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San Francisco’s Secret War Article
May 15 2009 | RSSForeclosure Crisis In The Southeast
San Francisco’s Secret War.
By: Zackery Mack-Westrom, SFHDC Foreclosure Intervention Counselor
“Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending . . . fostering constructive innovation that is both responsive to market demand, and beneficial to consumers.”- Alan Greenspan, 2005
The seemingly generous extension of risk priced loan products; coupled with unclear loan terms has resulted in a streamlined procession of borrowers to the mortgage chopping block, foreclosure. With a statistically low rate of foreclosure on a city-wide scale, it would appear that this epidemic has spared San Francisco; however, this is not the case. There were 667 foreclosures in San Francisco in 2008. Most of the foreclosures that occur in San Francisco happen primarily in San Francisco’s historically and culturally rich, yet economically stymied ethnic minority neighborhoods: Bayview, Hunter’s Point, Excelsior, Visitacion Valley, and Outer Mission/ Ingleside. The majority of people who are actually loosing homes in San Francisco purchased long ago, and received inferior loan products when they re-financed. Residents who have been on the South East Side of San Francisco since the late 1950’s and before, continue to intend to reside in their homes.
Far from the ignorant, socially un-conscious types of civilians popularized in local media; the residents who risk loss of their home to foreclosure in South East San Francisco good and average people; some college educated, sole proprietors, and many have a wealth of life experience. Predation ran rampant with loans being brokered by financial institutions standing to make a fast and grand profit from the practice of reverse redlining. Whole communities were brokered sub-prime loans on the basis of race or community affiliation.
Here are a few detailed examples that will hopefully illustrate some of the types of borrowers, as well as situations, which may result in mortgage foreclosure. Names of particular clients have been changed to protect confidentiality.
Dorrine Williams
Estimated Market Value of Home: $432,000
Total indebtedness: $17,196
Equity: $414,804
Loan Product Type/ Interest Rate: Fixed Rate/15.5%
Ms. Williams was around 2 months behind on her mortgage payment when counseled in September 2008. Ms. Williams was then 66 years of age, having resided in the Bayview area of San Francisco for over 30 years. She has always lived modestly within her means, and her only desire was to keep her house. Ms. Williams originally fell behind on the mortgage in July 2008.
Ms Williams’ hardships were the passing of her husband in 2006, followed by the un-anticipated increase to the expenses by virtue of the husband’s death. The borrower submitted this loan for modification. This senior citizen who has a fixed monthly income has an exorbitant rate of interest at 15.5%. Despite these factors, she was denied assistance on the basis of excessive obligations relative to her modest monthly income.
Ms Williams’ situation had however improved because, although the borrower was at a former deficit of $343, the borrower’s daughter resolved to gift consistent contributions to her mother, in the amount of $400 per month. However, this could not continue indefinitely, and hence there was still a need for long term assistance. After revising a cash flow analysis, client was at a surplus of $272 per month. There were unapplied funds in the amount of $953.46, in suspense. If $279.14 were remitted, this loan would be reinstated.
Ms Williams also formally re-requested review for a loan modification to reduce this above market rate of interest on this note on the basis that the budget deficit had been cured. Though the budget is now balanced, and the borrower would have no problem sustaining a modified mortgage, this senior citizen, on a fixed income of only social security, as well as her late husband’s pension, was denied assistance on the grounds that the un-applied funds were sufficient to re-instate the loan. Currently the situation is un-resolved.
San Francisco Housing Development Corporation
A non-profit affordable housing developer and HUD certified counseling agency offering free first-time homebuyer, foreclosure intervention, and financial education services for low and moderate income families and individuals.
SAVE A HOME, SAVE A LIFE, DONATE TODAY!
http://www.sfhdc.org/index.php/donate/index
Lenore Galveston
Estimated Market Value of Home: $387,000
Total indebtedness: $407,500
Negative equity ($20,500)
Loan Product Type/ Interest Rate: Pay Option ARM / 7.1%
Ms. Galveston is a single woman who is another longtime Bayview resident, and is currently around 8 months behind on the mortgage payment. She originally fell behind on the mortgage in approximately March 2008. Ms. Galveston’s hardship was the performance of this variable rate of interest, in conjunction with the fact that her income is fixed as she is a retiree. Ms. Galveston is 67 years old.
As the monthly payment amount increased, and her social security income did not, she became delinquent. Ms. Galveston’s situation did improve since the time at which she first sought assistance; she re-entered the workforce obtaining her current position as a manager at a company that provides security personnel. The present cash flow analysis showed that the Ms. Galveston was able to demonstrate a monthly surplus of $885 and therefore, she sought curable options to retain the property.
Ms. Galveston had around $2,000 in good faith money in hand to offer to the lender which was intended to influence the matter. Ms Galveston plans to keep the house and asked the servicer to consider a modification that would extend a 5 year Interest Only loan at a below market rate of interest. This may give her time in which to determine her best long term course of action.
Ms. Galveston was on a re-payment plan that ended in September 2008. She also entered a debt consolation program, and can document an increase to her Social Security disbursements. As she can now demonstrate her ability to repay, assistance is needed soon as her delinquency verges on the timeframe for foreclosure sale in California, around 6-9 months from the first missed payment.
