Along the streets of Far Rockaway, many recently built two- and three-family town houses sit waiting for even one family to move in. Some have boarded-up windows, while others have clumps of garbage in driveways that have never seen a car. Desperate developers hoping to cover their bets — and stem their losses — tape up both For Rent and For Sale signs inside windows that face nearly deserted streets.
The same blocks were once home to sprawling single-family houses with wraparound porches. But during the superheated real estate market of just a few years ago, longtime residents sold out to developers who rapidly demolished the old to build rows of plain vanilla town houses sold, it seemed, to anyone who could sign a mortgage application.
But as the market cooled and credit got tighter, many of the new homes sat empty. On a few blocks, developers have built nothing but plywood walls to hide the weed-choked lots after the old houses were torn down.
“Folks just went crazy and got into the feeding frenzy,” said City Councilman James Sanders Jr., whose Far Rockaway office is wedged between undeveloped lots and mostly vacant town houses. “They thought money was going to come to everybody left, right and center. Irrational exuberance is what I call this.”
The empty homes and undeveloped lots, he said, are part of the unacknowledged effects of the larger credit and foreclosure crisis in minority neighborhoods, where subprime and predatory loans were common. Real estate values rose steadily, as did the optimism of aspiring first-time buyers, who entered into mortgages without fully understanding the terms of the loan or the responsibilities of ownership. When budgets got tight, they could always refinance, they were told.
Not anymore. Now, in large swaths of Mr. Sanders’s district in southeastern Queens, For Sale signs are as common as trees, as people try to bail out before losing what little equity remains in their homes. Similar scenes are found in central Brooklyn and the northeast Bronx, strongholds of minority homeowners whose fortunes have declined. While regulators have long been reluctant to rescue individuals they considered victims of their own greed or bad decisions, entire communities are now facing the consequences.
“Whole neighborhoods are wiped out, crime increases, the neighborhood’s reputation goes down, quality of life is undermined, and people can’t sell their houses,” said Susan Saegert, a professor at the Graduate Center of the City University of New York, who recently completed a study of homeowners facing foreclosure. “That has already happened in Ohio and the Rust Belt. And it is starting to happen in New York.”
This has not come as a surprise to housing policy analysts and advocates who have been warning about the disastrous consequences of the freewheeling subprime market. At least five years ago, they sounded alarms over the spike in foreclosures among elderly homeowners who had been persuaded to take out costly refinancing loans to do repairs or raise money for emergencies. More recently, they saw a surge of first-time buyers taking out $500,000 mortgages at unfavorable terms even though they earned only $50,000 or less annually.
Sarah Ludwig, the executive director of the Neighborhood Economic Development Advocacy Project, said many people — first-time buyers who relied upon one-stop shops that provided a mortgage broker, appraiser and lawyer, and homeowners who refinanced their existing mortgages — were lured by offers of low monthly payments on adjustable rate loans. But those loans could become unaffordable once the interest rates reset, as is expected to happen in the coming months for many mortgages that began in 2005.
Ms. Ludwig’s group estimates that by year’s end, at least 14,700 homeowners in the city could be in default, mostly in minority neighborhoods, which she said were singled out for these loans.
“We have seen for the last 10 years a very serious problem with the concentration of high-cost loans, foreclosures and people losing their homes,” she said. “What is the toll of these loans?”
In many cases, when the true costs are revealed, the brokers who arranged the mortgages at unfavorable terms have long moved on with their fees, while the original lenders have already sold the loans on the secondary market to banks that used them to back securities. Increasingly, housing advocates have taken to task the big banks that scooped up these high-risk loans.
“The mortgage broker and the lender know this would not work if Wall Street had not been willing to buy these loans,” said Oda Friedheim, a Legal Aid Society lawyer in Queens who deals with many homeowners. “I look at this as a civil rights issue in those neighborhoods where people thought having a home was key to building individual wealth. But what happened is the wealth people built through their hard work has been transferred to Wall Street.”
Predatory lending was just part of a larger problem facing people whose budgets were already stretched thin, Dr. Saegert found in her study. In many cases, she said, family responsibilities pushed stressed homeowners over the edge. “We saw people who had relatives move into an apartment in the house and not pay anything,” she said. “They use resources but don’t contribute, and that just stretches you out more. We had one older couple who took in grandchildren when their daughter died, but they were on a fixed budget and had no way to take on the extra jobs to support them.”
She noted that while people often felt shame at their financial predicament, their efforts to get help were often rebuffed by companies who handled the payments. Unaware of local housing groups that could counsel them, many homeowners skipped paying other debts, ran up huge credit card bills or fell victim to so-called foreclosure rescue scams that tricked them into signing over their deeds.
“Their state of mind is the worst,” Dr. Saegert said. “The people who can legitimately help them are already overwhelmed and not looking for new clients. The people who are not legit are looking for them and they treat them nice. That is why people end up signing papers now not even thinking about it.”
When Carolene Brown and her husband, Patrick, faced foreclosure on their two-bedroom home in the Bronx, hardly a week went by that they were not visited by a friendly stranger offering to help. Five times, she said, they paid $500 in cash to swindlers, who claimed they could stop the foreclosure. In time, a friend of her husband’s offered to help them save the house. Instead, she said, they wound up signing over the deed to him and had the house sold out from under them.
“People always came to us to help,” said Ms. Brown, who said she has contacted prosecutors to help her reclaim her home. “I’m a strong person, and I do not like to talk about certain things. My family is big, and they could have helped me out. But I do not like to complain and ask for stuff. I always said I’d try to make this on my own.”
Councilman Sanders has heard that often.
“People always believe they can turn it around,” he said. “But in the end, they’re out of here and go to live with one of their children or wherever people go when they’re dying of shame.”
Along the many side streets of Arverne, where low-flying planes approaching Kennedy Airport regularly drown out conversation, Mr. Sanders pointed to block after block where homes were for sale or where failed developments turned into rushed rentals. Even closer to his office in Far Rockaway, unsold town houses have been rented to people he said are receiving government subsidies.
“That creates a different problem of changing the composition of the community,” he said. “They tip it from working class and middle class and into a concentration of poverty. You put people into homes who never learned how to manage living in one.”
Down one block of such homes, young men darted inside at the sight of strangers. Outside another drab development, overflowing garbage cans sat atop dusty patches of weeds and gravel.
“There always seemed to be an endless supply of people willing to buy these,” Mr. Sanders said. “Now the chickens have come home to roost. And the community is the one that’s hurt.”