Now, in the Lower Hudson Valley and across the nation, the door is closing once more. Nearly half of the subprime mortgages in the country had adjustable interest rates, and many of those rates are resetting to double-digit levels. New homebuyers are getting whipsawed by rising monthly payments and falling house values.
Mark Zandi, chief economist at Moody's Economy.com, expects 3 million mortgage defaults this year and next as the newest homeowners find they can no longer afford the financing that made their dreams a reality.
Of those mortgage defaults, two-thirds will result in foreclosures, Zandi predicts. Refinancing is not an option, since the properties in many cases are worth less than they were on the day of the original closing.
In the three-county region, nearly 22,000 subprime mortgages representing $8.42 billion in debt were originated last year, according to the Joint Economic Committee of the U.S. Congress.
Critics have accused lenders and mortgage brokers of lax and sometimes predatory behavior in selling subprime mortgages to first-time homebuyers, many of whom were people of modest means who either ignored or misunderstood the risks of the loans. Consumer counselors in the area say a significant number were immigrants and minorities.
The Lower Hudson Valley is feeling the squeeze.
Foreclosure actions commenced in Westchester County reached 1,975 through November, up 38.8 percent year over year. In Rockland County, foreclosure filings were up 16.2 percent through October, while Putnam's numbers were up 44.3 percent in that period.
Rodney Thigpen faced foreclosure this year on a house he bought in Ossining in 2004 using subprime financing. "Worst thing I could have done," said Thigpen, 29, a former car salesman who later started a cleaning service.
Bankruptcies are up as well. The number of Chapter 13 cases, a bankruptcy proceeding that allows debtors to keep their houses while reorganizing their finances, rose to 345 in federal Bankruptcy Court in White Plains through Nov. 7, an 81.6 percent increase year over year.
"I don't know if we really know the true extent of this crisis yet," said David J. Babel, a bankruptcy attorney who practices in Eastchester and the Bronx. "Certainly it's a crisis for the people who are losing their homes."
About 1,200 jobs in the credit intermediation field, a segment that includes mortgage lending, have been lost in the three-county region this year. Most of the losses can be attributed to the closing of large subprime mortgage operations in White Plains, Orangeburg, Elmsford and Valhalla, and staffing cuts at other companies in the region.
In the local real estate market, however, industry observers see less of a subprime impact than in other parts of the nation.
California, Florida, Nevada and Arizona - which account for more than one-third of America's subprime adjustable-rate mortgages and more than one-third of the foreclosure starts on those mortgages - are seeing lower home prices.
But high housing inventory is the root of the sales problem in those states, according to the Mortgage Bankers Association. And the four states have a disproportionate share of investor-owned housing, which faces higher likelihood of default when housing values fall, the association said.
In the Lower Hudson Valley, investor housing has taken a big hit as well. Sales of two- to four-family housing in Westchester in the third quarter of this year were less than half their number two years earlier, while inventory was up 18.1 percent in that time.
Veronica L. Raphael, a foreclosure prevention specialist with Westchester Residential Opportunities in White Plains, said half of her clients have subprime mortgages for multiunit properties. They planned to live in them and lease other units to tenants, using the rent to cover the monthly mortgage payments, she said.
In other housing segments and markets in the region, trends are more mixed. Sales of single-family houses in Westchester through the third quarter are actually up 3.9 percent over 2006, and the median sales price rose just under 2 percent last quarter.
In Putnam, house sales are down 12.1 percent through the third quarter, while Rockland house sales are off just under 1.2 percent for the year.
P. Gilbert Mercurio, chief executive officer of the Westchester County Board of Realtors, said that even if foreclosures raised inventory by 20 percent, the resulting level of housing on the market wouldn't be huge by historical standards.
"We've had inventory over the 10,000 mark years ago, and that was considered an ordinary market inventory," Mercurio said.
Two factors contributed to the growth of subprime mortgages as a financing method for homebuyers in the early part of this decade. One was the expansion of financing for such loans, and the other was the runup in real estate values.
Subprimes took off in popularity across the nation. About $190 billion in subprime mortgages was originated six years ago, or 8.6 percent of all mortgages originated, according to a report by the Joint Economic Committee of the U.S. Congress. In 2005, borrowers took out $625 billion in subprimes, or 20 percent of all mortgage originations.
Most subprime mortgages were sold by brokers working with specialty lenders. Rather than holding the mortgages in their own portfolios, lenders would sell them in the secondary market.
The first half of this decade was a great time to be in the mortgage business. House prices were booming across the nation, and locally.
In its report, the Joint Economic Committee cited data showing annual price appreciation across the nation rising from slightly over 8.5 percent in 2001 to more than 15 percent in 2005. Local counties showed vigorous appreciation.
The median price of a house in Westchester rose 10.5 percent in 2001 and 14.4 percent in 2004. Putnam's median price grew by 6.22 percent in 2001, and 9.69 percent in 2004. Median price growth cooled somewhat in 2005 in Westchester and Putnam, to 4.65 percent and 6.49 percent respectively.
Those higher prices helped fuel a boom in refinancing during that time, as borrowers withdrew equity from their property for spending of all sorts. As it turned out, the refi boom was used by brokers to help sell subprime mortgages.
Mount Vernon attorney Ioanna Burgos represented homebuyers who were closing on such loans. She said brokers told buyers that, when the time came in a year or two for interest rates to reset, they could always refinance at lower rates.
Burgos said nearly all her clients were Hispanic and spoke little English. She explained the definitions of the loans to them and what their responsibilities would be.
"I don't think they were able to afford the houses to begin with," Burgos said. "It's just a shame that the mortgage broker doesn't explain it enough to the client.
"They understood the rate. That's all they knew."
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