When Christine first purchased her three-unit house on University Place in 2004, she was thrilled at the prospect of finally owning her own home. She had a husband of 14 years, a comfortable commuter job in New York City and manageable mortgage payments for her new residence — $2,800 per month.
“It was a good mortgage,” said 39-year-old Christine, who asked to have her surname withheld. “I remember wondering why it was so easy — they just looked at our last two years of taxes. That should have been a red flag.”
Now, Christine pays $5,109.26 every month for her house. Facing foreclosure, she has exhausted all her savings, is deep in debt and calls her mortgage company every day to try to negotiate a better payment plan. She said she never imagined that her mortgage — a sub-prime loan — would someday ruin her family’s financial stability.
Christine is one of several thousand New Haven residents feeling the effects of a sub-prime-loan epidemic that has caused a recent surge in foreclosures and fueled a national economic crisis. On Thursday, New Haven Mayor John DeStefano Jr. called for an emergency aldermanic hearing to consider solutions to the rise of foreclosures in New Haven — the county worst hit by foreclosures in Connecticut — but some housing experts say the city’s response may be too late for city residents like Christine, who cling to the deeds on their homes while they hope the government will step in to curb their skyrocketing interest rates.
The aldermanic hearings, along with a 15-person foreclosure task force formed by DeStefano last October, is a “completely farsighted” response to the crisis, said Robin Golden, the Selma M. Levine clinical lecturer at the Law School and one of the members of the task force. New Haven has been the most proactive city in the state in dealing with the upsurge of foreclosures, she said.
Between 1,500 and 3,000 New Haven residents are currently at risk of losing their homes, Golden said. Since 2005, she said, the number of foreclosure initiations in the city has increased by 80 percent.
Carla Weil, executive director of the Greater New Haven Community Loan Fund, a nonprofit that aims to provide low-interest loans to residents, said she thinks the city, state and federal governments need to work together in order to create effective solutions to a problem that has been building for half a decade.
“There are no easy answers to this,” Weil said. “A large scale of answers have to come from the government. But this [financial crisis] is such a big thing in motion, and there were so many things that went awry.”
Weil described deceitful mortgage brokers who issued “exotic” loans that they knew borrowers would not be able to pay back. She said the push towards sub-prime loans — loans with increasing rates that cater to individuals with less-than-perfect credit records — was encouraged by Wall Street investors looking to devise a more profitable breed of loan.
But Rick Marks, president of the Connecticut Society of Mortgage Brokers, said situations like these were the exception, not the rule. The organization, which represents about 120 brokerage firms, is mostly composed of small, respectable brokers who are currently trying to help their clients best manage their loans, he said.
“You’re only going to hear about the big-shot mortgage firms, not the other 95 percent that are mom-and-pop shops,” Marks said. Most brokers, he said, presented their clients with the type of loan most appropriate for their financial situation. “The majority of these mortgage brokers are good, honest, hardworking people who did not take advantage of anyone.”
Bridgette Russell, managing director of New Haven’s Neighborhood Housing Services’ HomeOwnership Center, called the sub-prime-loan crisis a “house of cards” — a swelling system of precarious lending that eventually backfired once borrowers defaulted on their mortgages and lenders lost all the value of their investments.
Christine, for her part, said she is not sure whether the city government will — or can— negotiate with mortgage companies to restrain the rising interest rates on her house. All she knows, she said, is that the debt from her mortgages has transformed her into a member of New Haven’s class of working poor, and she’s not alone. Many of her friends and neighbors have also been struggling to keep up with their astronomical mortgages, she said.
And with three children — one of them a year away from entering college — she said she does not know what she will do if her home is foreclosed.
‘Things got a little haywire’
Sub-prime loans were not always as popular — and as treacherous — as they have become during the last five years, according to Weil.
Before that, she said, individuals looking to purchase a house typically found fixed-rate loans from local banks that required substantial down payments. These loans were dependable, but they oftentimes prevented young, newly employed couples with low credit scores from purchasing their first home, she said.
So, about seven years ago, mortgage companies began to devise increasingly creative loan options that would enable more people to qualify for mortgages, and would also pump more money into the mortgage economy. Banks packaged large numbers of loans together and sold them to outside companies, who divided them up and regrouped them again into bundles that these companies used as “investment vehicles,” Weil said.
