By Kareem Fahim and Ron Nixon
March 28, 2007
NEWARK — After Franklin Abazie fell behind on his mortgage last year, he tucked one of his foreclosure notices, still in its ripped envelope, into the visor of his car — a looming reminder of why he had to take a second job.
Franklin Abazie, along with his wife, bought a house in Newark last year and had trouble finding a tenant to offset the mortgage costs.
Michelle Pitt, a single mother of four, bought a house in 1999. Since then, her income has declined and she has struggled to stay current on her mortgage payments.
Rashid and Yvonne Moore, a middle-aged couple whose lenders are threatening foreclosure because they have fallen behind on their mortgage payments, have begun thinking the unthinkable: moving in with his parents.
For Quintin Fields, it may take a miracle to keep his house; he owes nearly as much in late payments as he will earn all year.
“Everything is closing in on me right now,” Mr. Fields said.
Broad swaths of Newark are groaning under the weight of mortgage debt, much of it accumulated in the building boom of recent years that has transformed some parts of the city with gleaming redevelopment.
But in many of these neighborhoods, a heavy mortgage debt has led thousands of residents — many of them first-time homebuyers — close to financial ruin, experts and local officials say. According to recent census figures, more than 40 percent of Newark homeowners spend more than half their income on housing, one of the highest percentages in the New York metropolitan region and among the highest in the country.
In small ways and large, that debt is forcing thousands of people here to change their lives. Many have taken second jobs. Others are selling off prized possessions. Some have had to rent out rooms. And more than a few have surrendered to the inevitability of losing their homes to foreclosure.
Driving the high mortgage debt and the boom in home sales here, and around the country, has been the proliferation of mortgages that have made it possible for people with poor credit, scant savings and modest incomes to buy homes. Among these are subprime loans, which are easier to obtain than prime rate loans but come with an added burden: much higher interest rates. In many cases, financial institutions lent to people without verifying whether their incomes could support the monthly payments.
Federal lending data show that a high percentage of mortgages for homes on the north, south and west sides of Newark — as much as 50 percent in some neighborhoods — are subprime loans. And a national study by the Center for Responsible Lending, a nonpartisan research group based in North Carolina, predicts that more than 18 percent of the people holding those loans will go into foreclosure in the next three to four years.
The tales of financially beleaguered Newark are not only about subprime loans. Unforeseen financial problems, misunderstandings about complex mortgage transactions and poor money management have been major factors in bringing some first-time homeowners to the brink of foreclosure.
And the situation mirrors conditions in large urban areas across the country and around the metropolitan region. Neighborhoods in Queens, the Bronx and Brooklyn also have large concentrations of subprime loans, which are at high risk of foreclosure, according to Home Mortgage Disclosure Act data examined by The New York Times. The study by the Center for Responsible Lending predicts that nearly 22 percent of the subprime loans in the New York area made in 2006 will go into foreclosure in the next few years, one of the highest rates in the nation. And in suburban counties like Nassau, Orange and Putnam, the percentage of households spending at least 50 percent of income on housing has been rising.
While the overall number of foreclosures nationwide remains low — in New Jersey, it is less than 2 percent of all outstanding mortgages — it masks the reality of conditions in lower-income, heavily minority neighborhoods like Mr. Abazie’s, where multicolored “Avoid Foreclosure” and “Sell Your House” signs seem to decorate most of the lampposts.
Nearly 250 homes within one mile of Mr. Abazie’s home in Newark’s South Ward have been in some form of foreclosure in the past six years, according to sales data from the Essex County Sheriff’s Department analyzed by The Times. In that time, more than 4,000 homes in the city have gone into foreclosure, according to the data.
Malcolm Bush, president of the Woodstock Institute, a national research group that studies mortgage lending in poor neighborhoods, said that widespread foreclosures in an area can depress already low housing prices, making it harder for others in that area to get loans or refinance. And those troubles can afflict an entire community.
“This has wider social implications,” Mr. Bush said. “It appears that things are going to get worse.”
Too Big a Loan
Newark’s long-impoverished, overwhelmingly black South Ward is still recovering in some ways from the exodus of residents and commerce after the 1967 riots. On many blocks, there is a shortage of sidewalks, an abundance of weedy lots and drug dealers who openly ply their trade.
