“Having more services is good,” said Andra Horgan, a housing organizer with Changer, a 3-year-old citywide organizing effort against predatory lending. “But if there’s not structural change, all you’re going to have is people going to counselors and all the counselors have a choice to do is hold someone’s hand as they go through the foreclosure process.”
Supporters of the city initiative – whose creation was announced by Mayor Bloomberg Dec. 5, but was actually the result of months of independent meetings between advocacy groups, public agencies, philanthropies, and even some of the banks involved in lending for subprime mortgages – acknowledge that the effort is limited because they do not have the power or deep pockets to restructure the troublesome debts. But they say they’re encouraged that more homeowners will have legal and professional assistance.
“I don’t even think it pretends to be a solution,” said Mark Winston Griffith, co-director of the Neighborhood Economic Development Advocacy Project. “This is just trying to get more people doing the day-to-day work helping people in distress.” Foreclosure counseling efforts are hamstrung by lack of staff and support, said Griffith (a member of the board of City Futures, City Limits’ parent nonprofit), and are forced to turn away eight of every 10 homeowners who call them.
“We need to get people counseling so they don’t go right back to the people who got them into trouble at the get-go” for a problematic refinancing package, said City Councilman Lewis Fidler, a Brooklyn Democrat who was instrumental in getting Council to attack the problem two years ago. “But we still need to find a way to overlook the damage that’s been done to their credit score” so they can qualify for refinancing. To Fidler, the Center shows the city is doing its part. The federal and state governments, he said, now have to step forward.
Contrary to what the name may seem to imply, subprime mortgages are high interest loans (sub-prime means that the borrowers are risky candidates for loans), often with rates that start out reasonable but jump—sometimes by as much as five or six percentage points—after two years. They were designed for homebuyers who could not qualify for ordinary loans, but some buyers – including a disproportionate number of minorities – who could have qualified for standard mortgages were steered into taking subprime loans which seemed, at least up front, to be more affordable. According to the Mortgage Bankers Association, close to 3 million American families have these subprime adjustable rate mortgages and another 2.7 million families have subprime fixed rate mortgages.
These mortgages were then packaged by big banks and sold as part of massive, mortgage-backed securities or collateralized debt obligations—financial vehicles that allow individual investors to buy into the returns from the mortgages without buying into any individual home. In themselves, these devices are not new: federally chartered agencies like the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have long supported themselves by packaging their mortgages this way. But many subprime loans were written with little or no documentation of a homeowner’s income and ability to pay.
