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Lending NYC out of House and Home April 2008

Rick Echevarria Lionel Ouellette CHANGERsMission
CHANGERworkswithhomeownerstomaintainstablehomeownership,organizeandadvocateforhomeownerrights,andbuildfamilywealth andassets.CHANGERworkswithhomeownerstoendabusivemortgagelendingpracticesinlowandmoderateincomecommunitiesinNew YorkCitythroughtheuseofconsumeradvocacyandeducation,financialandlegalresearch,communityorganizing,publicpolicyadvocacy,and directserviceprovision.

LENDING NYC OUT OF HOUSE AND HOME

Summary Everyday throughout New York City more and more homeowners, and tenants, pressed by rising mortgage foreclosures, are facing the loss of their properties and homes: first through mortgage foreclosure, then through eventual housing eviction. Simultaneously, the mortgage foreclosure crisis is also leading to dramatic increases in the accumulation of residential properties (mostly single and two-to-four family homes) and housing units (apartments) by financial institutions1 that have initiated mortgage foreclose proceedings, and subsequently become owners, of these residential properties after foreclosure. This report, the first of a series of reports to be released by CHANGER (www.changernyc.org) on the impacts of the mortgage foreclosure crisis in New York City, highlights current trends in the rates at which financial institutions are purchasing residential properties they have foreclosed upon in three New York City boroughs (counties): Brooklyn, the Bronx, and Queens. CHANGER, a New York citywide homeowner membership and advocacy organization, has been monitoring foreclosure auctions in these three boroughs since early November 2007. This report provides our court monitoring results for the period between November 1, 2007 and April 4, 2008. *As a post-script to this report, we are also including a snapshot of the growing prevalence of holdover eviction cases that are initiated by financial institutions by providing data on trends in one New York City borough, Queens, during the period of March 17 to April 17, 2008. Methodology CHANGER acquired foreclosure auction schedules via an online subscription to Profile Publications, Inc. CHANGER staff monitored the outcomes of foreclosure auctions that were actually held; quantified the total number of foreclosure sales that were completed during these auctions; and quantified the total number of properties that were acquired by financial institutions. During the period between November 1, 2007 and April 4, 2008 we monitored a total of 59 auctions at which a total of 696 residential properties were auctioned (representing exactly 1130 units of housing according to the New York City Department of Housing Preservation and Developments online database system: hpdonline), in the boroughs of Brooklyn, the Bronx, and Queens. The total number of auctions varies per borough, as mortgage foreclosure auctions are held at different days and times for each borough: in Brooklyn, they are held each and every Thursday at 3pm; in the Bronx they can be scheduled for any weekday either at 11am or 2pm; and, in Queens they are held every Friday at 11am. In Queens, we monitored a total of 18 auctions held between 11/16/07 and 4/4/08 out of a total of 19 auctions that were actually conducted during this period (we were unable to attend 1);

A note on the use of the term Financial Institutions: CHANGER refers to financial institutions as any financial entity that forecloses on a residential mortgage and this includes some of the following types of entities: original mortgage lender; a secondary market loan purchaser; a trust; residential mortgage securities investors; residential mortgage loan servicers; or MERS.

in Brooklyn we monitored a total of 18 auctions held between 11/1/07 and 3/20/08 out of a total of 21 auctions that were conducted during this period (we were unable to attend 3); and, in the Bronx we monitored a total of 23 auctions held between 11/27/07 and 3/5/08 out of a total of 39 auctions that were conducted during this period (we were unable to attend 16). Overall, we monitored a total of 59 mortgage foreclosure auctions during which a total of 696 residential properties were actually auctioned, representing 1130 units of housing. The specific results of our court monitoring are described below with Queens being the most significant due to our court monitoring efforts having nearly covered 100% of the total properties auctioned between November 16, 2007 and April 4, 2008.

