In coldly realistic terms, the "working class poor" (most Americans)
can barely afford to rent an apartment, much less ever own a home
Amid The Housing Boom,
Rising Foreclosures
By Michael Powell
Washington Post Staff Writer
May 30, 2005
PHILADELPHIA -- To walk Thayer Street in northeast Philadelphia is
to count,
door by door, the economic devastation afflicting a working-class
neighborhood. On a single block, 18 of the 42 brick rowhouses have
gone into foreclosure
in the past three years.
There's Marciela Perez, who fell ill with cancer, lacked health
insurance and
stopped making mortgage payments. Barrel-chested Richard Hidalgo,
who got
divorced and could no longer make his monthly nut. And Mike O'Mara,
a rawboned
and crew-cut truck driver who took on too much debt, lost his job
and fell
behind on his mortgage.
"Mortgage companies convinced us to refinance, and each time our
bill went
up," O'Mara said as he surveyed his narrow street from his shaded
front porch.
"You fall behind and they swoop down on you."
Philadelphia, its suburbs and indeed much of Pennsylvania have
experienced a
foreclosure epidemic as low-income homeowners take on mortgage debt
they
cannot afford. In 2000, the Philadelphia sheriff auctioned 300 to
400 foreclosed
properties a month; now he handles more than 1,000 a month.
Allegheny County,
which includes Pittsburgh, had record auctions of foreclosed homes,
and
officials speak of a "Depression-era" problem. The foreclosures
fall particularly hard
on black and Latino families.
For some American homeowners, the greatest housing boom in U.S.
history has
delivered riches. They repeatedly tap their homes for equity and
use the cash
to purchase granite countertops, a BMW, even a trip to the Super
Bowl. But
there's a dark side -- a sharp rise in foreclosures that is
destroying the single
greatest generator of personal wealth for most Americans.
Foreclosure rates rose in 47 states in March, according to
Foreclosure.com,
an online foreclosure listing service. The rates in Florida, Texas
and Colorado
are more than twice the national average. Even in New York City and
Boston,
where real estate markets are white-hot, foreclosures are rising in
working-class neighborhoods.
Virginia, Maryland and the District have relatively low foreclosure
rates --
analysts say troubled owners in those booming markets can still
sell their
homes before facing foreclosure.
Should the nation's housing bubbles deflate, as many economists and
federal
officials expect, the foreclosures could prefigure a national
crisis. Americans
now shoulder record levels of housing debt -- more than 8 percent of
homeowners spend at least half their income on their mortgage.
"We are clearly seeing a spike in foreclosures in a number of our
major urban
areas," said Julie L. Williams, acting U.S. comptroller of the
currency,
whose agency regulates the nation's banks. "It can lead to a
downward spiral for
neighborhoods. If we are not careful, the American dream can
quickly turn into
the American nightmare."
A recent study in Chicago found that rising foreclosures, and
attendant
social dislocation, fuel increases in crime rates.
State and federal regulators place much of the blame for the
foreclosure
problem at the feet of mortgage brokers and bankers, who have
crafted ever-riskier
ways for Americans with poor credit to buy homes. Interest-only and
adjustable-rate mortgages account for 63 percent of new mortgages.
But many policymakers say the rise in foreclosures leads to a larger
question: Is the push to boost homeownership -- successive
presidential
administrations have strongly promoted it -- backfiring? As home
prices and personal debt
rise to record levels, they note, homeownership has become an
albatross for
millions of Americans, destroying rather than creating wealth.
Officials at Fannie Mae, the federally chartered mortgage giant
designed to
expand homeownership, suggest that the solution lies with more
counseling and
fine-tuning of mortgages for lower-income families. But the
Pennsylvania
Banking Department is skeptical. It commissioned a study of 14
counties -- urban,
suburban and rural -- and found that foreclosures had spiked in
each county in
the past four years.
"We've had a national agenda that's putting people into
homeownership who are
not ready for it," said A. William Schenck III, Pennsylvania's
secretary of
banking and a former bank president. "This is a fact that the
nation must deal
with unless we want to wreck the credit of a lot of middle-class
Americans."