This loan will adjust again in June 2009. Ms. Galveston does not understand why, despite her significant efforts, balanced budget, and sincere intent to retain her only home, the note holder is seemingly unwilling to negotiate.
Ethyl Johnston
Estimated Market Value of Home: $400,900
Total Indebtedness: $629,691
Negative equity ($288,771)
Loan Product Type/ Interest Rate: ARM / 7.12%
Ms. Johnston was also around 8 months behind on her mortgage payment. She fell behind on the mortgage around June 2008 due to inability to return to work following major surgery as a result of severe blood clotting. Her initial default since she had fallen behind on payment once before, was relative to incapacitation stemming from the illness; the subsequent default was relative to her inability to return to work. Ms. Johnston is currently 69 years of age.
After falling ill, Ms. Johnston was contacted by a potentially predatory agency who promised a loan modification. At that Ms Johnston was specifically instructed not to pay her home loan which she did, as she was un-aware that better options might have been available. Not knowing any better and under severe duress; she paid $3,000 to this corporation in October 2008, and paid off relatives whom she’d borrowed from to help cure the initial default. The client borrowed money from her family to pay her way out of initial foreclosure proceedings because she, again, could not return to work.
Her situation improved as she is now able to demonstrate a balanced monthly budget. After doing a cash flow analysis, Ms. Johnston was able to show a surplus of $828 monthly. Thus, Ms. Johnston planned to retain her home, and ask the servicer to re-capitalize arrears, to help with the delinquent balance owing, now roughly $30,000, as well as to fix, and lower the effective rate of interest on this note. Presently, the borrower resides with her grandson, brother, and son in this, her only property. As all parties would benefit from a mutually agreeable solution assist in the matter is still being pursued.
What Happens Next?
These borrowers share are similar loan product types: subprime and exotic. All are over 65 years of age, and belong to an ethnic minority group. Interestingly, all of these borrowers are African American women who are single or widowed, and are senior citizens. Again, these are intelligent individuals, who entered into mortgages that they reasonably, and actually believed were sustainable, and in their best interests. Features of the loans were not properly, nor adequately explained to these borrowers. Regardless of the questionable origination of these loans, each borrower is now uniquely able to demonstrate that they are now solvent enough to sustain a modified payment on a sustainable loan product.
San Francisco Housing Development Corporation offers foreclosure intervention counseling at no cost. If you are facing foreclosure, or feel that you will be, contact a housing counselor immediately. We cannot just stand idly by and advance generalizations as to who’s perceived ‘fault,’ this mess is; there is just too much to lose. Raising awareness of the issue of mortgage foreclosure on the South east side of San Francisco is paramount to legislating an amenable solution. It is now crucial to impel all people towards tangible action, with the desired effect of ceasing to penalize those homeowner’s who can demonstrate affordability relative to reasonable loan terms. What I mean by ‘reasonable,’ refers to the present market value of the borrower’s home in conjunction with that borrower’s income, and ability to make a consistent monthly payment, ) monthly payment, at a fixed rate of interest, for the full term of the loan. This is distinct from an investor’s projected profit on an over inflated appraised value.
It is a regrettable reality that some will loose their homes to foreclosure. In addition, SFHDC is poised to purchase foreclosed homes to be able to offer affordable lease, or lease-to own units to those whose homes have been foreclosed. One interviewee in San Francisco Bay Guardian article “Saving the Southeast, (5-13-2009),”recently stated that she’s “Not sure that a foreclosure resale plan would work in San Francisco for folks who bought a couple of years ago, when house prices hit $700,000,” with significantly lower values today, and that “Properties don’t sit around empty and vacant,” in San Francisco. This is a misanalysis of the situation: that group of borrowers is not the group at risk. Properties do sit vacant in the minority neighborhoods in San Francisco that non-residents find un-desirable.
Such a plan to re-capture foreclosed homes would be a decisive and creative approach to a challenge that has not yet been readily accepted. Regardless of insecurities about the success of such a plan, clearly, doing nothing only increases the risk of loss, and is not an option. When critique, and the politics of power take precedence over substantive action, the inaction that results comes at the cost of real people loosing what little they have; their homes.
You are encouraged to donate to SFHDC so that efforts to alleviate this foreclosure epidemic can continue, un-impeded. You are also encouraged to contact Supervisor of district 11, John Avalos’ office, as he is responsible for pending legislation to stave off the localized foreclosure crisis in South East San Francisco. Also, contact the San Francisco board of Supervisors to voice your support for sustainable loans, as well as re-capture, and re-sale of foreclosed homes.
Zackery Mack Westrom is SFHDC’s full time foreclosure intervention counselor
San Francisco Housing Development Corporation
A non-profit affordable housing developer and HUD certified counseling agency offering free first-time homebuyer, foreclosure intervention, and financial education services for low and moderate income families and individuals.
SAVE A HOME, SAVE A LIFE, DONATE TODAY!
http://www.sfhdc.org/index.php/donate/index
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