October 18, 2005Partnership to Provide Intensive Education, Financial Counseling and Legal Assistance for First-Time Homebuyers and Low-Income, Senior Citizen, Minority and Immigrant Homeowners
Mayor Michael R. Bloomberg and Department of Housing Preservation and Development (HPD) Commissioner Shaun Donovan today launched a new $1.35 million initiative to combat predatory lending, one of the most daunting challenges facing elderly homeowners, first-time home buyers, fixed-income homeowners, and minority and immigrant homeowners. "Preserve Assets and Community Equity" (PACE) is a comprehensive new program that includes outreach, education, financial assistance and legal strategies to current homeowners and new home buyers who are a part of groups and neighborhoods historically targeted by predatory lenders. Irresponsible lending practices and risky mortgages can result in homeowners losing their homes, which is the most traditional vehicle for asset building and wealth creation. This new financial education, legal and credit assistance measure will focus first on reaching residents in the communities of Southeast Queens, Bedford-Stuyvesant and Bushwick, which are neighborhoods that have experienced high rates of predatory lending. Mayor Bloomberg and Commissioner Donovan visited the Queens Village home of Leonard and Irene Richards, past victims of a predatory loan that nearly cost them their house, and the Mayor announced his initiative to combat predatory lending and prevent mortgage foreclosures at Wayanda Park. Mayor Bloomberg, Queens Borough President Helen Marshall and City Council member Leroy Comrie were joined by representatives of participating non-profits as well as banks and foundations that are providing financial support for PACE.
"In Southeast Queens, Bedford-Stuyvesant and Bushwick we have seen the result of lenders who prey on vulnerable homeowners," said Mayor Bloomberg. "We know that families have been uprooted and communities have been hurt as a result of high interest rate mortgages, undisclosed rates and fees and other unethical gimmicks practiced in the name of making a quick buck. By educating homeowners and those who aspire to own their own home about the dangers of high-risk lending, we are working hard to make sure people aren't taken advantage of. In addition, we will work with our partners in the private sector, charitable organizations and community based organizations to help resolve the legal and financial problems of those who have already fallen victim to predatory lending practices. Through our efforts, New Yorkers who work and save to own a home should be able to do so."
Predatory lending practices strip equity away from homeowners. A few examples include when a financial provider repeatedly refinances a loan within a short period of time and charges high points and fees with each refinance, when a financial provider packs a loan with single premium credit insurance products like credit life insurance and does not adequately disclose the inclusion, cost or any additional fees associated with the insurance, or when financial providers charge excessive rates and fees to a borrower who qualifies for lower rates and fees. Studies have shown that black and Hispanic homeowners are too often sold mortgages that require higher than normal interest rates. In 2005, a Federal Reserve Bank study revealed that in 2004, regardless of income levels, blacks were about three times as likely as whites to borrow through mortgages with excessively high rates. The target neighborhoods in the PACE pilot have foreclosure action rates two to four times higher than other neighborhoods in the City. The foreclosure filing rates in the target neighborhoods run approximately 10% of the total residential 1-4 family homes there.
"We are extremely grateful to our partners and funders for contributing over $1 million," said HPD Commissioner Donovan. "This ground-breaking partnership between government, non-profits, banks and philanthropic institutions will protect homeowners and build stronger neighborhoods. Seniors, recent immigrants, first-time and minority homeowners and people on low-incomes are often the targets of scams and risky mortgages. PACE will help homeowners recognize when they have a bad loan and point them towards financial strategies to help get them back on their feet. A home is far too valuable an asset for people to lose because of unscrupulous lenders."
A targeted marketing initiative will focus first on homeowners who have taken predatory and high-risk loans, or are at risk of doing so. It will also target people who are planning to buy their first home. The public education outreach effort will include posters, brochures, postcards and targeted advertisements on bus shelters and in community newspapers with the slogan, "Don't Borrow Trouble." Over 30,000 postcards and 20,000 brochures will be distributed and phone kiosk and bus shelter ads will be placed. The City's 311 citizen service center will be used to refer callers to community-based organizations whose staff will be given comprehensive legal and technical training, and ongoing back-up assistance. The initiative is expected to reach thousands of households in its target market and result in thousands receiving financial or legal counseling.
The initial participating community-based organizations are Margert Community Corporation (serving homeowners in Southeast Queens), Ridgewood Bushwick Senior Citizens Council (Bushwick), and Pratt Area Community Council (Bedford-Stuyvesant). In conjunction with South Brooklyn Legal Services and the Parodneck Foundation, the community-based organizations will provide legal assistance, counseling, and loan remediation to hundreds of homeowners at risk of foreclosure. These community based organizations will also help to arrange financing for rehabilitation loans, educate clients about credit repair, and improve their access to traditional credit.
