A crush of foreclosures in Queens, Brooklyn and the Bronx is raising alarms and leading many to call on city and state authorities to do more to go after the unscrupulous people at mortgage brokerage firms, at banks and on Wall Street who, they say, are fueling the problem.
“We’ve been predicting this for years,” said Oda Friedheim, an attorney at the Legal Aid Society in Queens. “Many lenders have developed really abusive loan practices that target communities of color and any vulnerable people.”
Through March, more than 1,200 foreclosures had been filed this year in Queens on one- to four-family properties, a 57 percent increase over the same period last year. About 3,600 were filed in all of 2006 in the borough, according to the www.nedap.org Neighborhood Economic Development Advocacy Project. In Brooklyn, over 1,100 foreclosures had been filed from January to March compared to about 3,300 for all of last year.
Foreclosures have been increasing for the last several years. The city will likely see more than 10,000 foreclosures this year – almost twice what it saw as recently as 2004.
The surge in foreclosures is at least partly linked to predatory lending practices of brokers and lending institutions. For years, housing advocates in Queens particularly have been calling for tougher action against unscrupulous brokers who convince homeowners and first-time homebuyers to take loans on bad terms. When the borrowers can’t pay the loans, the lender can take the property. As a result, foreclosures lead to the loss of housing for senior citizens and other low-income people, pull wealth out of neighborhoods and rob the city of property tax revenue, at least temporarily.
The problem is nationwide. As many as 2.2 million Americans will face the loss of their homes over the next several years because they will not be able to repay the loans they have taken, according to a report by the Center for Responsible Lending.
The problems leading up to the rash of foreclosures are complicated, but subprime loans are at the root of the increase.
Subprime lending has been a critical part of the nation’s housing boom for over a decade, allowing a lot of people who would otherwise not be able to buy a home to do so. The loans charge higher rates of interest and, in their worst forms – referred to as predatory lending – the loans are foisted upon people in deceitful ways, have exorbitant hidden fees and apply significant penalties if the borrower tries to get out of them later. The rate of subprime lending in New York City has more than tripled since 2002, according to the Furman Center for Real Estate.
The rates of subprime lending here are higher than the national averages. About 23 percent of home purchase loans are subprime, up from just 6.5 percent in 2002. Nationally, the proportion of home purchase loans that are subprime is 17 percent.
Friedheim sees the city’s numbers as ominous. “The subprime market is going bust and so we will see more foreclosures,” she said.
There are two types of cases where someone gets a subprime loan. In the first of the two scenarios, a person who already owns a home wants to refinance the mortgage in order to, say, make significant repairs to the home. In the second scenario, someone is trying to buy a first home. Eager to achieve such a milestone, the buyer neglects to study carefully the conditions of the loan being offered. Unscrupulous mortgage brokers and the lending industry prey on both groups of people.
Kevin Squires, a loan officer at a Queens mortgage company, said the first scenario is common as homeowners are bombarded daily with offers to refinance their homes. The advertisements blare across virtually every medium: A man walking along a city street recently was wearing a bright orange street that declared in large letters, “We buy homes: 856-541-9000.” Late night ads promise “no fees, no hidden costs.”
The brokers are particularly interested in those who already own the home, Squires said. “If you have someone who owes $150,000 but their house is worth $450,000, then they have $300,000 equity in their home,” Squires explained. “The only way they can pull that out is by doing a refinance.” But if the borrower’s credit is not up to par, he or she must go to a mortgage broker and get a non-conventional loan. If the borrower cannot meet the terms of that loan, he or she could lose their home.
But homeowners and first-time homebuyers with good credit are becoming victims of predatory lending as well, said Cathy Mickens of Neighborhood Housing Services in Jamaica, Queens.
“It has spread throughout the community,” Mickens said, affecting middle-income and high-income people as well as those with lower incomes. Some people who could have gone to a conventional lender and qualified for a standard mortgage will instead go to a predatory lender who promises to provide the loan quickly and with no documents required. Often, Mickens said, the result is “a disaster.”
While some have suggested that borrowers are at fault because of their zeal to own a home or get quick money, unscrupulous mortgage brokers, lending institutions and Wall Street investors, motivated by greed and racism, are the driving force.
Brokers and banks have often “intentionally disregarded the facts of the income of the borrower,” Friedheim said. “Even when they see the income and it’s totally predictable that the person cannot afford it, they’ll give the loan anyway.”
Brokers are motivated to foist these loans on borrowers because the brokers get commissions and face no financial losses if the borrower defaults and a foreclosure is initiated.
Once the unscrupulous brokers find a willing homeowner, they effectively prevent the person from comparison shopping: They provide a home appraiser and attorney who help convince the homeowner or homebuyer to sign the loan.