These sub-prime loans began with “teaser rates,” temptingly low initial payments that increased with time, she said. Theoretically, the hikes in payment rates would match the buyers’ increased income following job promotions. But oftentimes, Weil said, that was not the case.
Homeowners found their houses less and less affordable as time passed and interest rates ballooned. These precarious mortgage situations deteriorated when unexpected circumstances, such as medical bills or sudden unemployment, came into play. But when sub-prime borrowers attempted to take out second mortgages on their homes, they discovered that hidden clauses in their original loan contracts forced them to pay astronomical fines if they refinanced before a given number of years.
Now, caught between rising mortgage payments and the elevating cost of living, sub-prime loan borrowers grapple with extensive debt while staving off the threat of foreclosure.
This, Christine said, is exactly what happened to her.
After losing her job in New York in 2005, the year after purchasing her new house, Christine struggled to find steady employment in New Haven but could not secure a stable job, even with her college education. While living off her husband’s modest salary and the income from renting out two units of their house, Christine chose to refinance her mortgage although she still had not yet found a job.
Although the refinance initially took pressure of her family’s financial situation, Christine said that once the interest rate readjusted again, “things got a little haywire.” She was forced to use up all of her life savings and found herself deeper in debt than ever before. As her interest rates climbed higher and higher, she could not keep up with the payments, even when she finally found permanent employment at a local children’s center.
“For the most part, we are average people trying to survive and keep a roof over our heads,” Christine said. “But these mortgage companies are making it very difficult.”
The foreclosure crisis has left city officials scrambling to respond to outcries from community members at risk of losing their homes.
The task force that DeStefano assembled last October has brought together local experts and housing authorities to analyze possible solutions to the rising number of New Haven homeowners facing foreclosure. Composed of local nonprofit-housing specialists, experts from Yale Law School and three members of the Board of Aldermen, the task force is set to announce the conclusions from its discussions on May 1.
“We are continuing to work around this issue with a number of partners in the community to achieve realistic solutions to the foreclosure crisis that is being experienced in New Haven and nationwide,” City Hall Spokeswoman Jessica Mayorga said. “We look forward to unveiling some of our works and our next steps early next month.”
Although the formal announcement of the task force’s recommendations will not be made until May, Golden said its proposal for solutions to the foreclosure epidemic will involve three approaches: education outreach programs about loan management, counseling resources to give one-on-one help to sub-prime-loan victims and the purchase of foreclosed properties in order to provide affordable housing to residents.
Thursday night’s aldermanic hearing was meant to increase understanding among citizens about the causes and implications of the upsurge in lost homes, said Ward 30 Alderwoman Michelle Edmonds-Sepulveda, chairwoman of the Community Development Committee. Experts on the foreclosure crisis, including Golden, Russell and Weil, spoke to the Community Development Committee and 35 members of the public about the history of the sub-prime-loan explosion and the effects of vacant homes on neighborhood welfare.
Three more aldermanic hearings will follow last night’s assembly, Edmonds-Sepulveda said. Each hearing will take place in one of the three sectors of the city worst hit by foreclosures — Fair Haven, the Hill and Newhallville — and will seek to educate residents of these neighborhoods on tactics for managing their mortgages, she said.
Although Edmonds-Sepulveda said she knows that people have been suffering from the backlash of their sub-prime loans for quite some time, she does not think the mayor or the Board of Aldermen could have reacted any sooner to the problem. Knowledge about predatory lending practices only came to the forefront in recent months, she said, and the city has worked as quickly as possible to deal with the predicament.
“The mayor has been very proactive with this problem,” Edmonds-Supelveda said.
Even so, Golden said, the city has seen a recent upswing in foreclosed homes that stagnate on the housing market. Since November 2006, there has been a 74-percent increase in the number of vacant properties in New Haven, she said.
‘It could happen to anyone’
For now, Christine said she is barely keeping up with monthly payments, but if she is not able to switch to a fixed-rate loan soon, her options will be few, she said.
She may give up on the house and take her family back to the Caribbean, where she grew up. She may turn to family or friends for financial support. And she may need to further cut back on spending, although she does not know how. Christine is already cutting coupons and scrimping on grocery bills; she is cancelling her cell phone service this month.
“I never thought I would find myself in this position, but here I am,” Christine said. “It’s not about rich, poor or anything else. Things happen, and it could happen to anyone.”