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The melt-down in the sub-prime mortgage market has gotten a lot of ink this month-- but until you look at this map, it's hard to understand the true impact of these kinds of loans on the city. These subprime companies target low-income families with teaser-rates and special promotions, and often get them sign to up for mortgages without even checking to see if they have enough income to make the payments. The Daily News reports:
"Loan companies are going out and bombarding these owners, many of them senior citizens, to convince them to take home equity loans," said Yvonne Reddick, district manager of Community Board 12 in Southeast Queens. "How do you give someone a loan when the monthly payment on that loan is higher than the person's income? It's a disgrace.""We need to get the attention of the attorney general and DA's office," said City Councilman Leroy Comrie (D-Queens). "A lot of these activities are illegal. We have a high rate of senior citizens and immigrants here, and these lenders are preying on the elderly with reverse mortgages that are really subprime loans."
And of course, the defaults are most concentrated in low income, Black and Hispanic neighborhoods, which already face a host of other challenges. This kind of predatory lending just makes things worse for the people who live there.
Related: The New York Times has a similar story about defaults in Newark-- along with an informative map.
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Ahem!! That would be:
M A Y H E M.
while these companies are predatory in nature, they are not holding a gun to people's heads to get them to sign the loans. I imagine the loans are written in a complex and not at all transparent manner, but as much as the companies shouldn't sign loans to people with less income than their monthly payment, neither should individuals or families take out loans that they cannot afford to pay.
It's all about the American Dream, yes? If you can afford it, that is. One dot below 115th. I guess no one else in Manhattan needed/wanted/was forced to have these types of mortgages.
Actual, cold, I have heard that people have gone to the bank, after paying their fees and putting money down to sign the papers for one loan, and then are told that they have only been given these types of loans. If they didn't sign, they would loose their money, and if they are in the middle of selling one house and buying another, then it's a problem. So, warm up that hart a bit. Sometimes it's not their fault.
> I guess no one else in Manhattan needed/wanted/was forced to have these types of mortgages.
Or if they were, they can still pay them. Don't forget most subprime mortgages are NOT in default!
It's interesting that a decade ago, the biggest knock against lending institutions was that they were accused of redlining, i.e., refusing to issue loans to people in minority communities. Now they are accused of being too willing to originate loans in these same neighborhoods. I'm agnostic on who's more to blame, borrowers or lenders, but I think it's fascinating that a perceived economic ill did such a dramatic 180 in such a short period.
It appears to be the filing of a lis pendens (the first step in the foreclosure process) that lead to a dot on the map, not the entry of an actual foreclose judgment. Only a relatively small percentage of lis pendens filings - I don't have the time right now to research how many - result in foreclosures, as the borrowers usually work out their defaults with their lenders. Few if any mortgage lenders actually want to take properties by foreclosure.
Of course the map does show the distribution of mortgage defaults by neighborhood. The proliferation of red dots in certain areas does not, however, mean that there are huge numbers of people being thrown out onto the street.
"predatory lending"? What the fuck? That's so condescending. It's actually liberal racism. "Don't take advantage of poor blacks and hispanics cause they are DUMB and UNEDUCATED and don't realize they have to pay back loans!"
no subprime mortgage is going to make a manhattan property , even as an illusion, affordable. i doubt there are very many at all.
Good point, renter.
really jake, the idea that poor people somehow don't deserve credit is incredibly condescending.
predatory lending"? What the fuck? That's so condescending. It's actually liberal racism. "Don't take advantage of poor blacks and hispanics cause they are DUMB and UNEDUCATED and don't realize they have to pay back loans!"
[8] Posted by: koko | March 28, 2007 12:07 PM...and why are you so angry?
Sad, sad, little boy. To live a life of no compassion must be exhausting...I think you need to unload that provincial chip off your shoulder sweetie.
squidfly - so the idea that the poor need paternalistic measures to prevent them from making "bad decisions" is somehow not condescending?
squidfly:
How about some compassion for the people actually making their subprime mortgage payments? Shifting the responsibility for defaults to the loaners will make it more expensive (if not impossible) for everyone in this bracket to get a mortgage.
Elderta, I doubt that most of the defaults are caused by such tactics. On the other hand, check out a few different institutions and don't hand over money until you have papers to sign (and then, I don't know, read them carefully). I understand that there are circumstances outside of lenders' control sometimes, such as loss of income due to unexpected circumstances and that there can be time constraints on getting the funds necessary for a sale to go through. But isn't it better to take that extra time and find a loan that you can afford rather than hope no one notices that you can't pay your bills?
A big reason why there are so few defaults in Manhattan is that co-op boards would never approve of anyone with a dodgy loan.
