Ali and a friend, both speculators, stood outside the courthouse with certified checks in their pockets, mapping strategy for the day. “I’m not buying that house,” said Ali. “When I passed by to look at it, a guy came out and screamed, ‘Go away, motherfucker!’”

“Buy it, let him stay, charge him rent,” shrugged the friend. “Tell him if he misses a month you’ll kick him out.”

A nearby guard sized up the two. “Fleas,” he snickered.

The group was waiting for a foreclosure auction to begin, as it does each Thursday afternoon in the cavernous jury-selection room of Brooklyn’s Supreme Court. There, small-time realtors and investors–mostly young immigrant or ultra-orthodox Jewish men–bid on houses people like the screaming guy lost because they couldn’t make their mortgage payments. The auctions have been going on for years in the boroughs. But lately, more homes are headed for the block. Totals for 2003 aren’t in yet, but preliminary data compiled by the Furman Center for Real Estate and Urban Policy indicate that foreclosure claims in Brooklyn rose from 2,629 in 2001 to 2,970 in 2002–an increase of about 13 percent. During the same period, the Bronx saw a 27 percent increase: from 915 claims to 1,164.

One reason for the rise in foreclosures seems to be the economic downturn that began needling New York City in early 2001 and then stabbed with a vengeance after 9/11. According to statistics compiled by the Community Service Society, the increase in joblessness is steepest among blacks and Latinos, particularly men without college educations who do blue-collar, clerical or administrative-support work.

During the national economic boom of the 1990s, many in this demographic saved enough money to buy homes for the first time. Some purchased one-family dwellings; others chose multiplexes where they could live but also get tenants to help pay the mortgage.

These were fat years even for struggling neighborhoods. During the 1980s and early 1990s, the New York City Housing Partnership, Neighborhood Housing Services, and other groups worked with the government and banks to build and rehab affordable housing for sale to lower-income buyers, and to help those buyers obtain mortgages. The groups aimed to revitalize neighborhoods by helping people with modest incomes achieve financial independence. Home equity, the thinking went, would create stable individuals in settled, prosperous communities.

The Jeffersonian ideal of property ownership has always loomed large in the nation, and it was boosted when President Clinton set a goal to raise the national homeownership rate to 67.5 percent by the millennium. Today, 68 percent of American households own their homes. HUD wants to raise that rate two points in the next three years, as well as bring homeownership rates among minority households up to the same level as whites’.

But lately, hoary ideals have brushed against a bad economy. Since New York’s recession began over two years ago, many homeowners and their tenants have had work hours cut, or been laid off altogether. According to the New York State Department of Labor, since May 2001, unemployment in Brooklyn has gone up from 5.7 to 9.1 percent. In the Bronx, it has shot from 6.2 to 10 percent.

Housing counselors say they’re seeing more people of modest income who have missed mortgage payments and gone into default or foreclosure. At Neighborhood Housing Services, Ken Davis, director of the agency’s Foreclosure and Predatory Lending Prevention program, says that since early 2003, his office has been doing foreclosure counseling for 10 or 15 more clients each month than it used to. “It’s a 25 to 50 percent increase,” notes Erskine Kennedy, a coordinator with the same program.

The damage is hardly as visible as it was during the foreclosure epidemic of the 1970s and 1980s. Back then, acres of abandoned homes gave a bombed-out look to areas such as Sunset Park and Jamaica. But when people lose their homes to foreclosure today, speculators buy and flip for a higher price, and new buyers take over. Sometimes they simply flip and flip again. Other times, they move in, but leave a few months later when they, too, are foreclosed upon. Or the speculators, like those at the courthouse auction, rent to tenants, then skimp on maintenance, since their main goal is to retain profit before they eventually flip again. The neighborhoods, transformed with the help of two decades of homeowner investment, look strong. But there’s pain and rot within.

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“This is the worst thing that’s ever happened to me. Don’t use my real name–just call me Fish, my nickname from when I was a child in Belize,” said the owner during an interview at his Cypress Hills home, whose $1,727-a-month mortgage he has been been unable to pay for months. Now jobless after two decades of steady employment, Fish spends his days looking for work and worrying to the point of obsession. While talking, he tugs and tugs on his curly beard. If whiskers were misfortunes, he’d have straightened his out long ago.

His problems started shortly after 9/11. Until then, Fish was doing all the construction work he could handle–”jack-of-all-trades stuff,” he calls it–for New York City companies like Con Ed. The money was good. “It was union. Thirty dollars an hour. With overtime I was taking home $1,600 to $2,300 a week.”