HPD will work with the non-profit organizations South Brooklyn Legal Services (SBLS), the Neighborhood Economic Development Advocacy Project (NEDAP), and the Parodneck Foundation as well as the Queens Legal Aid Society to develop the PACE program. Implementation has begun in North Central Brooklyn and Southeast Queens to assess homeowners' complicated financial and legal situations and provide early intervention, followed by counseling and referrals for appropriate legal and financial assistance. After assessing the pilot, the PACE program partners, in collaboration with private sector support, expand to the northeast Bronx and the north shore of Staten Island and then it will build a citywide network of organizations with these capabilities.
PACE has been made possible due to the leadership and financial contributions of both local and national banks and foundations. To date foundations, banks, and the New York City Council have contributed $1.07 million of the $1.35 million operating budget. HPD is still soliciting the balance of the operating cost. Funding includes commitments from Astoria Bank, Bank of America, Citibank Foundation, Deutsche Bank, Fannie Mae, Freddie Mac, HSBC, Independence Community Bank, JPMorgan Chase Foundation, M&T Bank, Northfork Bank, Washington Mutual, and the New York City Council as well as an in-kind contribution from the New York State Banking Department.
Before the press conference, the Mayor toured Leonard and Irene Richards' home in Queens Village. After nearly losing their home due to difficulty paying their mortgage and property taxes due to a high-interest loan, the Richards were helped by HPD's Owner Services Program and the Parodneck Foundation and were able to refinance their mortgage. The Richards took the high-interest loan when they refinanced their mortgage to cover medical and other expenses. The Parodneck Foundation also underwrote a Senior Citizens Home Assistance Program loan to redo the aluminum siding on the Richards' home.
"HPD urgently moved to secure a prime refinance of my mortgage," said Leonard Richards. "The expertise and urgency with which my case was handled in a very critical situation gave me a chance to stabilize my financial situation and keep my home. I wish to extend a thank you from my family and let others know of the services of protecting senior homeowners."
New York City's PACE program was developed in consultation with many of the participating non-profit organizations and program funders. Additionally, PACE is pleased to be a participant in the national "Don't Borrow Trouble" campaign. Pioneered in Boston by Mayor Thomas M. Menino and the Massachusetts Community Banking Council, Freddie Mac is the principal sponsor of the "Don't Borrow Trouble" program's expansion, which is now active in 36 locations throughout the United States.
"At a time when the focus has been on new development, it is equally critical to ensure that those who already have achieved homeownership, and built up equity, can preserve those hard-won gains," said Daniel Nissenbaum of HSBC Bank USA, N.A., representing the coalition of lenders supporting the program. "This program, combining the resources of HPD, community-based organizations and bank funders, will provide a three-pronged approach of legal assistance, homeownership counseling and loan remediation to combat predatory lending."
"Predatory lending remains a problem statewide," said New York State Banking Superintendent Diana L. Taylor. "We are all painfully aware that those most likely to be targeted by predators and unaffordable loans are also those with the lowest per capita income. Thus, our least prosperous citizens are the ones who suffer the most at the hands of unscrupulous lenders. The Banking Department, as licenser and regulator for the mortgage industry, is proud to join with HPD, NEDAP, SBLS and the Parodneck Foundation in combating predatory lending. The PACE program is an elegant idea put into practice. I congratulate all of the participants -- particularly the banks that are helping to fund and develop this pilot effort -- for their vision and their determination. Providing direct aid and intervention in combination with strong consumer education programs can make all the difference. I look forward to seeing PACE expanded into every needy neighborhood and using it as a model for similar efforts statewide."
"Here in southeast Queens and elsewhere, predatory lending is a serious and growing problem that affects senior citizens, immigrants and many other innocent victims who have invested their life savings in buying a piece of the American Dream," said Queens Borough President Helen Marshall. "Unscrupulous lenders well-versed in the tricks of the trade create unnecessary misery and hardship in the wake of years of sacrifices and hard work by homeowners. I want to thank Mayor Bloomberg and HPD Commissioner Donovan for recognizing and responding to this mounting problem and continue to work with them to make the dream of owning a home a reality for many years."
"It's critical to coordinate the efforts of all entities involved in preventing predatory lending as more and more people are taking advantage of our growing elderly and new homeowner populations," said Council Member Leroy Comrie.