Residential Mortgage Foreclosures become Financial Institution-Owned Properties Residential Mortgage Foreclosure Auction Court Monitoring Results for Queens: At 18 scheduled auctions that we witnessed in Queens, there were a total of 486 residential properties auctioned. Of these 486 properties, 443 were bought by the financial institutions that foreclosed on the mortgage borrower. For the purposes of this report, we are referring to these 443 properties as financial institution-purchased properties, and it should be clear that what we mean is that the financial institution that foreclosed on the mortgage borrower purchased the property due to either not receiving any bids or refusing to accept a low bid on the total outstanding mortgage debt that it was owed by the borrower during the auction. In short, financial institutions now own these 443 properties. This represents 91.2% of the total number of properties auctioned during the time period, an extremely high, if not shocking, statistic in our view. The total number of properties auctioned (486) represents a total of 707 housing units in Queens. And, the 443 financial institutions-purchased properties represent a total of 656 (legal) units of housing in Queens that are now owned by financial institutions. On average, over this time period, financial institutions were becoming owner to approximately 31 housing units a week in Queens: if purchasing were to continue at this rate it would lead to approximately 1550 units of housing being accumulated annually by financial institutions as a result of residential mortgage foreclosures and subsequent financial institutions-purchasing in Queens. The principal financial institutions that acquired these properties in Queens are listed on the chart below with the total quantity purchased for each also listed. The financial institution that purchased the most properties in Queens during this period was Deutsche Bank2 with a total of 86 properties acquired (representing 125 units of housing).

Residential Mortgage Foreclosure Auction Court Monitoring Results for Brooklyn:

2

It is Deutsche Bank National Trust Company acting as Trustee under various pooling and servicing agreements that is referenced here. A high level officer from Deutsche Bank Trust Company Americas told a New York Times reporter that Deutsche Bank was not in ownership of any properties from foreclosure auctions.

At 18 scheduled auctions that we witnessed in Brooklyn between 11/1/07 and 3/20/08 there were a total of 149 residential properties auctioned. Of these 149 properties, 133 were bought by the financial institutions that foreclosed on the mortgage borrower. This represents 89.3% percent of the total number of properties auctioned during the time period. The total number of properties auctioned (149) represents a total of 317 housing units in Brooklyn. And, the 133 financial institutions-purchased properties represent a total of 290 (legal) units of housing in Brooklyn that are now owned by financial institutions. On average, over this time period, financial institutions were becoming owner to approximately 14 housing units a week in Brooklyn: if purchasing were to continue at this rate it would lead to approximately 700 units of housing being accumulated annually by financial institutions as a result of residential mortgage foreclosures and subsequent financial institutions-purchasing in Brooklyn. The principal financial institutions that acquired these properties in Brooklyn are listed on the chart below with the total quantity purchased for each also listed. The financial institution that purchased the most properties in Brooklyn during this period was MERS with a total of 16 properties acquired (representing 29 units of housing). Residential Mortgage Foreclosure Auction Court Monitoring Results for the Bronx: At 23 scheduled auctions that we witnessed in the Bronx from 11/27/07 to 3/5/08, there were a total of 61 residential properties auctioned. Of these 61 properties, 55 were bought by the financial institutions that foreclosed on the mortgage borrower. This represents 90.2 % of the total number of properties auctioned during the time period. The total number of properties auctioned (61) represents a total of 106 housing units in the Bronx. And, the 55 financial institutions-purchased properties represent a total of 101 (legal) units of housing in the Bronx that are now owned by financial institutions. On average, over this time period, financial institutions were becoming owner to approximately 5 housing units per week in the Bronx: if purchasing were to continue at this rate it would lead to approximately 250 units of housing being accumulated annually by financial institutions as a result of residential mortgage foreclosures and subsequent financial institutions-purchasing in the Bronx. The principal financial institutions that acquired these properties in the Bronx are listed on the chart below with the total quantity purchased for each also listed. The financial institution that purchased the most properties in the Bronx during this period was Deutsche Bank with a total of 8 properties acquired (representing 15 units of housing).

