Bronx Housing Roundup: the mess of foreclosures

It’s been another active week in the world of housing news, in the Bronx and nationally. The one common theme shouldn’t be too surprising: foreclosures.

Let’s start locally with a couple of stories that exemplify larger trends in Bronx multifamily housing.

Story Of The Day: For Tenants in Foreclosure Limbo, a New Legal Strategy

Bertha Van Wright holds up a photo of a rat she found in her Garden Street apartment. Her building, one of several in the Bronx owned by Milbank Real Estate, went into foreclosure last year and has since fallen into disrepair, plagued by rodents, insects and mold. Last month, a legal group filed a court motion to hold the bank that oversees the mortgage on many Milbank properties responsible for their upkeep. Read the story in this month's Tremont Tribune. (And for some more background on the issue, read this blog post by contributor Gregory Lobo Jost.)

Understanding the Players in the Milbank Securitization Portfolio

First the facts: A new lawsuit brought by Legal Services NYC – Bronx will attempt to place responsibility for deplorable conditions at buildings owned by private equity investor Milbank Real Estate to the Trustee, Wells Fargo. At a press conference in front of one of 10 buildings owned by the troubled investor and part of a huge commercial mortgage backed security, Council Speaker Christine Quinn, Borough President Ruben Diaz, Jr., and Councilman Fernando Cabrera joined tenants, organizers and lawyers to announce the filing of the lawsuit.

As opposed to trying to impersonate a journalist (I'm the deputy director of University Neighborhood Housing Program, a nonprofit), I’d like to give some background to the situation and explain why the lawsuit, if successful, could be extremely significant nationwide. (You can read the press release, see coverage in the New York Times, read a piece by AP, and get another look in City Limits.)

As prices for apartment buildings in the Bronx and throughout New York City skyrocketed during the housing boom, private equity investors purchased thousands of buildings, including large concentrations in upper Manhattan and the west Bronx. The high sales prices were justified by notions of increasing the rent rolls in the buildings – in other words, speculation that existing tenants could be replaced by higher rent paying tenants. This strategy has failed in many buildings, including high profile cases like the Riverton in Harlem and Stuyvesant Town / Peter Cooper Village. The vast majority of bad investments were made in lower profile buildings, often in the outer boroughs, and frequently where conditions have deteriorated as owners who got in over their heads could not afford to make repairs, let alone pay the mortgage.

In some of these buildings, like the 10 Milbank buildings in this lawsuit, the mortgage was securitized, meaning it was packaged with many other mortgages into a giant pool, carved up into different slices (known as tranches), assigned risk scores by ratings agencies, and sold to investors through Wall Street.

In this case, the bank that originally was responsible for the bad loan – Deutsche Bank -- never intended to be the lender of record (other than a second mortgage they put on the property, known as mezzanine financing, that they have supposedly written off as a loss). Rather, they decided to package the $35 million mortgage into a huge $3.5 billion security (this one known as COMM 2006-C8 that includes financing for the Mall of America) shortly after the buildings were purchased in November 2006.  

Bailouts Come Easy for Wall Street, Not Homeowners

Opinion from Guest Blogger Gregory Lobo Jost
How comforting to know that our government can act quickly to cut interest rates when things get bad. As markets tanked across the globe on Monday and Wall Street was spared thanks to the King Holiday, the Fed slashed the federal funds rate by 75 basis points or 3/4 of a percent this morning -- talk about fast action! And is anyone complaining about a bailout?

If such action could be taken on the hundreds of thousands of homeowners in danger of foreclosure (or already there), many Americans would be up in arms complaining about a bailout for their neighbors (even though it would help their own property values).

If you aren't convinced about how much better Wall Street bankers fare in hard times than our regular citizens, consider the huge bonuses given out this year. Despite huge losses for most of the corporations involved in the subprime lending debacle, bonuses are down only 4.7% from last year. This editorial on MarketWatch offers some interesting suggestions on what the bankers should do with their bonuses -- if they won't give them back, make them invest in the mortgage backed securities that are tanking! (Also, check out the section at the end of the article on the related protests against private equity firms.)

The Times' Vikas Bajaj has an interesting article today that gets to the root of the subprime fiasco. "Homeowners are suing mortgage lenders. Mortgage lenders are suing Wall Street banks. Wall Street banks are suing loan specialists. And investors are suing everyone." Why did lenders ever make loans that they knew borrowers couldn't repay? Because they were passing the responsibility and accountability on to others. The article doesn't mention the ratings agencies, however, who often rated securities much better than should have, partly because they were being paid by the banks issuing the securities. The New York Sun gives these ratings agencies a subpar rating.

Bringing things back closer to home, the Daily News has an article on how prevalent property flipping has been (and continues to be), and how it fed off subprime lending to inflate property values and push families into foreclosure.

On an unrelated note, the Daily News also reports that the Bronx had much fewer bedbug complaints to 311 than all the other boroughs (except Staten Island). While at first it felt great to think the Bronx finally ranks near the bottom in something bad, the numbers aren't quite as rosy for Bronxites once adjusted for population. In the 4 boroughs cited in the article, Queens had the lowest rate of complaints (1 per every 1,408 residents) and the Bronx came next at 1 per every 1,219 residents -- not too shabby, but not a first place finish like article mentions. Brooklyn (1 per 1,053) comes in slightly better than the most bed-buggy borough, Manhattan (1 per every 932 residents). The downside of looking at the absolute number of complaints instead of the rate of complaints is that none of the upcoming educational seminars on how to prevent bedbugs will be held in the Bronx.

Note: Population numbers come from the 2007 Population Estimates from the U.S. Census Bureau