A Rude Awakening
Six years ago, Cynthia Boyd, 42, signed mortgage documents and
lived a dream.
The food aide at St. Christopher's Hospital for Children had taken
ownership
of a three-bedroom rowhouse in the Olney neighborhood of Philadelphia.
"This was the first house I'd ever owned," she said. "I didn't
think it'd
ever happen."
Then Boyd got sick and had family problems. She fell down a
mortgage hole.
She asked the original mortgage company to cut her a break, but it
had already
sold her mortgage to another lender. She tried -- unsuccessfully --
to file for
bankruptcy in hopes of forestalling foreclosure. Soon her monthly
payment
doubled because she faced penalties for falling behind. She also
owed $10,000 in
back payments and attorney fees. Then the sheriff's office added a
charge for
processing the foreclosure: $4,000.
Boyd felt like curling into a fetal position. "I was fighting so
hard to save
my house," she said. "I just kept thinking to myself: You're going
to lose
your house." For now, she is holding on to the house, but just barely.
Stories like this are heard again and again in Philadelphia. "When
a lot of
homeowners get into trouble, it doesn't take long to turn into big
trouble,"
said John Dodds, director of the Philadelphia Unemployment Project.
At first glance, the high foreclosure rates in Pennsylvania seem
paradoxical.
The average Pennsylvania homeowner has one of the highest credit
scores in
the nation, saves more than the average American, and is less
likely to be
unemployed or divorced.
But the Reinvestment Fund, a Philadelphia-based think tank,
analyzed 22,979
foreclosures for the state Banking Department and found a more
problematic
profile. Those homeowners, most of whom are blacks, Latinos or
working-class
whites, live close to the economic margin.
They have low incomes and little or no health insurance -- 40
percent of
those who sought emergency foreclosure help cited medical costs as
the cause of
their distress.
"For lots of these folks, homeownership is a dangerous, precarious
existence," said Ira Goldstein, policy director for the fund.
"Foreclosures can become
like a contagion in these neighborhoods."
Few of these homeowners were tutored in home buying, and 70 percent
relied on
"subprime" mortgage brokers, which specialize in buyers with bad
credit and
charge interest rates between 8 and 12 percent, far above market
interest rates
of 6 percent or less.
Said Williams, the acting comptroller of the currency: "We've
produced a new
class of lenders willing to take on riskier and riskier borrowers
at a very
high price. Many of the products are nothing more than time bombs."
On average, at-risk Philadelphia homeowners purchased their homes
in the mid-
to late 1990s and faced a foreclosure filing four years later.
Benigno Diaz,
55, was one of them. He cleans floors at the Philadelphia airport
every night.
A few years ago, he hurt his knee and went on disability -- which
paid 60
percent of his annual $28,000 salary. He fell behind on his home loan.
His mortgage company demanded that he make double payments to catch
up. He
couldn't manage that. Then he found his house was on a foreclosure
list. "I'm
like, wow, are you kidding me, man?" Diaz said. He never bounced a
check, he
said -- "I'm just two months behind." He is hanging on for now.
Irv Ackelsburg, a lawyer with Community Legal Services in
Philadelphia, sees
people like Diaz every week. They come in with folders stuffed with
papers and
panicked expressions.
"You see these people come in with huge costs and health problems
and it
breaks your heart," he said. "A lot of time you have to tell them,
'You're going
to lose your home.' "
Hard Times in the Suburbs
Pennsylvania's foreclosure problem is not just an urban phenomenon.
Montgomery County contains a genteel stretch of suburbs north of
Philadelphia. But from
2000 to 2003, county officials recorded almost 5,000 foreclosure
filings, a
14.6 percent increase. Arline, Woodland and Lindbergh avenues run
through
Abington, a pleasant lower-middle-class town with ranch houses and
cherry trees,
children's slides and neatly tended gardens. On each of these
blocks, three or
four houses have gone into foreclosure in the past four years.
