Home Economics

“Buy it, let him stay, charge him rent,” shrugged the friend. “Tell him if he misses a month you’ll kick him out.”

The group was waiting for a foreclosure auction to begin, as it does each Thursday afternoon in the cavernous jury-selection room of Brooklyn’s Supreme Court. There, small-time realtors and investors--mostly young immigrant or ultra-orthodox Jewish men--bid on houses people like the screaming guy lost because they couldn’t make their mortgage payments. The auctions have been going on for years in the boroughs. But lately, more homes are headed for the block. Totals for 2003 aren’t in yet, but preliminary data compiled by the Furman Center for Real Estate and Urban Policy indicate that foreclosure claims in Brooklyn rose from 2,629 in 2001 to 2,970 in 2002--an increase of about 13 percent. During the same period, the Bronx saw a 27 percent increase: from 915 claims to 1,164.

One reason for the rise in foreclosures seems to be the economic downturn that began needling New York City in early 2001 and then stabbed with a vengeance after 9/11. According to statistics compiled by the Community Service Society, the increase in joblessness is steepest among blacks and Latinos, particularly men without college educations who do blue-collar, clerical or administrative-support work.

During the national economic boom of the 1990s, many in this demographic saved enough money to buy homes for the first time. Some purchased one-family dwellings; others chose multiplexes where they could live but also get tenants to help pay the mortgage.

These were fat years even for struggling neighborhoods. During the 1980s and early 1990s, the New York City Housing Partnership, Neighborhood Housing Services, and other groups worked with the government and banks to build and rehab affordable housing for sale to lower-income buyers, and to help those buyers obtain mortgages. The groups aimed to revitalize neighborhoods by helping people with modest incomes achieve financial independence. Home equity, the thinking went, would create stable individuals in settled, prosperous communities.

The Jeffersonian ideal of property ownership has always loomed large in the nation, and it was boosted when President Clinton set a goal to raise the national homeownership rate to 67.5 percent by the millennium. Today, 68 percent of American households own their homes. HUD wants to raise that rate two points in the next three years, as well as bring homeownership rates among minority households up to the same level as whites’.

But lately, hoary ideals have brushed against a bad economy. Since New York’s recession began over two years ago, many homeowners and their tenants have had work hours cut, or been laid off altogether. According to the New York State Department of Labor, since May 2001, unemployment in Brooklyn has gone up from 5.7 to 9.1 percent. In the Bronx, it has shot from 6.2 to 10 percent.

Housing counselors say they’re seeing more people of modest income who have missed mortgage payments and gone into default or foreclosure. At Neighborhood Housing Services, Ken Davis, director of the agency’s Foreclosure and Predatory Lending Prevention program, says that since early 2003, his office has been doing foreclosure counseling for 10 or 15 more clients each month than it used to. “It’s a 25 to 50 percent increase,” notes Erskine Kennedy, a coordinator with the same program.

The damage is hardly as visible as it was during the foreclosure epidemic of the 1970s and 1980s. Back then, acres of abandoned homes gave a bombed-out look to areas such as Sunset Park and Jamaica. But when people lose their homes to foreclosure today, speculators buy and flip for a higher price, and new buyers take over. Sometimes they simply flip and flip again. Other times, they move in, but leave a few months later when they, too, are foreclosed upon. Or the speculators, like those at the courthouse auction, rent to tenants, then skimp on maintenance, since their main goal is to retain profit before they eventually flip again. The neighborhoods, transformed with the help of two decades of homeowner investment, look strong. But there’s pain and rot within.

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“This is the worst thing that’s ever happened to me. Don’t use my real name--just call me Fish, my nickname from when I was a child in Belize,” said the owner during an interview at his Cypress Hills home, whose $1,727-a-month mortgage he has been been unable to pay for months. Now jobless after two decades of steady employment, Fish spends his days looking for work and worrying to the point of obsession. While talking, he tugs and tugs on his curly beard. If whiskers were misfortunes, he’d have straightened his out long ago.

