilapidated housing units into affordable homes, building hundreds of rental and ownership opportunities for local residents.
Groups calling for industry reforms look to the federal Community Reinvestment Act, which mandates banks to offer special services in low and moderate-income neighborhoods. Expanding the law could give underserved communities greater access to mainstream banks and stable loans. Outside the mainstream banking system, community-based credit institutions could offer a homegrown model for building neighborhood equity and seeding homeownership.
"We need to not only develop financial institutions, particularly credit unions, that offer the types of products and services that these communities need, but to make underserved communities more aware of these institutions -- so that we can more effectively draw people away from the alternative financial sector, including predatory lenders," said Peter Bray, executive director of the New York City Financial Network Action Consortium, a nonprofit representing neighborhood credit unions.
Advocates hope the city's unified effort to deal with the broad impact of the sub-prime crisis will yield wide-ranging solutions, for both households and surrounding communities. "The center's focus should not just be keeping individual borrowers in their homes," Greene said, "but also looking at the question more broadly: 'How can we help stabilize neighborhoods?'"
Mark Winston Griffith, a the co-director of the Neigbhorhood Economic Development Project (NEDAP) and a fellow at the Drum Major Institute, has been in charge of the community development topic page since its inception in 2003. Â
When a landlord and a pair of tenants enter an agreement that works for both sides but happens to be illegal, combat and litigation are sure to follow. And now , after a dozen years, the happy arrangement involving 155 Riverside Drive has been totally dissolved by the highest court in New York state as a violation of public policy.
When in 1996 Victoria Munroe and Eric Saltzman agreed to pay $2,000 a month or $675 more than the legal rent established for their rent stabilized apartment, the landlord, Riverside Syndicate, got a good deal. But it was a deal for the tenants too, and there was a reason for their willingness . Munroe and Saltzman, who occupied three apartments combined into one, had another residence in Cambridge, Massachusetts. Under New York's rent regulations, the landlord could have evicted the couple by establishing that they did not occupy the premises for more than 183 days (six months) a year. So the tenants were willing to overpay, if, in return, the landlord was happy to overlook the primary residence issue.
The agreement also resolved the parties' sublease dispute in Housing Court. There, a stipulation (agreement) provided that the tenants agreed to '"waive all right to challenge the legality of the rent," and that '"regardless of their primary residence, the tenants may remain as the rent stabilized tenants." The agreement also provided that "if the apartments were deregulated, the landlord offer a renewal lease every two years at no more than an 8 percent increase."
Four years after the stipulation was entered, the apartment was deregulated, and the parties agreed to a succession of two-year leases with increases of 8 percent, an amount in excess of the maximum allowable if the apartment had remained rent stabilized.
However, in 2004 the landlord sought a court declaration that the agreement was void and unenforceable. As rents continued to rise, Riverside may have reasoned that, if it could set aside the stipulated agreement by showing that it was never valid, the syndicate would reclaim the apartment and rent it for much more than what Munroe and Saltzman were paying.
When the litigation reached the Court of Appeals, the fourth court to be involved and the state's highest court, the judges decided unanimously, "Agreements like the one at issue here distort the market without benefiting the people the rent stabilization laws were designed to protect." In other words, though the tenants had voluntarily waived the protection of rent stabilization, that waiver defeated the protective purpose of rent stabilization.
Although there are in law certain rights that can be waived, such as confession without lawyers, others, such as rent stabilization or child labor laws, cannot be surrendered. Judge Robert Smith wrote, "An agreement by tenants to pay an illegal rent for a rent-stabilized apartment, in exchange for an agreement by the landlord to let the tenants use the apartment as a second home, is void and cannot be enforced by either party."
In addition, Smith ruled for the entire court, "The agreement is, on its face, one to 'waive the benefit' of rent stabilization, and is therefore void. ... In exchange for an illegal rent, the landlord agreed ... not to enforce its rights under the Rent Stabilization Code, to 'recover possession' of a 'housing accommodation' ... not occupied by the tenant ... as his or her primary residence."
Discussing the public policy issue, the opinion said, "Such an agreement allows a tenant who already has one home, and who is able to pay more than the legal rent for a second one, to use the law as a means of getting that second home in perpetuity at a bargain price, ... and would violate the fundamental policies and purposes of the statutory rent regulation scheme."
The Court of Appeals concluded that the agreement as to both parties was invalid from the beginning and that neither party can rely on it. Without specifying what the next steps would be, the court indicated that this matter would be returned to the lower courts where further litigation might result in refunds to the tenants and also possibly to returning the apartment to rent stabilization. It seems clear, however, that unless the tenants can establish that the Riverside Drive home is their primary residence, they will lose the apartment. And the winner is: the landlord.