“Eighty to 85 percent of [the subprime mortgage brokers working in low-income communities] operate unethically,” Squires said. “I don’t have anything concrete to prove that figure, but of all the loans I have seen, most people who end up going to these brokers become victims of predatory lending.”
A chain of incentives in the lending industry drives predatory lending. Unscrupulous mortgage brokers chase homeowners and first-time homebuyers because banks will pay the brokers commissions. The banks, in turn, are motivated by the profits they can make by packaging the loans and selling them to Wall Street investors. The investors, of course, are interested in the rates of return on these investments.
“One concern we’ve had is that the market incentives actually favor predatory lending,” said Mary Moore of the Center for Responsible Lending, a nonprofit, non-partisan organization based in Durham, North Carolina, that studies lending issues. “There are a lot of strong reasons from a business perspective to do it.”
On the other hand, Moore said, “brokers have no obligation to give their borrowers the best deal. They get paid whether the loan gets foreclosed or not.”
Predatory lending is an acute problem in the city’s poorer neighborhoods. On the surface, that seems understandable: Subprime loans are meant for risky borrowers who must pay higher interest rates because they are, well, risky. But one study by the Center for Responsible Lending showed that African American and Latino borrowers who would qualify for loans from prime lending institutions are steered toward the subprime market.
Over half of African Americans who get a mortgage get subprime loans, the study showed. For Latinos, the rate was 42 percent. But for whites it was just 19 percent.
“We think there’s discrimination going on,” Moore said. “It’s well known that often brokers steer African Americans and Latinos to subprime loans even when they qualify for other loans.”
Data on subprime lending in the city from the Furman Institute showed the concentration of these types of loans in the city’s poorer neighborhoods. Brownsville and Jamaica, both largely African-American communities, were the highest ranking community districts for subprime lending. In both, roughly 52 percent of home purchase loans involved subprime loans. The top 15 districts include overwhelmingly African American and Latino communities in the city, including Highbridge in the Bronx and Bedford-Stuyvesant in Brooklyn.
“It’s reverse redlining,” Friedheim said, referring to lending practices where banks refuse to loan money to people living in certain neighborhoods – neighborhoods where African Americans and Latinos live. “These neighborhoods don’t have banking services and predatory lenders target them.”
The City Council's committees on Consumer Affairs and Civil Rights will hold a joint meeting on predatory lending in the hearing room of 250 Broadway on April 30 at 10 a.m.
Advocates are urging elected officials to address the problem aggressively.
For starters, they want the city to expand the mayor’s 2005 initiative providing assistance to people purchasing or refinancing a home. The mayor’s “Preserve Assets and Community Equity” program has involved raising public awareness about predatory lending in the hardest hit communities and has included providing counseling to homeowners and community groups on the problem, referring victims to attorneys and helping homeowners find financial help.
Advocates said the city should also increase funding to legal service providers to deal with the problem. Advocates, including those at the organization I work for, want elected official to establish a right to counsel for low-income seniors who face foreclosure actions and housing court cases. They also are urging lawmakers to strengthen laws restricting high-cost loans.
“You need multiple strategies to deal with this problem,” Friedheim said. “The federal government and regulatory agencies have to develop tighter rules. There have to be strong legislative efforts to make sure lenders are accountable when they give an unaffordable loan.”
In 2003, the New York State Legislature passed an anti-predatory lending law. But it only applies to loans up to $300,000. Advocates say that, in light of increases in housing costs, the law should be amended to cover larger loans.
State legislators are currently considering a law on lending for home improvements. Among other things, it would prohibit mortgage brokers from also acting as home improvement contractors. But the bill has been introduced in the Assembly annually since 2003, and the Senate has yet to consider it formally.
Mandated to do so or not, banks should apply good loan-making rules, said Moore of the Center for Responsible Lending. The center applauded an announcement that Freddie Mac, the federally chartered mortgage finance company, would no longer buy subprime loans with terms and conditions that often lead to foreclosures.
“Something serious has got to happen,” Mickens said. “The neighborhoods are at risk now and it’s just going to tear the whole community apart.”
Joe Lamport is the assistant director of the City-Wide Task Force on Housing Court, a coalition of community housing organizations. Â
Residents in Sunnyside, Queens are facing off against each other over how best to preserve the historic Sunnyside Gardens housing development. And the fight may be more about who will be able to live in Sunnyside than the buildings that those people will live in.
