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The second mortgage was for $180,000, more than three times what Barnabas paid for the house, and a hefty sum given her $26,000 gross annual income. More significant than the loan's size was the fine print, which reveals the intricacies of a con job that has swept through Bed-Stuy and working-class neighborhoods across the country. Equicredit, the company that provided Barnabas's loan, was a one-stop shop that handled her financing and even the contracting for repairs. One quarter of the money she borrowed$45,000went toward various fees that had nothing to do with fixing her home. Her interest rate was 12.95 percent at a time when the national average was 10.5 percent, bringing her monthly payment to $1981. On her limited income, meeting such a bill left her less than $185 a month to pay the rest of her bills.
Barnabas managed to keep up with the payments for a year, but then found herself behind and staring at foreclosure. It was only then that the extent of the con dawned on her. "They didn't care if I could pay," says Barnabas. "They wanted to take the house away." She was ultimately saved by the Pratt Area Community Council (PACC), a local activist group. Activists say her case was not unique. In the past 10 years predatory lendersinstitutions that lend money with exorbitant hidden costshave encroached upon the nation's poor and working-class urban communities. Spurred on by a booming housing market, Wall Street investment, and revitalized cities, these lenders have made a killing offering bogus loans, foreclosing and then auctioning off the booty.
In Bed-Stuy, the problem has been particularly acute. "I get anywhere from three to 10 calls a day" about predatory lending, says Erika McHale, homeowner counselor for PACC. "Most of them are from Bed-Stuy." But not only are Bed-Stuy's victims in arrears, they're also sitting on prime property. Bed-Stuy has the mixed blessing these days of having become a hot choice for those in the market for houses. And predatory lending is clearing the way.
Much of what gives Bed-Stuy its charm has made the area a target for predators. The neighborhood's most distinguishing feature is its trove of gorgeous brownstones. For years, despite their beauty, these homes did not attract much attention due to Bed-Stuy's reputation as a historically black neighborhood troubled since the '60s with crime and economic decline. Gentrification and an influx of new renters, followed by buyers, has been occurring at the edges of Bed-Stuy for almost 20 years. But with neighboring Prospect Heights, Clinton Hill, and Fort Greene drying up, and residents trying to kick-start development in the neighborhood, Bed-Stuy has become a jewel in the eyes of prospective buyers. "Folks just fell in love with the brownstones," says Don Baylor, legislative director for the Association of Community Organizations for Reform Now of New York (ACORN). "The demand just wasn't there 15 years ago."
This demand has made it hard for longtime Bed-Stuy renters to make the transition to ownership. "People are being priced out," says Sharonnie Perry, a member of Community Board 3, who has spent all her 48 years in Bed-Stuy. "You have people who have [rented] here all their lives but they are being priced out."
Those who do own homes are often longtime residents who, while not having much income, do have a nice stash of equity in today's market. "The folks I have seen in Bed-Stuy have all been seniors," says Tara Benigno, housing developer for ACORN. In short, Bed-Stuy, with a large population of elderly African Americans with wealth invested in their homes, meets the exact demographic that attracts predatory lenders. "The predatory lenders came in, and they said, 'We can give you this and that,' " says Perry. "They came and lent the money, and it was a scam. The same houses they took from our seniors are the ones they were selling back to us."
Recently, older black working-class neighborhoods beset by predatory lending have become a cause célèbre for local housing activists. Their efforts have yielded fruit in the form of state legislation that not only protects victims from foreclosure, but also allows them to sue the lender and secondary parties who may have provided capital. A City Council bill currently sitting on Mayor Mike Bloomberg's desk goes even further in that it bans the city from doing business with predatory lenders and those in the secondary market who purchase their loans.
It is the "secondary market" in both pieces of legislation that concerns Michael Williams, vice president of legislative affairs for the Bond Market Association, which represents investors who sometimes buy sub-prime loans, which may or may not be predatory.
"We feel the legislation will drive our members out of the sub-prime market," says Williams. Predatory lending mostly occurs in the sub-prime market, which makes loans to people who are deemed credit risks. But not all sub-prime lenders are predatory, and many legitimate lenders have been tarnished by the actions of those that are crooks. Indeed, all sides agree that sub-prime lending helps people get credit who would otherwise be shut outpeople like home owners in Bed-Stuy. "The very people the legislation is supposed to help will be adversely affected," says Williams. Activists counter that legislation in other areas has done little or nothing to reduce sub-prime lending. "Sub-prime credit has not been driven out at all," says Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project.
The problem is that the elderly borrower in need of cash rarely can tell the difference between the predatory lenders and others. In 1995, when Mary Lee Ward needed $10,000 to continue a legal fight for her great-granddaughter, she was told by Tarheel Funding on Flatbush Avenue that in order to receive a loan of that amount the company would have to pay off an outstanding debt of hers that was not in fact in arrears. She only received $1400 of the loan and then found herself over $80,000 in debt to Delta Funding Corporation, a lender that has since settled a class-action suit brought about by the company's lending practices. When Ward, who lives on Tompkins Avenue in Bed-Stuy, found out Delta had not only made a deal to finance $10,000 that she never received but refinanced her old debt at a higher interest rate, she rescinded the loan. "I said, 'Oh no. They have to kill me first,' " says Ward. "They can't just do elderly people like this."
Seven years after she rescinded the loan, Ward still finds herself in danger of foreclosure. Ocwen Financial Corporation has since acquired the loan from Delta, and now has gone all the way to Brooklyn Supreme Court in hopes of foreclosing. Should Ward's home go into foreclosure, she will likely test the boundaries of the new state law. "What they did to me shouldn't happen to a dog," says Ward. "That's a tough thing. If I wasn't a true Christian, I'd be dead."