Most Co-Op boards in NYC require no more than a .5 Loan to Value ratio and some won't accept ANY mortgage at all - 100% cash only. If you can afford to put 50% down you don't need a subprime.
The problem with these types of loans is that disclosures are usually made in written form and a lot of borrowers don't bother to read them. In addition a lot of these borrowers do understand that teaser rates will disappear and that there will be principal balloon payments at reset for the popular Interest Only mortgage. But they don't care. They are betting that the value of the house will rise and they can quickly "flip" the house for a profit. Out and out gambling.
Only 19% of subprime loans are original mortgages. 81% are refis, which means that people have already qualified for regular loans but want to lower their payments so they can spend more of their monthly earnings on other things. I have no sympathy for people who do this. However I have no doubt that the Democratic COngress will come up with something that will soften the blow to the other 19%.
(Disclosure: I'm a law student at Brooklyn Law School).
Firstly, to Koko, "predatory" is a term that has to do with the interest rates the banks charge, not with the individuals who take the loans.
Secondly, to Lexiphane, it's interesting to note how, when bankruptcy laws changed (making it harder for people to discharge debts when debts are overwhelming) predatory lending INCREASED. Who do you think lobbied Congress to make sure that it was harder for people to file for bankruptcy relief?
I'm with rhony2. It's hard to have sympathy for people who 1) were willfully ignorant about the loan they were signing for, or 2) were just trying to make a quick buck by buying into a market bubble.
interesting that the story doesn't mention the percentage of these kinds of loans nationwide which are paid back versus the default rate. the vast majority pay their bills on time, which is an interesting tidbit.
whether or not the obsession to own property makes sense in a market like nyc is another argument.
Anybody else notice that the makers of the map shaded in Rikers Island as one of the >50% black/hispanic neighborhoods?
#8, there's your subtle racism!
[14] Posted by: timThompson | March 28, 2007 12:40 PM
[13] Posted by: will | March 28, 2007 12:35 PM...
and your point gentlemen is?...
Fella's look a little deeper than just at your navels...I'm sure they're fascinating to you.
The reason there's no defaults in Manhattan because this map is for single family homes only. Very few of those in Manhattan.
In fact, tons of people in Manhattan (and elsewhere) have used subprime and alt-a mortgages for Mortgage Equity Withdrawal.
No one is safe from this. It's time to start adjusting.
lol@the supporters of predatory lending.
only on gothamist.
lol@the supporters of predatory lending.
only on gothamist.
At first I thought this was an interesting take, but after further thought it's just reductionist and not an apt observation.
You're assuming that the two states of being in this are either:
a) you are unable to borrow money
or
b) you are able to borrow money with terrible terms
Someone pointed out the legal meaning of "predatory lending" (disclosure: I'm not a Brooklyn Law School student) but that doesn't erase the predatory nature of some of these lending practices. Some of these balloon/ARM mortgages are complicated and - to someone who these banks/lenders know can't possibly meet the terms - usurious. Maybe not from a strictly legal standpoint, but certainly from an ethical one.
Back to those two states above: offering shitty terms to someone previously denied any terms whatsoever is in some cases not such a great thing. And in this case, I'd bet most of those people falling victim to ballooning payments would prefer to turn back the clock and still be renting.
Predatory Lending, or poorly educated lendees
The basis of America is the economics of fuck over whoever you can while its still legal, remember that next time you see great deal.
Old definition:
A loan shark is a scumbag who charges the poor obscenely high rates of interest.
New definition:
A loan shark is a scumbag who charges the poor obscenely low rates of interest.
from a post on www.marginalrevolution.com
(Disclosure: I'm a law student at Brooklyn Law School).
Firstly, to Koko, "predatory" is a term that has to do with the interest rates the banks charge, not with the individuals who take the loans.
there is no uniform definition of predatory. various states define it in various ways. the federal regulators define it in yet other ways. HOEPA defines it in terms of points and fees, and interest rates.
Secondly, to Lexiphane, it's interesting to note how, when bankruptcy laws changed (making it harder for people to discharge debts when debts are overwhelming) predatory lending INCREASED. Who do you think lobbied Congress to make sure that it was harder for people to file for bankruptcy relief?
a law student should know that one generally cannot discharge mortgage debt through bankruptcy.
(Disclosure: I'm a law student at Brooklyn Law School).
Firstly, to Koko, "predatory" is a term that has to do with the interest rates the banks charge, not with the individuals who take the loans.
there is no uniform definition of predatory. various states define it in various ways. the federal regulators define it in yet other ways. HOEPA defines it in terms of points and fees, and interest rates.
Secondly, to Lexiphane, it's interesting to note how, when bankruptcy laws changed (making it harder for people to discharge debts when debts are overwhelming) predatory lending INCREASED. Who do you think lobbied Congress to make sure that it was harder for people to file for bankruptcy relief?
a law student should know that one generally cannot discharge mortgage debt through bankruptcy.