On April 17, the New York City Landmarks Preservation Commission will hold a public hearing on its proposal to create an historic district including 16 city blocks and 610 buildings in what would be the largest historic district in Queens. The townhouses and apartment buildings in the district were built in the 1920s and 1930s by architects Clarence Stein and Henry Wright, following the precepts of British planner Ebenezer Howard. Howard proposed building “Garden Cities” with abundant open space to provide housing for working class households in a communitarian environment. They were intended as an alternative to congested industrial cities. The Garden City idea is influential, but Sunnyside is one of only a few examples actually built in New York City or anywhere in the nation.
Sunnyside is already protected from redevelopment pressures by a Special Planned Community Preservation District. In this district, created in 1974, anyone who wants to take down or build any structure, enclose a porch, enlarge a home or put in a garage, driveway or curb cut must obtain a special permit. It also protects Sunnyside’s unique common areas and gardens; permission is required to remove a tree.
To obtain these special permits, the property owner must apply to the Department of City Planning and prepare an environmental assessment. The application then goes through the city’s Uniform Land Use Review Procedure, requiring public hearings and votes by the local community board, borough president, City Planning Commission and City Council. Some property owners have complained that the process is too time consuming and costly. So, for the last several years, the local community board had been working with the Queens city planning Ofoice to address these concerns.
Some residents of Sunnyside believe the zoning district has proved successful. “The zoning district has worked to protect the most significant element of the neighborhood, the open space,” said Hunter College professor Susan Turner-Meiklejohn, who live in Sunnyside and opposes the landmarks designation. “The key goals of the Garden City were not architectural but social,” said Turner-Meiklejohn who has done extensive research on the community. And in any event, she said, Sunnyside is “not an architectural masterpiece.”
But the Sunnyside Gardens Preservation Alliance, which backs the landmarks proposal, believes that the historic district would provide additional protection for the area. Jeffrey Kroessler, a landmark proponent, complains that the current zoning district “doesn’t protect the aesthetic qualities of the buildings.” Some supporters also feel the landmarks procedures would be less cumbersome than those in the special zoning district.
Kroessler, who is also a founder of the Queensboro Preservation League and a recent Sunnyside arrival, sees another advantage to the landmarking: It would move the landmarks commission away from its Manhattan-centric focus. Queens now has only six designated historic districts, a mere fraction of the city’s total.
But the Preserve Sunnyside Gardens Coalition, which opposes the landmarks designation, worries about the costs landmarks regulations would place on building owners. Coalition member Ira Greenberg told the Queens Tribune that replacing a slate roof as required by Landmarks would cost him some $45,000, over 10 times the usual cost.
The dispute in Sunnyside Gardens is in many respects a debate over what aspect of a community deserves protection. Those opposing the landmarking argue that it would preserve architectural details such as roofs, windows, doors and facades times but would make the housing there unaffordable to the moderate-income working class population that is at the core of the Garden City concept. Affordability, they say, is what most deserves to be preserved.
In a heated exchange on WNYC radio’s Brian Lehrer show with landmarks proponent Kroessler, Turner-Meiklejohn asserted that recent demographic changes in the neighborhood have a lot to do with the landmarks proposal. With over 50 percent of the population foreign-born, the non-Hispanic white population is now only around 40 percent, and the social base for new restrictions is in that minority of “old-timers.”
But Kroessler denies that ethnicity or race has anything to do with the matter. He says that housing prices have already been going up in the neighborhood and that has nothing to do with the proposed historic district designation. (Studies have shown that property values tend to be higher in landmark districts).
However, Kroessler did tell the Queens Tribune, “Over the past few years there have been individuals who have done illegal work on their homes and have â€uglified’ their property.”
The argument in Sunnyside reflects a debate taking place throughout Queens, where some resident blame working class immigrants for changes in the urban landscape. Justified concerns about out-of-context building conversions often get mixed with disdain for new foreign-born residents. Crackdowns on building violations and demands for downzoning sometimes target the new populations instead of trying to accommodate them and go after the violators.
While it is a good idea to have strict but sensible regulations that promote good design and aesthetically pleasing neighborhoods, there is a fascination and a value in the immense variety of ways that people alter and decorate their homes. Some of these efforts are beautiful, others are mediocre, and still others are incredibly ugly. The shapes, colors and textures go from glorious to garish. But that is what makes a walk down a New York street exciting.
Tom Angotti is Professor of Urban Affairs and Planning at Hunter College, City University of NY, editor of Progressive Planning Magazine, and a member of the Task Force on Community-based Planning.Â
In recent years, housing advocates in New York have focused on city government. But in just the past few months, that has changed dramatically. Advocates now plan aggressively to push an agenda for preserving the dwindling supply of affordable housing – and they have aimed it directly at state politicians.