His problems started shortly after 9/11. Until then, Fish was doing all the construction work he could handle--”jack-of-all-trades stuff,” he calls it--for New York City companies like Con Ed. The money was good. “It was union. Thirty dollars an hour. With overtime I was taking home $1,600 to $2,300 a week.”

But in February 2002, Fish was laid off from his job with a company that was doing subcontracting work for Con Ed. Eight months passed before he went back to work, with another private company that was making sidewalks for the city. When that job ended in December of last year, the company laid off Fish and promised to call him back when another project came up. He never heard from them again. Since then, Fish has landed only a few hours’ work a month, though he visits job sites regularly.

“At first I went through my savings,” he says. “Then my checking. My Christmas clubs. Then I couldn’t pay no bills. I’m a diabetic--there are times I can’t pay for my medicine. The gas company is taking me to court. Going down like this is very hard.” In the spring of this year, Fish got a letter telling him he was in default on his mortgage and threatening foreclosure.

Fish wasn’t the only homeowner in Eastern Brooklyn getting a warning notice. For the year preceding July 2002, according to data compiled by the Neighborhood Economic Development Advocacy Project, East New York saw 410 defaults, compared with 361 during the previous year.

Fish and his Grenada-born wife raised their four children in an apartment in Cypress Hills--a slice of East New York bounded by Atlantic Avenue to the south and Van Sinderen Avenue to the west. When they first moved there in the late 1980s, the area was still in crisis. Blue-collar Irish, Italian and Jewish residents had predominated in East New York until the 1960s. Then, a racist system of redlining, blockbusting and foreclosure led to white flight and segregated settlement of poor African Americans and (particularly in Cypress Hills) Puerto Ricans. Businesses pulled out. Rioting followed, along with an underground economy based on prostitution and narcotrafficking.

Compared with East New York as a whole, Cypress Hills has an abundance of single-family houses and homeowners. Even so, the neighborhood shared in the general devastation. By the early 1980s, remembers Cypress Hills LDC Executive Director Michelle Neugebauer, Fulton Street--the neighborhood’s main shopping strip--was a wasteland. “There were a lot of vacancies, arsons and demolitions, as well as scattered housing abandonment,” she says. Carmen Carrillo, president of a local block association who has lived in Cypress Hills for 15 years, remembers how abandoned houses in the late 1980s “were havens for drugs and prostitution. And there was a time when you saw rats around the houses.”

Since then, says Neugebauer, her organization has “rehabbed almost every city-owned building that used to exist here.” The effort has created 206 units of affordable housing, including 75 homes for sale. Another organization, Neighborhood Housing Services, rehabilitated a handful of houses on Fulton Street in the 1990s through the city’s StoreWorks program. Further south in East New York and elsewhere in the city, groups like East Brooklyn Congregations, East New York Urban Youth Corps, and Mutual Housing Association of New York joined giant efforts like the New York City Housing Partnership to change the face of low-income New York by creating affordable housing people could buy instead of rent.

Today, Fulton Street is chockablock with hardware stores, 99-cent emporia, and Caribbean and Salvadoran cafes. The worst of the black-market economy has abated. Cypress Hills residents continue to struggle: Median family income in the neighborhood is $29,000--only 78 percent of the city’s--and almost a third of the households are below the poverty line. Still, “I’ve seen a lot of changes,” Fish says. “There are new houses in the last five years and new people moving in. You won’t find no drugs or robbery. People are always trying to look out for each other. Everybody gets along.”

Fish got homeowner fever three years ago. “They were remodeling this house down the block from our apartment. We came by and looked, and my wife and I fell in love with it.” He proudly points out the roomy kitchen, the five bedrooms and three bathrooms. The price was attractive: $217,000. To finance the mortgage, Fish got a Federal Housing Administration loan at 7 percent interest.

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Mention the FHA to community developers like Neugebauer, and you often get an “uh-oh, here we go again” look. That’s because poor, minority neighborhoods have been victimized during the last 15 years by predatory lenders who use the FHA to exploit people who lack experience with loans.