The basis of America is the economics of fuck over whoever you can while its still legal
That is so true.
dhex - latest I've heard is that 13% of subprime loans are delinquent (not up to date on payments)- this is different from default which I believe is you haven't paid in 90 days. However there is no reason to believe that delinquent mortgages won't go into default. The subprime market makes up about 20% of the overall mortgage market so this is a very serious situation.
It isn't just poor people and minorities. There are many million dollar homes up on foreclosure auctions as people with 6 digit incomes over-extended and are now paying for it. Not only are alt-a mortgages being affected but so are automobile loans - if you are not going to pay your mortgage, you certainly aren't going to pay your car loan.
The mortgage meltdown ties the hands of Fed as they can't raise rates to fight inflation as that will cause the housing market to slump even more. DOes anyone remember the stagflation of the 70's? We could see that reappear.
"a law student should know that one generally cannot discharge mortgage debt through bankruptcy."
Of course you can discharge mortgage debt to bankruptcy! That's what foreclosures are. When homes go into foreclosure, the bank takes the property back and makes as much as it can by selling it to someone else. The person who goes into foreclosure doesn't keep paying the mortgage. That's why they declare bankruptcy in the first place. Even though I'm not in law school, my dad's a bankruptcy attorney/trustee.
And I do think it's suspicious the Bush signed off on all these bankruptcy changes last fall. Seems he knew what was coming.
"a law student should know that one generally cannot discharge mortgage debt through bankruptcy."
Of course you can discharge mortgage debt to bankruptcy! That's what foreclosures are. When homes go into foreclosure, the bank takes the property back and makes as much as it can by selling it to someone else. The person who goes into foreclosure doesn't keep paying the mortgage. That's why they declare bankruptcy in the first place. Even though I'm not in law school, my dad's a bankruptcy attorney/trustee.
And I do think it's suspicious the Bush signed off on all these bankruptcy changes last fall. Seems he knew what was coming.
Of course you can discharge mortgage debt to bankruptcy! That's what foreclosures are. When homes go into foreclosure, the bank takes the property back and makes as much as it can by selling it to someone else. The person who goes into foreclosure doesn't keep paying the mortgage. That's why they declare bankruptcy in the first place. Even though I'm not in law school, my dad's a bankruptcy attorney/trustee.
And I do think it's suspicious the Bush signed off on all these bankruptcy changes last fall. Seems he knew what was coming.
"Of course you can discharge mortgage debt to bankruptcy! That's what foreclosures are. "
foreclosure is not bankruptcy. foreclosure is not the discharge of a debt.
bankruptcy = debt disappears (in a sense)
foreclosure = the collateral supporting your loan is repossessed, sold, and the proceeds used to pay back your debt. if your debt is greater than the foreclosure sale proceeds, the lender can still go after you privately for the rest.
two totally different things.
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The foreclosure rates are actually misleading. Normally they would be higher but since there are so many people who would normally have defaulted, the banks are cutting deals with the homeowners for them to put their houses up for sale without the banks calling in the mortgage. Too many foreclosures would affect a bank's credit rating making money more expensive to borrow. On the homeowners side, if you sell your house you don't default on your mortgage, which means your credit is not affected and you can get another mortgage somewhere down the line when your situation improves. If the sale price doesn't cover the mortgage, the banks are willing to forgive the difference if it isn't too great. A win-win situation for both sides. Hence you need to look at mortgage delinquency rates as mortgage default rates are misleading.
Wow ! Now that's saying something .
This seems like just the further demolition of the middle class. Outsourcing and NAFTA have taken all of the money out of America, so now we have someone in India doing customer service for our AT&T questions (for $0.08/hr). At the expense of the fact that we now have a country full of rich corporation owner$ and trade workers. No need for middle management. Where this fits into the "Mortgage Mayhem" situation is, if there is no more money to make moving up a ladder, why not pirate it from the person next door. People will find a way to make more than there neighbors, even if it takes eliminating their neighbors. As I say this I shed a single tear and hope that somebody will eliminate the WAL*MART Corporation by whatever means possible, and restore the need for smaller businesses, but then again, I always have been a "dreamer."
They are poor and black and have so many other problems. boo hoo. I've grown up in a low income family and yet I'm not an idiot.
These people are myopic, and have absolutely no foresight for savings. All they see is the big fat cash-out check they get right now. They no one but themselves to blame. I don't care how smooth of a talker that mortgage broker is. When you are told how much your monthly payment will be, you should still be able to do the simple subtraction to figure out if you can afford it or not.
God, everyone should be forced to take an intensive 1 week class of corporate finance to find out what Present Value and Future Value mean to them.