Unlike those in northeast Philadelphia, the houses are easily
resold -- the
foreclosed-upon homeowners tend to simply fade away. "We bought
this in a
foreclosure auction a year ago," Becky Morrison, a mother of three,
said as she
stood in the doorway of her house in Abington. "We rented it back
to the previous
owner. She was pretty sick -- I think she had trouble with her
bills. I'm not
sure where she went."
Losing a home is particularly destructive of personal wealth. A
foreclosure
often costs upward of $10,000 in various legal, sheriff and bank
fees. And
people who have gone through foreclosure end up paying more for
insurance and
credit card interest and can get turned down for jobs that require
good credit.
Fannie Mae, the home loan giant, has devised several programs to
help distress
ed homeowners. It also has started its "American Dream Commitment,"
which
aims to drive the percentage of homeowners still higher. Spokesman
Alfred King
acknowledges that many lower-income homeowners are experiencing
trouble but says
his company has no plans to temper its homeownership push.
"Sure, some people are being done a disservice when they get
mortgages when
they are not ready for it," he said. "But the desire for ownership
is there.
And there's compelling evidence that there's probably a mortgage
product that
works for them."
But few of those who work with the tens of thousands of distressed
low-income
homeowners in Pennsylvania see much evidence to support that
proposition.
Philadelphia Sheriff John D. Green has a front-row seat as these
dramas play
out. In mid-June, he will auction another thousand or so foreclosed
homes. "My
staff and I watch the suffering every day," he wrote recently in a
letter to
residents posted on his Web site. He said they "witness the heart-
wrenching
scenes as families lose their primary means of wealth building and
face
eviction."
© 2005 The Washington Post Company
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<DIV align=center><FONT color=#0000ff size=3>In coldly realistic
terms, the "working class poor" (<EM>most</EM> Americans)
</FONT></DIV>
<DIV align=center><FONT color=#0000ff size=3>can
barely afford to rent an apartment, much
less ever own a home</FONT></DIV>
<DIV align=center><FONT size=+2><B></B></FONT> </DIV>
<DIV align=center><FONT size=+2><B>Amid The Housing Boom, </B></
FONT></DIV>
<DIV align=center><FONT size=+2><B>Rising Foreclosures</B></
FONT><BR></DIV>
<P><FONT size=-1>By Michael Powell<BR>Washington Post Staff
Writer<BR>May 30, 2005</P></FONT>
<P><NITF>
<P>PHILADELPHIA -- To walk Thayer Street in northeast Philadelphia
is to count, door by door, the economic devastation afflicting a
working-class neighborhood. On a single block, 18 of the 42 brick
rowhouses have gone into foreclosure in the past three years.</P>
<P>There's Marciela Perez, who fell ill with cancer, lacked health
insurance and stopped making mortgage payments. Barrel-chested
Richard Hidalgo, who got divorced and could no longer make his
monthly nut. And Mike O'Mara, a rawboned and crew-cut truck driver
who took on too much debt, lost his job and fell behind on his
mortgage.</P>
<P>"Mortgage companies convinced us to refinance, and each time our
bill went up," O'Mara said as he surveyed his narrow street from
his shaded front porch. "You fall behind and they swoop down on
you."</P>
<P>Philadelphia, its suburbs and indeed much of Pennsylvania have
experienced a foreclosure epidemic as low-income homeowners take on
mortgage debt they cannot afford. In 2000, the Philadelphia sheriff
auctioned 300 to 400 foreclosed properties a month; now he handles
more than 1,000 a month. Allegheny County, which includes
Pittsburgh, had record auctions of foreclosed homes, and officials
speak of a "Depression-era" problem. The foreclosures fall
particularly hard on black and Latino families.</P>
<P>For some American homeowners, the greatest housing boom in U.S.