Auction Monitoring Results Total # of auctions monitored Total # of properties auctioned Total # of properties purchased by foreclosing Financial Institutions % of properties purchased by Financial Institutions Total # of housing units auctioned Total # of housing units purchased by Financial Institutions

Brooklyn Queens Bronx 18 18 23 149 486 61 133 89.3% 317 290 443 91.2% 707 656 55 90.2% 106 101

Totals for 3 Boroughs 59 696 631 90.7% 1130 1047

Financial Institutions Purchasing of Residential Foreclosed Properties-Brooklyn (11/1/07 - 3/20/08) 1) MERS 16 properties (representing 29 units of housing) 2) Deutsche Bank 15 properties (representing 32 units of housing) 3) Wells Fargo 14 properties (representing 29 units of housing) 4) US Bank 10 properties (representing 24 units of housing) Financial Institutions Purchasing of Residential Foreclosed Properties-Queens (11/16/07 - 4/4/08) 1) Deutsche Bank 84 properties (representing 125 units of housing) 2) US Bank NA 57 properties (representing 90 units of housing) 3) Wells Fargo 34 properties (representing 50 units of housing) 4) HSBC 30 properties (representing 43 units of housing) 5) Fremont Investment & Loan 24 properties (representing 43 units of housing) Financial Institutions Purchasing of Residential Foreclosed Properties-Bronx (11/27/07 - 3/5/08) Deutsche Bank 8 properties (representing 15 units of housing) Wells Fargo 7 properties (representing 14 units of housing) HSBC 7 properties (representing 10 units of housing) US Bank 5 properties (representing 10 units of housing)

1) 2) 3) 4)

5) Fremont Investment & Loan 3 properties (representing 5 units of housing)

1) 2) 3) 4) 5)

TOP 5 FINANCIAL INSTITUTIONS PURCHASING TOTALS FOR 3 BOROUGHS Deutsche Bank Total Properties Purchased: 107 (representing 172 units of housing) US Bank NA Total Properties Purchased: 72 (representing 124 units of housing) Wells Fargo Total Properties Purchased: 55 (representing 93 units of housing) HSBC Total Properties Purchased: 37 (representing 53 units of housing) Fremont Investment & Loan Total Properties Purchased: 27 (representing 48 units of housing)

General Observations on Residential Mortgage Foreclosure Auctions The auctions have been a great source of outreach to homeowners who might be in distress. We have been there when homeowners watched their homes being auctioned. They are often confused and frustrated, and feel hopeless while there. One woman sat waiting to speak to a judge in order to submit a bankruptcy filing just prior to the auctioning of her home, but because she was not fully clear about the process, she was unable to stop the auction, though she had apparently declared bankruptcy in time to do so. Most of the attendees at these residential mortgage foreclosure auctions appear to be conducting speculative research, and do not bid on any of the properties being auctioned. Through some of our conversations with some regular attendees of these auctions we have been able to ascertain that they are principally there to track and tally, ironically, properties being accumulated by financial

institutions, in order to approach them about possible purchasing after the auction. One investor said, for a specific property one might be interested in, it's like 1 out of 250 that you might get a decent deal on. After some auctions, CHANGER staff went to the properties to visit the owners, some of them were seemingly already abandoned by the owners, but in some instances we were able to speak to the tenants. One such tenant in an auctioned Bronx property, Ms. Feliciano, was generally very positive. She did, however, relay to us that due to the foreclosure situation, her landlord has been unable to buy oil and unable to provide heating for the house. The owner gave her four electric heaters which were not adequate enough to keep her home warm during the winter. She therefore had to take her two children to stay with a relative over the cold winter months. She has since decided to give custody of her children to their father because she considers her housing situation to be too unstable, particularly with an expected eviction case on the horizon now that the financial institution that foreclosed on her landlord has become owner of the property. Breath & Scope of the Mortgage Foreclosure Crisis The national subprime mortgage foreclosure crisis is now widespread knowledge. The implosion of the multi-billion dollar mortgaged-backed securities market and the considerable negative impact this has had on the nations economy are what has principally generated such persistent and intense media attention. As a homeowner advocacy organization with over 250 current homeowner members, CHANGER has particular insight into the problems, situations, conditions, and obstacles facing New York City homeowners. Many borrowers acquired one of many different types of subprime loan products often unknowingly, irresponsibly and/or fraudulently, or more importantly, undeservingly as many homeowners received subprime loans through steering or misrepresentation when they had credit histories and scores that merited better mortgage loan products. Many of CHANGERs current members are homeowners who are in this latter group. They were borrowers whose credit scores were excellent, in some cases nearly perfect, but through lack of information, language barriers, improper or insufficient consumer education or financial guidance, and often mortgage broker pressure, acquired unaffordable subprime loans, such as adjustable- rate or interest-only mortgages Dangers to the Affordable Housing Stock/Speculation Acquisition by lenders at such a disproportionate rate raises a number of important issues, among them are concerns regarding responsible ownership: since lenders (or investors) are now outright owners of these properties their duties as owners, and often landlords, could be going unmet. Heat and hot water services; electric services; maintenance and repair issues; rent collection, particularly in cases where the tenant(s) receive some form of public rental subsidy such as Federal Section 8 Vouchers, HOPWA, or other municipal subsidy could all be problematic under the likely situation that financial institutions are not taking on the responsibility of being service providing landlords or even collecting rents.3 Possible Solutions Policy Solutions: One of our demands is that financial institutions modify loans to sustainable levels. This could be a write down of the principal value of loan (a short-refinance), a freeze on the interest rate for the full term of the mortgage, an interest rate reduction and freeze, or
3