The first wave of predatory lending, in the mid-1990s, victimized senior citizens by pressuring them to get home repairs, then steering them into the high-interest subprime mortgage loan market. Many borrowers lost their homes because they could not make their payments--but the banks hardly noticed, because FHA insured the loans against default. Shady realtors and lenders often “flipped” the foreclosed properties by buying them at auctions, then reselling them at ever-higher prices. Again, they took advantage of the FHA.

Realtors also bought decrepit, foreclosed houses, made cosmetic repairs, then advertised them to “first-time owners” who often couldn’t really afford a home. These realtors sent the FHA misleadingly rosy reviews of buyers’ finances, and appraisals that intentionally ignored structural defects. Purchasers have ended up with overpriced, distressed properties in need of major rehab that many can’t pay for. Houses have been foreclosed. Then they’ve been “flipped” to other naïve buyers, at higher and higher prices.

This scenario is especially pronounced in New York City--and so is the foreclosure rate for FHA-financed loans. Nationally from 1992 to 2002, it doubled. In New York City it shot up sixfold.

Cypress Hills LDC subscribes to a local service that sends out weekly listings of every owner in default on a mortgage. Foreclosure prevention workers Rene Arlain and Odell Suero regularly comb the list and mark the names of owners in the East New York/Cypress Hills area. Then they send out letters, offering counseling to help fight foreclosure. In the months after the World Trade Center attacks, Arlain began noticing the list was getting longer. “Our counselors,” he remembers, “were talking a lot about people who’d lost employment or were having difficulties collecting rent from tenants who’d lost work.

From their offices in Manhattan’s garment district, Neighborhood Housing Services counselors Kennedy and Davis also help people living throughout the city who are threatened by foreclosure. Even before 9/11, NHS was seeing more of them. “They’ve lost civil service jobs, manufacturing jobs, jobs that paid $35,000 to $55,000 a year,” says Davis. According to Cypress Hills LDC’s Suero, these people “are using their credit cards to pay their bills. Then, to pay off the credit card debt, they’re trying to refinance their mortgages.” That move can push them into the clutches of predatory lenders.

During the recent refinancing boom, Kennedy says, whole neighborhoods were targeted. “People are coming to us whose original mortgages were 7.5 to 10 percent; now their second mortgage is 12 to 18 percent. Many of these new loans are predatory--but again, not all.” Other home counselors agree that predatory lending is not the only problem, or even the main one. “I would say 50 percent of the loans in default that I’m working on now are legitimate subprimes or conventionals,” says Erica McHale, a counselor for Pratt Area Community Council, which helps homeowners mainly in the Bedford-Stuyvesant area of Brooklyn.

South and east of Bed-Stuy, Canarsie has also experienced an uptick in mortgage defaults, according to statistics available at Cypress Hills LDC. One Canarsie resident worried about losing his home--he asked to be called “Andy”--is threatened by foreclosure even though he has a low-interest loan. Andy is a Panamanian with Afro-Caribbean ancestry and an English surname. He lives with his wife and seven children near the last stop on the A train. The area is edgy but vibrant. Litter mars the curbs, but the wood-frame houses are freshly painted, and breezes from Jamaica Bay ruffle leaves on tree-lined streets.

Andy and his family are relieved to be here. They arrived in early 2002 from Bushwick, where they were disgusted by the glut of street drugs and substandard apartments they were compelled to live in. “A pusher in the park tried to sell to my son when he was 13,” remembers Andy’s wife. Another son got lead poisoning from paint in the family’s dilapidated rental. Even putting up with bad conditions did not assure stability. “We were jumping from apartment to apartment,” Andy says. “When you have seven kids, landlords will take you one year, then get rid of you so they can get a big vacancy increase. That’s why I bought this house.”

It’s a sprawling duplex with four bedrooms in each unit. The price was $330,000. Several years earlier, Andy was injured in a car accident, and recently he won a large cash settlement. He used it for a down payment, which enabled him to get an FHA loan at only 5.25 percent interest.

