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Homes Underwater Forbearance Alternatives for Sandy Homeowners

Homes Underwater Forbearance Alternatives for Sandy Homeowners

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A report by Franklin Romeo and Jennifer Ching of (Queens Legal Services and Legal Services NYC) explores foreclosure risks in neighborhoods hit hard by Sandy and finds that some of the steps taken by banks in the wake of the storm "[create] a situation where a homeowner is likely to fall into a mortgage delinquency."
A report by Franklin Romeo and Jennifer Ching of (Queens Legal Services and Legal Services NYC) explores foreclosure risks in neighborhoods hit hard by Sandy and finds that some of the steps taken by banks in the wake of the storm "[create] a situation where a homeowner is likely to fall into a mortgage delinquency."

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Categories:Types, Research
Published by: City Limits (New York) on Feb 19, 2013
Copyright:Attribution Non-commercial


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89-00 Sutphin Boulevard | Suite 206 Jamaica, NY 11435Tel. 347-592-2200 | Fax 718-526-5051 | www.legalservicesnyc.org
Homes Underwater:Forebearance Alternatives for Sandy-Affected Homeowners
Prepared by 
Franklin Romeo and Jennifer ChingQueens Legal Services | Legal Services NYCOver 300,000 New York City homes were damaged in Superstorm Sandy. Many of these homeshave been damaged beyond habitability and require reconstruction or extensive repairs. Sandydisproportionately impacted
some of the City’s most 
diverse low- and middle-income homeownercommunities.
Residential neighborhoods like New Dorp, Oakwood, Midland Beach and FarRockaway
where working class families have long moved as a gateway to homeownership
aswell as longtime homeowner communities like Canarsie, Breezy Point and Belle Harbor have someof the largest concentrations of one and two-family homes in New York City. At a New York StateSenate Bipartisan Task Force on Hurricane Sandy Recovery Roundtable held on January 31, 2013,New York insurance advocates reported that the industry has already received more than 385,000claims, with as much anticipated to come.In the wake of Sandy, many lenders publicized programs offering homeowners some form of forbearance for mortgage payments. Following what was provided to post-Katrina homeowners,these forbearances are typically three-month delayed payment periods, with full payment andinterest due at the close of the period (for those periods entered post-Sandy, payments will be duein mid-February 2013). The application of these policies has been opaque and inconsistent. Somebanks are requiring a case-by-case analysis, with submissions of detailed forms and proceduresakin to loan modifications. Other banks instituted the forbearance period without notice or details.Still other banks have not provided any relief.This White Paper examines the application and utility of forbearance periods for post-disasterhomeowner communities. We argue that forbearances are not an effective method of providingSandy homeowners with meaningful relief; indeed, a forbearance creates a situation where ahomeowner is likely to fall into a mortgage delinquency, and may very well lead to foreclosure.Forbearance periods do not promote recovery, nor do they contribute to long-term revitalizationof neighborhoods. Nearly three months after the storm, the majority of Sandy homeowners havenot been able to access adequate relief to repair or reconstruct their homes. Many of thehomeowners with whom our programs have worked have even elected not to utilize aforbearance
recognizing that such short-
term “relief” simply sets them
up to default at the end of the forbearance period
and have instead attempted to rely on piecemeal, short-term benefitsfrom FEMA, insurance, or charitable grants. Time after time, however, these programs are
New York City Map: New York City Neighborhoods Affected By Sandy Flooding With Households Late On MortgagePayments, Center for New York City Neighborhoods (attached).
insufficient to cover the double housing costs displaced families face (typically, rent at approximately $1,500 per month on top of any monthly mortgage payments); as a result, ourclients are falling behind.Housing advocates have long warned that the post-Katrina forbearance periods did not adequately protect the rights of affected homeowners, and drove many families out of thecommunities where they had long lived, as they faced home values that were now financially
underwater. These issues are amplified many times over in New York City, where thedensity of the communities affected, as well as the significantly higher costs of homes andconstruction, place thousands of families at risk of losing their homes.If the current patchwork of forbearance periods continues, the accumulated arrears willoverwhelm Sandy homeowners and will result in greater neighborhood disintegration. Weunderstand from post-Katrina advocates that a similar pattern emerged in New Orleans
wherethe average mortgage is less than half the cost of New York City. We propose that the idealsolution is a one-time waiver of principal and interest payments, allowing homeowners the abilityto cover the costs for rebuilding. In the alternative, we propose that the arrears accumulatedduring forbearance periods be deferred as a non-interest bearing balloon payable at the maturityof the loan.
1. Sandy Struck at the Heart of High Foreclosure and Mortgage Distress Communities.