A key element is the election of a new governor. During the Pataki years, few housing activists embraced any hope that the governor or the Republican-led State Senate would take any action to preserve and expand affordable housing in the state. The election of Governor Eliot Spitzer has changed that. “Clearly (the political conditions) are the best they’ve been since I’ve been involved in this kind of work,” said Tom Waters of the Community Service Society.
But other developments have also fueled calls for changes in housing policy. First, the Coalition for the Homeless released its annual report on the state of homelessness. Its most salient finding was that family homelessness in New York City has reached a record high.
Second, the city’s commissioner for homeless services, Robert Hess, announced that apartments being considered for subsidies under the city’s Housing Stability Plus rent subsidy program will be subject to more rigorous inspections and must be in adequate condition before the city will lease them. Under the current program, the value of the housing subsidy decreases by 20 percent a year and only people getting public assistance are eligible for the subsidies. Advocates would like to see both those policies changed, and Hess has told advocates that could become reality shortly .
These two developments, along with the changes in Albany, serve as reminders first of the continuing problem in finding affordable housing and second of the ability of concerned citizens to persuade policymakers to make changes.
To address this, a broad coalition of housing advocates and others have launched a campaign around preserving affordable housing. They have dubbed their push “New York Is Our Home! Affordable rent campaign,” are planning a massive rally for May 23 to call attention to the affordable housing problems and set up a Website.
The platform calls for action on four fronts:
--Preserving Mitchell-Lama and Section 8 apartments. Landlords have been opting out of these programs as the terms of their contracts expire. This has increased rents in some of the buildings to market rate, out of the reach of many tenants.
--Repealing vacancy decontrol. This policy, which allows rents to rise in apartments after they become vacant, has led to the loss of as many as 100,000 rent-regulated apartments in New York City since 1997.
--Reinstating operating subsidies for public housing projects the state developed. Pataki did away with these subsidies in 1998 and earlier this year, the housing authority proposed using Section 8 rent subsidy vouchers to pay rent on the apartments. This enraged many advocates, who believe these vouchers should be used to pay for private housing – not for public housing, which, after all, is supposed to be affordable without such vouchers. Using the vouchers for public housing reduces by thousands the number available to help poor families find affordable housing in the private market.
--Limiting rent payments for New Yorkers living with AIDS to 30 percent of their income. The state has proposed having these tenants pay all of their income except $330 monthly on rent.
The platform springs partly from an understanding that, despite its many facets, the affordable housing is a single problem. “We’ve recognized that it’s not good enough to work on Mitchell-Lama over here, to work on rent regulated apartments over there,” Hilda Chavis of the Northwest Bronx Community and Clergy Coalition, told the audience at the recent meeting on the platform.” It all hangs together. If one goes, the other goes. So, we have to work together.”
While Mayor Michael Bloomberg’s housing program has been largely aimed at building more affordable homes, the advocates’ platform focuses on preserving those apartments that already exist – an area, they say, where the mayor has been far less successful.
“Many of us praised the mayor for producing affordable housing,” said Brad Lander of the Pratt Center for Community Development. “But we also recognized that [keeping] the 1.3 million affordable units we have is more critical than ever.”
Julie Miles of Housing Here and Now and the campaign director for the new campaign echoed Lander’s comment. “Locally, the mayor has invested a lot of money, billions of dollars, toward creating new affordable housing,” she said. “But we’re on track to lose hundreds of thousands of units and unless we stop the loss of units, we’ll make no headway in alleviating the pressure on affordable housing.”
The platform has attracted a broad base of support, including housing groups from across the city, politicians, unions and the Working Families Party.
“At the top of everybody’s list is affordable housing,” Miles said. Individual families are paying more of their incomes to rent, elected officials are seeing more of their constituents coming to their offices with housing problems, and union members are saying they need higher wages to deal with increases in rents.
When the New York Times ran an editorial in support of rent stabilization last month, Michael McKee of Tenant PAC said he knew a critical shift had taken place. “That’s the first time the Times has come out in support of rent stabilization in more than 30 years,” he said. “All of sudden editors and reporters have realized that there’s a very serious problem.”
Campaign organizers say that the Bloomberg administration, along with City Council Speaker Christine Quinn and other council members also support their cause.
The new political climate does not guarantee that change will come quickly or easily. “It’s going to be a tough fight,” said Michael McKee of Tenant PAC. “But there’s a chance we could get something this year.”
That possibility has energized activists. “Clearly all of us, across the progressive spectrum, are very excited… at the changing political dynamic,” Bill Lipton of the Working Families Party said at a recent meeting of more than 200 advocates. “It feels like a new moment.”
Joe Lamport is the assistant director of the City-Wide Task Force on Housing Court, a coalition of community housing organizations. Â