In 2006, 9,088 homes in New York City were in foreclosure. In the first six months of 2007, 6,743 homes entered foreclosure proceedings.
Illustration courtesy of the Center for Responsible Lending
By Eileen Markey
Thanks for nothing. That’s what sub-prime mortgage victims in New York’s at-risk neighborhoods are saying about the Bush administration plan to freeze interest rates for homeowners whose sub-prime loans are set to balloon next year.
The plan, which asks for voluntary participation from banks that made the mortgages, will freeze interest rates on sub-prime loans for up to five years, meaning the homeowners would get to keep paying off their mortgage at the current interest rate, not the higher ones looming. But only homeowners who are less than a month behind on repayments, receive their mortgages in 2005, 2006 or 2007 and whose interest rates will not reset until 2008 are eligible.
“It sounds like its going to be a very small group of people who are helped,” said Eric Fergen, outreach coordinator for University Neighborhood Housing Program, a Bronx organization that advocates for affordable housing and has been researching risky sub-prime mortgages for several years.
A UNHP study found more than half of the foreclosure filings in the Bronx in 2006 and 2007 happened when the mortgages where less than two years old, suggesting even without the exploding adjusted interest rates many homeowners couldn’t afford their homes to begin with, Fergen said. “Those people are not going to benefit at all,” he said.
But UNHP and other groups advocating a more substantial solution to the sub-prime mortgage meltdown say people who signed bad loans deserve help because the loosely regulated investment banking industry pressured their sub-prime lending partners to make risky home loans then packaged and sold the mortgages for investors: the riskier the loan the bigger the gambling pay off. For an in-depth look at how the investment banks profited off all of this, read “Wall Street and the Making of the Subprime Disaster.”
The meltdown isn’t simply the result of irresponsible buyers taking out a bigger loans than they could repay, Fergen said. “The lenders and brokers were aggressively pushing these products, even when some people could have qualified for a regular prime rate mortgage,” Fergen said. “Brokers get a larger commission based on a higher interest loan.”
Margaret Groarke, a board member of the NorthWest Bronx Community and Clergy Coalition, which is pressuring for an across the board freeze on all sub-prime mortgages and the establishment of an assistance fund for borrowers said homeowners aren’t asking for a bailout or for the government or anyone else to pay off their debt.
“We’re not asking anyone to give out money. We are asking for a reasonable loan rate,” she said. The assistance fund the Northwest Bronx Community and Clergy Coalition and other members of the Save the American Dream coalition advocate would cover the costs of refinancing loans, basically closing costs, not the loans themselves.
The Center for Responsible Lending, a nonprofit that studies predatory lending nationally, estimates only 145,000, or 7 percent of the 7.2 million families with sub-prime mortgages will get any relief under the Bush plan. But 14 percent are already in foreclosure, and a December 2006 study by the Center for Responsible Lending projected 2.2 million families who signed sub-prime mortgages between 1998 and 2006 have and will lose their homes in the next few years.
In the five boroughs, 6,743 homes entered foreclosure proceedings in the first half of 2007, according to mortgage default filings. The full year figure is set to outpace last year’s 9,088 NYC foreclosures. According census data and foreclosure actions analyzed by Neighborhood Economic Development Advocacy Project, and NYC non-profit, foreclosures are most common in neighborhoods where more than half of the residents are black and Latino. Check out this map for a wave of woe.
Those patterns echo Center for Responsible Lending analysis of federal banking data which found that 52 percent of home loans made to African Americans in 2006 were sub-prime, compared to 40 percent of home loans made to Latinos and 22 percent made to non Hispanic whites.
All those people who are already in foreclosure will be left out of the Bush plan. So will the homeowners whose adjustable rate mortgages or ARMs have already adjusted or will before January.