Public Employee Press

1st in a series on the housing and mortgage crisis

FORECLOSURE
Is your home in danger?

By DIANE S. WILLIAMS

Have you seen the commercial where an average Joe has an above average home with a three-car garage housing two SUVs and a sedan, a lawn like a putting green and an in-ground pool — the American Dream? How did he get it?

“I’m in debt up to my ears,” he says.

An astonishing number of foreclosures in recent months is turning the dream of home ownership into a financial nightmare — not just for homeowners who used subprime or adjustable rate mortgages to get their dream house, but for many others now connected in a global economy.

Subprime mortgages, those exotic, too-good-to-be-true loans with adjustable rates (ARMs), low interest or no interest (balloons), no down payment, and no income documentation mortgages have been sold even to people with poor credit, making millions of Americans into homeowners.

The U.S. home ownership rate jumped to 67 percent in 2005, up from 64 percent in 1990. In New York City it climbed to 33 percent, from 29 percent in 1990, according to the Dept. of Housing, Preservation and Development.

The easy-credit housing boom has led to a subprime meltdown and a foreclosure crisis that has snared many first-time homebuyers struggling to keep their homes as their mortgage payments swell.

Warning signs
Working-class people, African Americans and Latinos — including some DC 37 members — have been the top targets of subprime mortgage sellers and the worst hit by foreclosures.

Missing two or three mortgage payments is a clear warning sign that foreclosure looms, say union attorneys.

“We can often help members save their homes,” said DC 37 Executive Director Lillian Roberts. "The important thing is to act quickly when you think you may be getting into trouble.”

Members who believe they are facing fore-closure should get in touch with DC 37’s Municipal Employees Housing Program at 212-815-1814, or with the union’s Municipal Employees Legal Service at 212-815-1111, said Assistant Associate Director Henry Garrido.

In the Big Apple, the number of foreclosures jumped 55 percent in 2007 from 2006, according to California-based RealtyTrac.com. Nationally, foreclosures are up 93 percent over last year.

Hardest hit are people who bought homes two or three years ago in inflated housing markets like New York City. Their subprime mortgages may now cost hundreds of dollars more each month. These high-risk borrowers are usually loaded with other debt — car loans and mounting balances on credit cards that banks notoriously mail to new homeowners.

Who’s to blame?
As the foreclosure net closes, those in it go from boom to bust, experts say, because the average working person has already borrowed from Peter — and can’t pay Paul. In the end they lose their homes and forfeit any equity or down payment.

“Brokers and banks are tremendous parts of the crisis. They lent money to people who are simply unable to pay,” said Bob Martin, the associate director in MELS. “They have sucked people into bad deals and convinced unaware consumers to buy under bad conditions.”

The NAACP has filed a lawsuit that spotlights a central aspect of the problem — racial bias. The June class action suit charged 14 banks and ­subprime lenders with “systematic, institutionalized racism” in making mortgage loans.

The nationwide civil rights case is based on studies showing that lenders saddled African Americans with overpriced subprime loans more than twice as often as whites. Banks made subprime loans to highly qualified African Americans 54 percent of the time compared with 23 percent of the time to whites — even less-qualified whites, said one study.

Predatory lenders
Latinos and Asian Americans were also singled out by predatory lenders, and even high income levels did not protect minority borrowers from being unfairly targeted. Predatory lenders also target seniors, whose homes are paid for, offering them overpriced home improvement contracts that balloon like ARM mortgages.

“There is ample proof nationally that some of the subprime lending has been targeted at the low-income and minority areas where many of our members live,” Martin said.

“An owner who falls behind in the mortgage may be approached by lenders and brokers offering to refinance the loan, but be careful!” cautions Martin. “If a refinance loan involves a higher interest rate, high fees, and reducing the equity in your home, it’s not a good deal. It’s also a no-no to consolidate credit card debts into a mortgage, because you are converting unsecured debt into secured debt — if you don’t pay, you can lose your home.”

Martin strongly advises homeowners to call MELS for advice before re-financing.

“MELS will defend legally those facing foreclosure and victims of predatory practices,” he added. “No DC 37 member should agree to an adjustable rate mortgage; a fixed rate mortgage is always better. Any time a member begins having trouble making mortgage payments, thinks he or she is a victim of predatory practices, or simply wants advice on buying a home or refinancing, they should call us.”