history has delivered riches. They repeatedly tap their homes for
equity and use the cash to purchase granite countertops, a BMW,
even a trip to the Super Bowl. But there's a dark side -- a sharp
rise in foreclosures that is destroying the single greatest
generator of personal wealth for most Americans.</P>
<P>Foreclosure rates rose in 47 states in March, according to
Foreclosure.com, an online foreclosure listing service. The rates
in Florida, Texas and Colorado are more than twice the national
average. Even in New York City and Boston, where real estate
markets are white-hot, foreclosures are rising in working-class
neighborhoods.</P>
<P>Virginia, Maryland and the District have relatively low
foreclosure rates -- analysts say troubled owners in those booming
markets can still sell their homes before facing foreclosure.</P>
<P>Should the nation's housing bubbles deflate, as many economists
and federal officials expect, the foreclosures could prefigure a
national crisis. Americans now shoulder record levels of housing
debt -- more than 8 percent of homeowners spend at least half their
income on their mortgage.</P>
<P>"We are clearly seeing a spike in foreclosures in a number of
our major urban areas," said Julie L. Williams, acting U.S.
comptroller of the currency, whose agency regulates the nation's
banks. "It can lead to a downward spiral for neighborhoods. If we
are not careful, the American dream can quickly turn into the
American nightmare."</P>
<P>A recent study in Chicago found that rising foreclosures, and
attendant social dislocation, fuel increases in crime rates.</P>
<P>State and federal regulators place much of the blame for the
foreclosure problem at the feet of mortgage brokers and bankers,
who have crafted ever-riskier ways for Americans with poor credit
to buy homes. Interest-only and adjustable-rate mortgages account
for 63 percent of new mortgages.</P>
<P>But many policymakers say the rise in foreclosures leads to a
larger question: Is the push to boost homeownership -- successive
presidential administrations have strongly promoted it --
backfiring? <STRONG>As home prices and personal debt rise to record
levels, they note, homeownership has become an albatross for
millions of Americans, destroying rather than creating wealth.</
STRONG></P>
<P>Officials at Fannie Mae, the federally chartered mortgage giant
designed to expand homeownership, suggest that the solution lies
with more counseling and fine-tuning of mortgages for lower-income
families. But the Pennsylvania Banking Department is skeptical. It
commissioned a study of 14 counties -- urban, suburban and rural --
and found that foreclosures had spiked in each county in the past
four years.</P>
<P>"We've had a national agenda that's putting people into
homeownership who are not ready for it," said A. William Schenck
III, Pennsylvania's secretary of banking and a former bank
president. "This is a fact that the nation must deal with unless we
want to wreck the credit of a lot of middle-class Americans."</P>
<DIV><B>A Rude Awakening</B><BR></DIV>
<P>Six years ago, Cynthia Boyd, 42, signed mortgage documents and
lived a dream. The food aide at St. Christopher's Hospital for
Children had taken ownership of a three-bedroom rowhouse in the
Olney neighborhood of Philadelphia.</P>
<P>"This was the first house I'd ever owned," she said. "I didn't
think it'd ever happen."</P>
<P>Then Boyd got sick and had family problems. She fell down a
mortgage hole. She asked the original mortgage company to cut her a
break, but it had already sold her mortgage to another lender. She
tried -- unsuccessfully -- to file for bankruptcy in hopes of
forestalling foreclosure. Soon her monthly payment doubled because
she faced penalties for falling behind. She also owed $10,000 in
back payments and attorney fees. Then the sheriff's office added a
charge for processing the foreclosure: $4,000.</P>
<P>Boyd felt like curling into a fetal position. "I was fighting so
hard to save my house," she said. "I just kept thinking to myself:
You're going to lose your house." For now, she is holding on to the
house, but just barely.</P>
<P>Stories like this are heard again and again in Philadelphia.