Brooklyn, Queens and Staten Island have among the highest foreclosure rates in New York State.An even higher number of households are experiencing mortgage distress, meaning families arebehind anywhere from 30 to 90 days in mortgage payments.
The impact of Superstorm Sandy onthese already fragile communities is certain to result in yet another wave of foreclosures unlessbanks afford homeowners with meaningful mortgage relief.
Southeast Queens and the Rockaways
Home to 2.3 million people
half of whom are immigrants
the New York City borough of Queenshas long been celebrated for its diversity and role as a gateway to middle class comforts not ordinarily associated with the City, including homeownership. In recent years, however, Queenshas gained a new reputation as the epicenter of the foreclosure crisis in the region. In 2009,Queens County had the highest number of foreclosures filed in New York State.
Now, three yearslater, more than 1 in 9 mortgages in Queens are still in serious delinquency. The vast majority of these foreclosures and delinquent mortgages are concentrated in the Southeast Queenscommunities most affected by Sandy
in some zip codes, foreclosure rates are as high as 17%.
Inthe first half of 2010, almost half of all new foreclosures in New York City were in Queens; and the
John Cutts,
Queens Bank Foreclosures Highest Among NY Counties,
Real Estate Pro Articles, Dec. 21, 2009,http://www.realestateproarticles.com/Art/11198/265/Queens-Bank-Foreclosures-Highest-Among-NY-Counties.html.
Federal Reserve Bank of New York,
Regional Mortgage Briefs (Queens)
, June 27, 2011,http://www.newyorkfed.org/regionalmortgages/queens.html.
top five zip codes for newly scheduled foreclosure auctions were all in Southeast Queens.
Jamaica has the highest foreclosure rate in New York City’s five boroughs, with 1.79 percent of 
housing units receiving foreclosure notices in the first six months of 2010.
Closely followingSouth Jamaica are the adjacent neighborhoods near St. Albans (11412 and 11429), with 1.33 and1.31 percent foreclosure rates, respectively.
Even in November 2010, when the rest of New York saw a precipitous drop in foreclosure filings due to national scrutiny of lender practices, Queens
continued to be “disproportionately affected by this [foreclosure] crisis;
more than half of allsingle-family homes in the city receiving foreclosure notices [in the third quarter of 2010] were inQueens.
 Notably, the Queens communities hardest hit by the foreclosure crisis are the same ones that havebeen disproportionately targeted for subprime and high-cost loans, a fact that highlights the needfor fair housing interventions in theses areas. In its Analysis of Impediments, New York City
identified “[t]he perpetuation of residential racial segregation through discrimination and, in someinstances, bias harassment and violence,” as a primary impediment to the goal of fair housing in
the City.
The predominance of subprime lending in minority communities is a prime example of this persistent discrimination, and Queens has been particularly hard-hit by this phenomenon. Ananalysis of 2005 and 2006 HMDA data revealed that Queens was among the five counties in theState with the highest percentage of higher-cost loans.
And, as the former New York State
Superintendent of Banks explained, “[m]ultiple external studies have made similar findings, which
our internal research confirms:
minority borrowers and minority communities receivehigher-cost loans at a disproportionate rate
HMDA and American Community Survey datafrom 2006 revealed that predominantly minority neighborhoods
like Jamaica where 67.9% of residents are African American and less than 2% of residents are White
experienced the highest rates of subprime lending (in Jamaica, 46% of the home-purchase loans were subprime).
Neighborhood Economic Development Advocacy Project’s analysis of Queens HMDA and census
data presented in map form, plotting foreclosures, high costs loans, and minority population incombination, also starkly illustrates that the highest rates of foreclosure and the highest rates of subprime loans occur in the same neighborhoods, and those neighborhoods have greater than50% Black or Hispanic populations.
Queens Foreclosures Drop 37% in October 2010
, Nov. 16, 2010, http://www.propertyshark. com/Real-Estate-Reports/2010/11/16/queens-foreclosures-drop-37-in-october-2010/.
 July 2010 Foreclosure Trend Report 
Furman Ctr. For Real Estate and Urban Policy,
New York City Quarterly Housing Update 2010: 3rd Quarter (July-September)
, http://furmancenter.org/files/publications/Quarterly_ Housing_ Update_final.pdf (emphasis added).
Department of City Planning, City of New York,
Consolidated Plan Annual Performance Report 2007 
, May 22, 2008,http://www.nyc.gov/html/dcp/pdf/pub/conpl_affh_sub.pdf, at AFFH 18.
Testimony of New York State Superintendent of Banks Richard H. Neiman Before the Committee on Banks,
Subprime Mortgage and Foreclosures in New York 
, Dec. 13, 2007, http://www.banking.state.ny.us/sp071213.htm.
. (emphasis in original).
Ingrid Gould Ellen,
The High Cost of Segregation
, Furman Ctr. For Real Estate and Urban Policy, Jul. 13, 2009,http://furmancenter.org/files/testimonies/Furman_Center_NAACP_ Segregation_and_Subprime_Lending.pdf.
Queens, NY Map: High-Cost Loans (2007-2008) and Foreclosure (2009), Neighborhood Economic Development Advocacy Project (NEDAP) (on file with NEDAP, www.nedap.org).

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