But parts of the South Ward are also hotbeds of development, filled with new multifamily homes with driveways or garages. Many have “For Rent” signs posted in their front windows.
This is where Mr. Abazie and his wife, Beryl, live. Mr. Abazie, 28, grew up in Nigeria and moved to the United States 10 years ago for work and college. After they were married last year, the couple decided to leave the apartment life behind, buy a home and start a family.
Through a friend, they found a broker and a three-year-old two-family home on Schley Street. With good credit and some savings, Mr. Abazie, a night security guard, thought he could obtain a low-interest loan insured by the Federal Housing Authority.
But after two lenders told him he did not qualify for such a loan, he settled for something less: a $325,000 subprime mortgage from Wall Street Financial. It was actually two loans, with an 8.5 percent interest rate on the larger one and a 12.2 percent rate on the smaller one. His monthly payments are now more than $2,600.
Earning about $2,000 a month on his salary, he quickly fell behind. At first, he had assumed that he could find a tenant to help offset the cost of the mortgage, but soon discovered his neighborhood had a glut of vacant apartments. So last fall, he took a second job working nights helping mental patients at a state hospital.
In December, his wife gave birth to their first child, a son. But because they were still straining to pay their bills, she returned to work part time this month, at a home for the elderly.
Last month, they found a tenant, who pays $400 a month, far short of the $1,200 rent they had thought they could charge. They have fallen more than $3,500 behind on their mortgage payments. In November, they received their first foreclosure notice.
Mr. Abazie has thought about selling the house — he even took a real estate class — but would almost certainly lose money. For now, he is hoping he can refinance his loan; but rates are not getting better and his credit record is only getting worse.
They continue to trim the family budget and have stopped sending monthly checks of several hundred dollars to his parents and siblings in Nigeria. Not wanting to field his relatives’ plaintive calls, he changed his cellphone number last month.
“I’m in a really tough corner,” he said. “I just do not feel happy talking about my current challenges.”
A Single Mother Struggles
For Michelle Pitt, subprime loans were not the problem. But she, too, has found herself swimming in debt that is jeopardizing her ability to keep her home.
Ms. Pitt, a 39-year-old single mother of four, bought her two-family house from a local nonprofit group, Episcopal Community Development, in 1999. The house sits on a hill in the South Ward and rattles constantly with the sound of Interstate 78, the highway next door. Still, it was a good deal, selling for $105,000 under a subsidized housing program.
Ms. Pitt, a first-time home buyer, got a mortgage with a relatively good interest rate of 7.5 percent. And at the time, she was earning decent salaries from two jobs, as a flight attendant for Spirit Airlines and as a dental assistant in state prisons.
Over the next few years, she was laid off by the prison and stopped working at Spirit when the company moved some of its New York operations to Florida. Since then, she has held temporary jobs, most recently as a part-time orthodontist’s assistant.
“I stopped flying and everything started happening,” she said.
She made $25,000 last year, plus child support — just enough to pay her monthly mortgage payments of $1,324 on time. She lives paycheck to paycheck, while scrimping on the extras her family used to take for granted. Dinners out, movies, clothes, shopping trips and visits to the hair salon have become rare luxuries. An annual summer ritual, a vacation in the Poconos, has become out of the question.
Worried that a late delivery of her paycheck will mean no groceries, Ms. Pitt often makes the 30-minute drive to her temp agency to collect it in person. She owes several thousand dollars on her credit cards, and recently canceled most of them to avoid falling deeper into debt.
Ms. Pitt notices the foreclosures in the neighborhood, the boarded-up houses on the drive to her children’s schools. She loves this house: its staircase lined with framed pictures of the children, the backyard deck, the kitchen where the family gathers for breakfast each morning. It represents something solid and permanent, something she wants her children, ages 1, 13 and 14, to experience. (She has a 23-year-old son who does not live with her.)
To keep it all, she is thinking of selling her house and moving to the Poconos. “It’s all about giving them something I never had,” she said.
A Dream Goes Wrong
For Quintin Fields, buying a home in Newark was less about finding a place to live and more about trying to find opportunity in the city’s housing boom. It is an opportunity he now wishes he had passed up.