Even so, his loan had predatory earmarks. Andy’s job is in Midtown, and his tasteful suits and ties make him indistinguishable from a professional or executive. In fact, he works in administrative support; when he bought the house, he was employed by a company that handles copying, mail and messenger service for large law firms. His monthly take-home pay was less than $3,000--hardly enough to cover his $2,300 mortgage payment. No problem, the mortgage company assured him: just rent the other half of the house to a family with a Section 8 voucher, and they’ll end up covering most of house payment. So Andy rented to a family of nine, for $1,500 a month. After everyone moved in, he discovered a serious leak in the roof that would take real money to fix. Still, the finances seemed manageable.

Then things turned sour. After 9/11, his company lost its contract with the law firm, and Andy was laid off for months. Eventually the law firm directly rehired him, for little more than half what he’d previously earned. By the time he returned to work, Andy was hopelessly behind on his mortgage payments. He had not been able to depend on his tenants to help. The head of that family has a low-paid job with Airborne Express; his wife is a home-health attendant. They are chronically tardy with the rent, or only pay part of it. “They’ve got seven kids and they’re struggling just like us,” Andy says. “I can’t put them out.”

Tony’s wife has tried to help by finding a job. In years past, she worked in home health care and in a hospital kitchen. But when she puts in applications these days, she says, “All I hear is, ‘We’ll call you.’” A daughter who is in the Navy sends a little money each month.

“What will happen if I lose the house?” Andy asks rhetorically. “I don’t think about that because I just don’t know.” What’s virtually certain is that a block in Canarsie will lose a family, and their house will be empty for a while.

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But probably not for long.

Foreclosure used to leave homes empty and boarded up for months or years. Even today, Cypress Hills LDC’s Neugebauer says, almost every block in East New York has at least one foreclosed property. If abandoned for long periods, she says, “they’re an eyesore. They get broken into. They’re vandalized. Antisocial behavior happens in them.”

Yet few look this bad. On a four-block stretch of Hendrix Street with several foreclosed homes, one is plagued with boarded up windows and weeds, but another looks occupied and normal. A third, otherwise tidy place shows water damage, but a fourth has newly grouted brickwork. Foreclosed homes nowadays are “largely being turned around quickly,” Neugebauer says. “Abandonment isn’t happening.”

Instead, there’s been a wave of quick flips pushing prices higher and higher. Ray Adkins, Director of Community Development at Cypress Hills LDC, notes that because of the weak stock market, many investors--virtually none of them local residents--have turned to real estate, even in struggling communities like Cypress Hills. They’re most likely to buy HUD property, since that agency “owns more foreclosed homes than any other entity here.” HUD’s appraisal prices, Adkins says, “have skyrocketed 100 to 200 percent in the last few years.”

With virtually no subsidized building or rehabilitation of homes currently going on, Adkins says people in Cypress Hills end up buying overpriced homes they can’t afford. To make matters worse, the properties often have “serious defects that have been slapped over” with grout work or a coat of paint. These are the homes that typically go into foreclosure. But, says Deb Howard, director of homeowner services for the Pratt Area Community Council (PACC), in Bed-Stuy, another buyer always comes along quickly--then another. “I’ve seen the same company do three flips. The lenders push for foreclosures because they can take back the house and sell it for $425,000. It doesn’t pay for them to work out a settlement with the owner.”

Foreclosure prevention counselors have varying success helping their clients. “We save the houses of almost everyone who contacts us,” says Suero, of Cypress Hills LDC. “If we can, we refinance at a lower rate--we can get them down from 8 to 5 percent.” [See “High Refinance,” below.] Howard notes that late last year, Governor Pataki signed a bill into law to combat predatory lending. It outlaws loans that exceed the Treasury rate by 8 points or more, and if a lender violates the law, a borrower in foreclosure can stop the proceedings. “You can get some relief for buyers by going to court and defining their loan as predatory and stopping a foreclosure,” says Howard.

But that loophole doesn’t address complications of the economic slump. “People who bought with FHA and an 8-percent loan, then lost their jobs--they don’t fit the letter of the law,” says Howard. “They have no protection.”