Emily Jane Goodman is a New York State Supreme Court JusticeÂ
In February, the Rent Guidelines Board announces its schedule of meetings, the annual deliberations that mark the signal event for New Yorkers living in the city's largest stock of affordable housing, rent-stabilized apartments. This month, then, seems a good moment to take a look at the status of the city's housing economy, where a number of different factors are causing anxiety for renters, property owners, developers, brokers and policy makers.
The sub-prime mortgage crisis has led to record numbers of foreclosures across the country and now is creating anxiety here as foreclosures increase in New York City. The federal government has been talking about various plans to address the problem, but nothing has come of it, at least not yet.
Sub-prime loans, many of them taken out by people who cannot meet qualifications set by conventional lenders, often have far more onerous terms, including higher interest rates, than usual mortgages. Borrowers cannot meet the payment and default, particularly if the value of the property declines.
At first glance, New York City's housing market appears largely to be unaffected by the sub-prime mortgage crisis. The average price of an apartment has gone nothing but up over recent years, and the most recent numbers reflect that, too. But looks can be deceiving: the sub-prime mortgage scandals are affecting many communities in the outer boroughs, where mortgage brokers were pushing these loans on mainly lower income and minority homebuyers and homeowners. I've written about the predatory lending practices that mortgage brokers used to push bad loans. It's unclear what the rash of foreclosures in some neighborhoods will do to the overall housing market, though.
"We've had a very strong healthy housing market," said Jack Freund, executive vice president of the Rent Stabilization Association, a landlord lobbying group. "I don't have a crystal ball, but it would be hard to imagine that (the sub-prime mortgage problem) is not going to affect the New York housing market. If liquidity is re-established in the overall market, maybe there's no effect in New York."
Michael Slattery, senior vice president of the Real Estate Board of New York, agreed. "The recent reductions in interest rates will tend to ease some of that concern about the recession and make mortgages more affordable," Slattery said. "Hopefully it will bring people back into the market. There's reason to be optimistic; we'll see how the year develops."
Others, though, see less reason for optimism. In October 2007, the Furman Center for Real Estate and Urban Policy at New York University reported that the city had a higher than average proportion of sub-prime loans taken by homebuyers and people refinancing their homes. A lot of these loans were simple con-artistry and the practices of the brokers pushing them often referred to as "predatory lending."
The high proportion of sub-prime loans in the city - close to one in five loans taken by homeowners in 2006 was sub-prime - makes some experts nervous that the city's housing market could decline if many of those loans were foreclosed upon. That is already happening in poorer neighborhoods.
The sub-prime crisis has led banks to tighten their rules on lending and many low- and moderate-income people now cannot get loans to buy new homes. One agency that counsels low- and moderate-income people said the housing market now is more or less closed to these people. Julia Fitzgerald, executive director of Neighbors Helping Neighbors in Brooklyn, said one statistic from a Furman Institute study sums up the problem: "In 2006, 5 percent of home sales were affordable to a person of median income. That just lets you know that basically, only 5 percent of units available to buy are affordable to 50 percent of the population. It's stunning."
"We're now counseling people and placing loans when they are going to be spending 45 percent of their pre-tax income on their payments," Fitzgerald added. "That's a change just to try to help low and moderate income people to buy at all."
At the same time that foreclosures have caused havoc in the financing of housing, the costs of construction have skyrocketed, making the development of new housing more difficult, particularly for developers seeking to build affordable homes.
"It costs us about $325,000 to build 1,000 square feet, and we're selling that for $75,000 to $125,000," said Josh Lockwood, executive director of Habitat for Humanity in New York City. In the last five years, construction costs have tripled, he explained. The agency's 41-unit condominium project in Brownsville-Ocean Hill was originally budgeted at $9 million; it is now going to cost about $13 million to build.
Costs have increased due to a variety of factors largely beyond any single developer's control. Demand for materials like copper and equipment like cranes is international. Nationally, rebuilding in New Orleans and other parts of the country has driven up the price of basic materials like plywood. The war in Iraq, similarly, has sucked away materials and consequently increased prices. In New York City, the problem is compounded by the high cost of land as well and the increased cost of insurance in the wake of the terrorist attacks of Sept. 11.
Gov. Eliot Spitzer has introduced the first state-led effort in about two decades to aggressively help finance the development of affordable housing. Affordable housing developers support the proposal, which would provide $400 million to help build affordable housing and supportive housing. But political problems are jeopardizing the plan: $300 million of the $400 million fund was to come from the sale of land near the Javits Center, land that would not be used because the governor would scrap the plan to expand the center. Mayor Michael Bloomberg and other city officials oppose the sale.
"It's a great idea, but it's mired in all sorts of conflicting agendas," said Victor Bach, housing policy analyst at the Community Service Society. "We need the capital for housing development. It's the first time in a long time that the state has expanded the pool of funding for housing development. It's too bad so much of the funding is up in the air."