"When a lot of homeowners get into trouble, it doesn't take long to
turn into big trouble," said John Dodds, director of the
Philadelphia Unemployment Project.</P>
<P>At first glance, the high foreclosure rates in Pennsylvania seem
paradoxical. The average Pennsylvania homeowner has one of the
highest credit scores in the nation, saves more than the average
American, and is less likely to be unemployed or divorced.</P>
<P>But the Reinvestment Fund, a Philadelphia-based think tank,
analyzed 22,979 foreclosures for the state Banking Department and
found a more problematic profile. Those homeowners, most of whom
are blacks, Latinos or working-class whites, live close to the
economic margin.</P>
<P>They have low incomes and little or no health insurance -- 40
percent of those who sought emergency foreclosure help cited
medical costs as the cause of their distress.</P>
<P>"For lots of these folks, homeownership is a dangerous,
precarious existence," said Ira Goldstein, policy director for the
fund. "Foreclosures can become like a contagion in these
neighborhoods."</P>
<P>Few of these homeowners were tutored in home buying, and 70
percent relied on "subprime" mortgage brokers, which specialize in
buyers with bad credit and charge interest rates between 8 and 12
percent, far above market interest rates of 6 percent or less.</P>
<P>Said Williams, the acting comptroller of the currency: "We've
produced a new class of lenders willing to take on riskier and
riskier borrowers at a very high price. Many of the products are
nothing more than time bombs."</P>
<P>On average, at-risk Philadelphia homeowners purchased their
homes in the mid- to late 1990s and faced a foreclosure filing four
years later. Benigno Diaz, 55, was one of them. He cleans floors at
the Philadelphia airport every night. A few years ago, he hurt his
knee and went on disability -- which paid 60 percent of his annual
$28,000 salary. He fell behind on his home loan.</P>
<P>His mortgage company demanded that he make double payments to
catch up. He couldn't manage that. Then he found his house was on a
foreclosure list. "I'm like, wow, are you kidding me, man?" Diaz
said. He never bounced a check, he said -- "I'm just two months
behind." He is hanging on for now.</P>
<P>Irv Ackelsburg, a lawyer with Community Legal Services in
Philadelphia, sees people like Diaz every week. They come in with
folders stuffed with papers and panicked expressions.</P>
<P>"You see these people come in with huge costs and health
problems and it breaks your heart," he said. "A lot of time you
have to tell them, 'You're going to lose your home.' "</P>
<DIV><B>Hard Times in the Suburbs</B><BR></DIV>
<P>Pennsylvania's foreclosure problem is not just an urban
phenomenon. Montgomery County contains a genteel stretch of suburbs
north of Philadelphia. But from 2000 to 2003, county officials
recorded almost 5,000 foreclosure filings, a 14.6 percent increase.
Arline, Woodland and Lindbergh avenues run through Abington, a
pleasant lower-middle-class town with ranch houses and cherry
trees, children's slides and neatly tended gardens. On each of
these blocks, three or four houses have gone into foreclosure in
the past four years.</P>
<P>Unlike those in northeast Philadelphia, the houses are easily
resold -- the foreclosed-upon homeowners tend to simply fade away.
"We bought this in a foreclosure auction a year ago," Becky
Morrison, a mother of three, said as she stood in the doorway of
her house in Abington. "We rented it back to the previous owner.
She was pretty sick -- I think she had trouble with her bills. I'm
not sure where she went."</P>
<P>Losing a home is particularly destructive of personal wealth. A
foreclosure often costs upward of $10,000 in various legal, sheriff
and bank fees. And people who have gone through foreclosure end up
paying more for insurance and credit card interest and can get
turned down for jobs that require good credit.</P>
<P>Fannie Mae, the home loan giant, has devised several programs to
help distressed homeowners. It also has started its "American Dream
Commitment," which aims to drive the percentage of homeowners still
higher. Spokesman Alfred King acknowledges that many lower-income
homeowners are experiencing trouble but says his company has no
plans to temper its homeownership push.</P>
<P>"Sure, some people are being done a disservice when they get
mortgages when they are not ready for it," he said. "But the desire
for ownership is there. And there's compelling evidence that
there's probably a mortgage product that works for them."</P>
<P>But few of those who work with the tens of thousands of
distressed low-income homeowners in Pennsylvania see much evidence
to support that proposition.</P>
<P>Philadelphia Sheriff John D. Green has a front-row seat as these
dramas play out. In mid-June, he will auction another thousand or
so foreclosed homes. "My staff and I watch the suffering every
day," he wrote recently in a letter to residents posted on his Web
site. He said they "witness the heart-wrenching scenes as families
lose their primary means of wealth building and face eviction."</
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