HOPWA: Housing Opportunities for People with AIDS.

placement of arrears on the back-end of a mortgage to name just a few of the many possibilities that would enable homeowners, and families, to stay in their homes. Mortgage loan servicers claim to be limited by the dictates of individual investors on a loan regarding what modification options they can make available to borrowers---if they can make any at all. Often many loan servicers will not disclose who actually owns a mortgage. If the loan has been securitized into a bond, the actual owner of a mortgage is typically an investor. The investor often looks like Morgan Stanley USB Investor # 4001 MSM06-14SL, as an example. J.C. Ferebee, a Wells Fargo Community Relations Consultant, working in the Default & Retention Operations unit, stated he could not disclose who the investor was. He said it was part of Wells Fargos servicing agreement to shield the investor/s from borrowers. Financial institutions, investors, and servicers are not offering adequate workout agreements to homeowners in crisis. "After 12 months of making on time payments in a repayment agreement with Option One, I had my final payment rejected and foreclosure was reinstated. I was set up to fail in the beginning. I need Option One to modify my loan so that it is affordable. What they are doing is criminal," says South-east Queens homeowner Martha Espinoza. The number of CHANGER homeowners who acquired subprime mortgages through misrepresentation, steering, bait and switch, and outright fraud is a snapshot of what homeowners across the city are facing. In a time where some financial institutions allow borrowers to put arrears on the back end of their mortgages, First Franklin told a Staten Island homeowner we dont do that! when asked if she could do the same. The quickening pace of foreclosure cases in all the boroughs of New York City, the lackluster loss mitigation, modification, and repayment plans being offered to homeowners, and the rising number of eviction cases initiated by financial institutions makes our demand for an immediate moratorium on foreclosures and evictions brought by financial institutions necessary. The pattern of lending over the last number of years has made the cost of housing all the more unaffordable for New York City residents. Skyrocketing foreclosures and evictions and now financial institution-purchased properties hitting never before seen levels makes it necessary for the return of all financial institution-purchased properties to local communities as a form of affordable housing. At the current rate of financial institutionpurchasing, 2500 units of housing will be under the wings of financial institutions and no longer available or affordable by years end. Postscript: Holdover Evictions & Financial Institutions Evictions Commenced by Financial Institutions Between March 17th and April 17th, CHANGER staff identified nearly 136 holdover actions where the petitioner was a lending institution, investor, or trust. We are in a very early phase of this research, but for one borough in a 30 day time-period, we think the rate, proportion is high, and expect it to rise (absent some intervention by either the private market or government). Visually, and audibly, the presence of these new landlords is quite noticeable. Subprime lenders and investors, such as Countrywide, Deutsche-Bank, US Bank and others have moved to evict all residents of properties they have foreclosed upon, only to warehouse these apartments and homes (hold them empty just to prepare them for resale). The largest percentage increases in landlord-tenant disputes over the last month (and since the beginning of 2008) in New York City have been lenders/financial institutions/trusts commencing eviction

cases against residents in foreclosed properties. "After foreclosure and evicting the homeowners and tenants, financial institutions are selling these foreclosed homes at discount to some of the same predatory agents/investors that sold these homes attached to subprime mortgages in the first place. Any discounts must go to existing homeowners with subprime mortgages," says CHANGER executive director Lionel Ouellette.