How many people actually lose their homes? Perhaps most of them. Counselors at agencies like PACC, NHS and Cypress Hills LDC try to arrange repayment or mortgage refinance plans for clients in default. If worse comes to worst, there’s always bankruptcy, which stops a foreclosure. The counselors say they can help most homeowners who seek their assistance. But, says Suero, nine out of 10 people in default to whom he sends letters never respond. In all, he estimates, only one in 10 or 20 homeowners who go into foreclosure manage to keep their property. Activists worry that the constant churning of homes and people caused by foreclosure weakens communities already suffering from the economic downturn.

“Cypress Hills LDC runs a food pantry,” notes Neugebauer, “and these days we have a lot more requests for emergency food than a couple of years ago. Our after-school program is overextended because more and more people are trying to work and need child care. At our job center on Fulton and Schenk Streets, traffic has almost doubled since 2000.” In this context, says PACC’s Howard, foreclosure becomes “incredibly destabilizing to a community because people don’t stay. Essentially, equity is drained.”

So are people like Fish. The counselors at Cypress Hills LDC are trying to save his house, but to do so and avoid bankruptcy, he will need a job. So far he’s had no luck finding one, even though he spends most of the week looking.

“I leave my house at 4:30 a.m., Monday through Friday, and get back at 9:30 or 10:30 p.m. I go to construction sites in the Bronx, Manhattan, Staten Island, Long Island City. I put my name on the lists. I talk to other laid-off workers who are there just like me, looking for work. We all huddle and say a prayer that maybe things will change real soon. We try to hold our heads up.

“What will happen to my house and my family if I don’t get a job?” Fish asks. “Lady, I don’t want to think about it.” He does anyway. You can tell by how he tugs--and tugs--on his beard.

Research assistance: Megan Kenny

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SIDEBAR: High Refinance

For two years now, the Parodneck Foundation, South Brooklyn Legal Services, Fannie Mae and other organizations have been refinancing New York borrowers out of predatory debt. During that ongoing project, credit counselors found people paying as much as 70 percent of their income to interest on subprime home loans--loans with high interest rates, which are supposed to reflect the fact that subprime borrowers are higher credit risks.

Many of those subprime mortgage-holders actually qualified for lower-interest, market-rate mortgages. “The majority of loans made in the Northwest Bronx are subprime loans,” says Howard Banker, vice president for programs at Parodneck. Most borrowers, though, “are much better credit risks than the rate on their loans would indicate.” Lenders heavily advertise these loans, emphasizing that they can be secured quickly; borrowers often don’t realize they qualify for lower rates.

So in the spirit of the recent refinancing boom, Parodneck and a coalition of Bronx nonprofits are launching an initiative this fall to help people paying high interest on subprime loans refinance into market-rate conventional loans. In the process, the community groups will be competing head to head with subprime lenders

The Northwest Bronx Fair Lending Initiative, funded by a grant from New York Community Trust, is a pioneering effort to help borrowers refinance subprime loans by brokering fair deals with major banks and credit unions. The goal is “an ongoing marketing campaign to steer people away from unnecessary subprime loans,” says Banker.

The Fair Lending Initiative seeks to educate borrowers through outreach with community and religious groups, as well as print and television ad campaigns. A toll-free hotline, 800-261-7012, will give callers not only fair lending information but referrals to credit counseling, social services and legal help. “The object is to provide people with options that work,” Banker says. A broad range of community and social service groups are participating, including the Mosholu Preservation Corp., the West Bronx Housing and Resource Center, University Neighborhood Housing, the Urban Justice Center and SEEDCO.

Bronx-based BethEx Federal Credit Union is also on board, getting the word out through its 10,000 members. BethEx will counsel people whose credit ratings have been damaged by bad loans, and it will be able to broker fair loans itself.

Parodneck will serve as a loan broker, too, passing qualified customers on to one of six participating banks: Chase, Bank of New York, Greenpoint Savings, Citibank, Washington Mutual and HSBC. Major financial institutions historically have underserved Bronx borrowers, and the project stands to quickly build the big banks’ presence in the borough.

Banker said he hopes the Bronx initiative will be a model to combat subprime lenders in other communities: “Ideally, we want to do this many times, all over the city.”

--John Tozzi