Black Community and Housing Foreclosures

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FARAI CHIDEYA, host:

Yesterday, NEWS & NOTES looked at some of the issues African-Americans face as homeowners and real estate investors. Today, we ask how are the low interest mortgages that were so available a few years ago affecting today's housing market?

In 2006, the number of foreclosures nationwide was up 42 percent to more than half a million. African-Americans have taken out many of these loans, especially in urban neighborhoods. And with more, here's reporter Nancy Mullane from member station KALW in San Francisco.

NANCY MULLANE: It's a beautiful, sunny day in the Bayview District of San Francisco, a predominantly black neighborhood in the city. The rains have just stopped, and Annette Smith and Carl Page are outside pulling weeds from the community median strip that runs down the middle of their street.

Smith says the colorful flowers, herbs and vegetables have brought the neighborhood together in many ways.

Ms. ANNETTE SMITH: In the beginning, people didn't know who live next door to them, that type of thing. But as soon as we started the gardening, different ones, volunteer. We've been working together, so everybody knows everybody, just about.

MULLANE: Over the past decade, the Bayview District has changed. It now has one of the highest percentages of homeownership in the city. But that statistic is in jeopardy. Down the street from the garden is the San Francisco Housing Development Corporation, a nonprofit that helps people with low and moderate incomes buy homes.

(Soundbite of telephone ringing)

Unidentified Woman: Good afternoon. San Francisco Housing Development Corporation…

MULLANE: Director Ed Donaldson make sure homeowners get the counseling they need when they come to the corporation. He says many have stretched too far to reach the American dream of owning a home. And now they're struggling to make their mortgage payments.

Mr. ED DONALDSON (Director, San Francisco Housing Development Corporation): I think people really get excited about the idea of buying a house, and there's nothing wrong with that. But it's just - when you have that overzealousness coupled with, you know, loan products that are not necessarily designed for certain folks, then you can create some pretty bad situations. And I think that that's a lot of what we're seeing right now.

MULLANE: A quick check on the Internet shows hundreds of houses in San Francisco, either already sold and owned by the bank, or in jeopardy of being foreclosed. The highest concentrations are in Bayview. It's all about those loan products Donaldson talked about. Banks and other lenders make their money on the interest homeowners pay on their mortgages.

To draw buyers in, lenders have been offering adjustable rate mortgages, or ARMs. These loans readjust to higher monthly payments usually after just a few years. Worse still are interest-only mortgages. These give the borrower the option of paying a minimum payment, kind of like a credit card each month. The interest you don't pay gets folded into the principal. The affect is a higher monthly payment.

Eddie O'Sullivan is a real estate broker in San Francisco. He says most of his clients have taken out these loans at the urging of lenders.

Mr. EDDIE O'SULLIVAN (Real Estate Broker, San Francisco): You end up in a situation where you're stuck in a loan, and if you're only able to make those minimum payments, making minimum payments and ending up in a loan that just gets bigger and bigger and bigger.

MULLANE: Seventy-five-year-old Patricia Barbara(ph) took out an adjustable rate mortgage. When the interest rate jumped, she found herself in a bind, unable to make the higher payments.

Ms. PATRICIA BARBARA (Borrower): And it's usually like about the third, the second or the third payment that you get into this, and there's no way of getting out of it. It's a trap. And it goes on and on and on.

MULLANE: Donaldson says often, when homeowners know they're going to miss the payment, they're too embarrassed to ask for help. But he says that's just what they need to do.

Mr. DONALDSON: I encourage anybody who's going through a situation where they anticipate missing a payment, call your lender or call one of the local, you know, housing counseling agencies in your area and start that dialogue. Start exploring, you know, what the possibilities are. And, you know, because the worst thing that a person can do is sort of kind of stick their head in the sand and just hope that it goes away, because it's not.

MULLANE: The nonprofit Consumer Credit Counseling Service of San Francisco reports that counseling helped 87 percent of borrowers in default hold on to their homes. Without counseling, a repossession or trustee sale can occur within months of the first notice of default.

Unidentified Man #1: This is a trustee sale. The sale of this property is being made on an as-is basis…

MULLANE: In San Francisco, foreclosure auctions take place on the steps of city hall.

Unidentified Man #1: …and without covenant or warranty…

MULLANE: Over the course of the 45-minute auction, a half dozen men will stand in drizzling rain and place bids on a foreclosed property. They carry cashier's checks in their hands in case their bid wins.

Unidentified Man #1: Five hundred and forty thousand for the third and final time. Are there any further bids?

Unidentified Man #2: (unintelligible)

Unidentified Man #1: There being no further bids, I will pronounce this property sold. And since I have endorsed the funds in hand, I do have…

MULLANE: The Center for Responsible Lending recently released a study, saying that one in five of the sub-prime loans made over the last two years will end in foreclosure. That means more than 2 million families will have either lost or will lose their homes in the near future. Half of all African-American borrowers in 2005 took out these high-cost, high-risk loans.

William Apgar of Harvard University's Joint Center for Housing Studies says the impact of foreclosures will be felt not only by the families, but by the communities as well.

Professor WILLIAM APGAR (Harvard University's Joint Center for Housing Studies): This can lead to a kind of foreclosure contagion in which the presence of foreclosures weakens the attractiveness of the neighborhood and leads other folks to move out of the neighborhood and further sets off downward pressure on the neighborhood.

So the foreclosure both hurts African-Americans directly, and it's having a disparate impact on many African-American communities where foreclosures are high.

MULLANE: Eddy Edez(ph) has owned the Big Save Market in Bayview for more than 28 years. And he says it's already happening.

Mr. EDDY EDEZ (Owner, Big Save Market): Well, you got to understand the way the real estate works is you get the estimate of what your property is worth not by the way your property looks. It's by what the last house that sold on the block is sold for. If the last three comparables were foreclosures, what's that telling you?

MULLANE: Yesterday, Fed Chairman Ben Bernanke admitted that banks and other lenders may have made some unfortunate loans. But he added, this hasn't significantly affected other parts of the U.S. economy yet.

For NPR News, I'm Nancy Mullane in the Bayview District of San Francisco.

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