Almost two years ago, Mr. Fields, who lives with his wife in a Harlem apartment, bought a three-family home from his half brother in Newark’s West Ward, on a street sandwiched between two cemeteries.
Mr. Fields, 46, a caseworker at a residential program for troubled teenage boys in East Orange, thought he might turn the house into a residence for troubled young adults. But he was also enticed by the idea, suggested by his half brother, that buying the building could repair Mr. Fields’s poor credit record and that selling it might someday make him some money.
A first-time home buyer with an annual income of about $36,000 and almost no savings, Mr. Fields did not qualify for a prime loan for the $315,000 house. So his half brother arranged a 15-year mortgage from WMC Mortgage Company, a subprime division of General Electric, and another from the Option One Mortgage Company, the subprime group of H & R Block.
The $2,312 monthly payments were much more than he could afford, but Mr. Fields said his brother assured him that they could find tenants. They did, but then lost them. Last July, without the rental income, his brother, who was managing the property, stopped paying the lenders. Mr. Fields now owes almost $30,000 in delinquent payments and has fallen out with his half brother.
He has received multiple foreclosure notices. With no savings, and with an even worse credit record than before, he has been frantically filling out grant applications, hoping to salvage his plans.
“It’s just sad,” said Mr. Fields, whose wife is expecting their first child this summer. “I can’t even borrow money.”
Starting Over, Finding Trouble
The case of the Moores suggests that low-income people are not the only ones who have gotten into trouble with subprime loans.
Mr. Moore, 53, comes from Newark’s South Ward, and met his wife in the 1970s, when they were both in high school.
They dated then, but split apart as Mr. Moore battled drug addiction. Over the years, they both were married to, and then divorced from, other people. He worked as a longshoreman in the Port of Newark, a job he still holds today. Mrs. Moore, now 50, moved away after high school, living in Manhattan, Paris and Tennessee.
When they found each other again three years ago through mutual friends, they had seven children between them. They were married, and after a lifetime of rented apartments, decided it was time to buy their own home.
A year and a half ago, they found it: a large one-family house, for $310,000 on a street of well-kept Victorians in the South Ward neighborhood of Clinton Hill. With six bedrooms, it was a place to bring their family together, a reward for a middle-aged couple who had bumped around in life.
Though he refused to reveal his salary, Mr. Moore said that a longshoreman with his experience can make $29 an hour, and more with overtime. It was enough, they assumed, to get a good interest rate.
But Mr. Moore’s credit “wasn’t the greatest,” he said: He had had problems, including difficulties with a car lease and a federal tax lien. After scraping together a few thousand dollars for closing costs, he and his wife had no money left for a down payment. So they got a two-part loan, similar to Mr. Abazie’s, with the smaller part carrying a 10 percent interest rate. Their monthly payments total almost $2,600.
They thought they could handle that. But work dropped off at the port for Mr. Moore, and a job that Mrs. Moore thought she would get with Mayor Cory A. Booker’s administration never materialized.
Soon, the mortgage payments began squeezing them. Electric and telephone bills became harder to pay; recently his cellphone was turned off for late payments. Mrs. Moore has started suggesting that they sell the house and move in with his elderly parents, who have a large home in Newark.
He rejected the idea, but is now pondering selling some of his prized possessions, including his collection of expensive bicycles and perhaps one of his Fender bass guitars.
“I need to make some moves,” Mr. Moore said. “I need to keep this house.”
The moves may have to come fast. They fell three months behind on their mortgage and started receiving foreclosure letters from their two lenders. They staved off further action by negotiating an agreement to add the $10,000 they owed to their principal.
But they were just able to scrape together the March payment, delivering it two weeks late. Their phone now rings constantly with calls from companies offering ways out of their debt. Mrs. Moore talks to them, hoping one will offer the right deal.
Last week, a man delivered a court summons for a foreclosure proceeding. Mrs. Moore became so upset she threw the unopened envelope onto the street. After frantic calls to their lenders, they bought some additional time.
“I’m not used to not knowing what to do,” Mr. Moore said. “I’m not happy about it, but I’m determined to overcome this.”
Margot Williams contributed reporting.