Despite the increase in construction costs, Mayor Michael Bloomberg's New Housing Marketplace plan to build and preserve 165,000 units of affordable housing by 2013 is on target, the Department of Housing Preservation and Development said. The city has arranged the financing for 69,516 apartments so far, or 42 percent of the total, said Assistant Commissioner Neill Coleman.
"We are on track with the plan so far and we expect to meet the 165,000 unit goal," Coleman added. "While we are certainly aware of the construction costs, it's not at a point that we feel that it is putting the plan's goals in jeopardy."
Private developers express little concern about the rising construction costs.
"Production is still going strong," said Michael Slattery, senior vice president of the Real Estate Board of New York, pointing to the about 30,000 new building permits issued in 2007. "Based upon pricing information, prices are still continuing to rise. The market still seems to be positive and good, although I think there's a general nervousness due to economic conditions.
"Not every permit becomes a house, but I think it's an indication of the confidence in the city and the opportunity here. We're still a city that doesn't produce enough housing."
While they welcome new construction, housing advocates have urged more action to save the existing affordable housing in the city. Their efforts have coalesced into the statewide "Real Rent Reform" campaign.
The city cannot simply build its way out of the affordability problems affecting so many New Yorkers, advocates have said. They are calling for stronger rent laws to protect existing affordable housing. Rent stabilized apartments have been under attack, advocates said, with landlords resorting to a variety of tactics to force out longtime tenants so they can increase rents significantly for new tenants. One part of the advocates' agenda is to repeal a provision of rent regulation law that allows landlords to decontrol apartments that become vacant when their rents reach $2,000 or greater. "The city has lost tens of thousands of rent stabilized apartments through vacancy decontrol, studies have shown.
Another sign to advocates that the pressure for rents to increase will not abate anytime soon has been the entry of private equity firms into the housing market. All over the city, private equity firms have made big purchases of rent-stabilized buildings. Many of these firms seek to take an initial investment, increase its value by 15 to 20 percent, or greater, and then sell the property. Advocates see this kind of pressure to make short-term profits as ominous.
"In the last four years, 65,000 units of affordable rent-stabilized housing have been purchased by private-equity backed landlords," said Ben Dulchin of the Association for Neighborhood and Housing Development. "Traditionally real estate has returned eight, nine or 10 percent profit in New York City. Private equity firms have to return Wall Street-type profit levels of 15 to 20 percent. That seems to be why the private equity-backed landlords are taking a more aggressive stance in pushing out low-rent paying tenants."
Dulchin said legislation to make harassment a serious violation and allow tenants to sue landlords who harass them could help. City Council is considering such legislation now.
The sale of 50 buildings owned by Nicholas Haros, who has been singled out as one of the city's worst landlords by advocates, might have seem like good news for tenants in Queens where the buildings are located. But the buyers, backed by private equity firms, could be worse.
Beyond rent-regulated apartments, virtually all types of affordable housing in the city are under some pressure to become market rate. Landlords try to buy out of affordable housing programs whenever they get a chance. The city's public housing agency, the largest landlord in the city and the largest public housing authority in the nation, is in the throes of a well-publicized fiscal crisis.
All of the city's housing finance issues somehow figure into the deliberations of the Rent Guidelines Board, which analyzes reams of data as it weighs how much to allow owners of rent regulated apartments to raise rents. Its first public meeting to kick off its deliberations is March 25. In recent years, its 5-to-4 votes reflect that the board's final vote, this year scheduled for June 19, leave many people unhappy. Two years ago, tenants shut the board's final public hearing down with a cacophonous intervention that had been building for years. Stagnant wages have been a powerful argument against rent increases; ultimately, however, the market forces apparently cannot be resisted.
The general state of the housing market today does not bode well for tenants hoping the board freezes rents or adopts a moderate or low increase.
"On the renters' side there's no reason to believe that rents are not going to continue to escalate, as they have over the last decade," said Bach. "The city is still going through a growth spurt despite the recession, and that's putting increasing demand on the rental market. I don't see a major ebbing of rents in the very near future, certainly not in Manhattan and probably not in the outer boroughs."
It's a simple question of economics, perhaps, suggested Freund of the Rent Stabilization Association. Fuel costs alone have been significantly higher over last year, he noted, and pointing to an ominous statistic: 10 percent of rental properties operate at a loss. On the other hand, he added, lower property taxes and more reasonable water rates could diminish the pressure on rents
"Our point on this issue is that somebody's got to realize that you can't keep raising rents because incomes are not going up at same rate as expenses," Freund said. "Unless there is some curtailment of taxes and water and sewer rates, unless the city does that, it's basically going to drive out affordable housing."
Joe Lamport is the assistant director of the City-Wide Task Force on Housing Court, a coalition of community housing organizations. Â