But in February 2002, Fish was laid off from his job with a company that was doing subcontracting work for Con Ed. Eight months passed before he went back to work, with another private company that was making sidewalks for the city. When that job ended in December of last year, the company laid off Fish and promised to call him back when another project came up. He never heard from them again. Since then, Fish has landed only a few hours’ work a month, though he visits job sites regularly.

“At first I went through my savings,” he says. “Then my checking. My Christmas clubs. Then I couldn’t pay no bills. I’m a diabetic–there are times I can’t pay for my medicine. The gas company is taking me to court. Going down like this is very hard.” In the spring of this year, Fish got a letter telling him he was in default on his mortgage and threatening foreclosure.

Fish wasn’t the only homeowner in Eastern Brooklyn getting a warning notice. For the year preceding July 2002, according to data compiled by the Neighborhood Economic Development Advocacy Project, East New York saw 410 defaults, compared with 361 during the previous year.

Fish and his Grenada-born wife raised their four children in an apartment in Cypress Hills–a slice of East New York bounded by Atlantic Avenue to the south and Van Sinderen Avenue to the west. When they first moved there in the late 1980s, the area was still in crisis. Blue-collar Irish, Italian and Jewish residents had predominated in East New York until the 1960s. Then, a racist system of redlining, blockbusting and foreclosure led to white flight and segregated settlement of poor African Americans and (particularly in Cypress Hills) Puerto Ricans. Businesses pulled out. Rioting followed, along with an underground economy based on prostitution and narcotrafficking.

Compared with East New York as a whole, Cypress Hills has an abundance of single-family houses and homeowners. Even so, the neighborhood shared in the general devastation. By the early 1980s, remembers Cypress Hills LDC Executive Director Michelle Neugebauer, Fulton Street–the neighborhood’s main shopping strip–was a wasteland. “There were a lot of vacancies, arsons and demolitions, as well as scattered housing abandonment,” she says. Carmen Carrillo, president of a local block association who has lived in Cypress Hills for 15 years, remembers how abandoned houses in the late 1980s “were havens for drugs and prostitution. And there was a time when you saw rats around the houses.”

Since then, says Neugebauer, her organization has “rehabbed almost every city-owned building that used to exist here.” The effort has created 206 units of affordable housing, including 75 homes for sale. Another organization, Neighborhood Housing Services, rehabilitated a handful of houses on Fulton Street in the 1990s through the city’s StoreWorks program. Further south in East New York and elsewhere in the city, groups like East Brooklyn Congregations, East New York Urban Youth Corps, and Mutual Housing Association of New York joined giant efforts like the New York City Housing Partnership to change the face of low-income New York by creating affordable housing people could buy instead of rent.

Today, Fulton Street is chockablock with hardware stores, 99-cent emporia, and Caribbean and Salvadoran cafes. The worst of the black-market economy has abated. Cypress Hills residents continue to struggle: Median family income in the neighborhood is $29,000–only 78 percent of the city’s–and almost a third of the households are below the poverty line. Still, “I’ve seen a lot of changes,” Fish says. “There are new houses in the last five years and new people moving in. You won’t find no drugs or robbery. People are always trying to look out for each other. Everybody gets along.”

Fish got homeowner fever three years ago. “They were remodeling this house down the block from our apartment. We came by and looked, and my wife and I fell in love with it.” He proudly points out the roomy kitchen, the five bedrooms and three bathrooms. The price was attractive: $217,000. To finance the mortgage, Fish got a Federal Housing Administration loan at 7 percent interest.

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Mention the FHA to community developers like Neugebauer, and you often get an “uh-oh, here we go again” look. That’s because poor, minority neighborhoods have been victimized during the last 15 years by predatory lenders who use the FHA to exploit people who lack experience with loans.

The first wave of predatory lending, in the mid-1990s, victimized senior citizens by pressuring them to get home repairs, then steering them into the high-interest subprime mortgage loan market. Many borrowers lost their homes because they could not make their payments–but the banks hardly noticed, because FHA insured the loans against default. Shady realtors and lenders often “flipped” the foreclosed properties by buying them at auctions, then reselling them at ever-higher prices. Again, they took advantage of the FHA.

Realtors also bought decrepit, foreclosed houses, made cosmetic repairs, then advertised them to “first-time owners” who often couldn’t really afford a home. These realtors sent the FHA misleadingly rosy reviews of buyers’ finances, and appraisals that intentionally ignored structural defects. Purchasers have ended up with overpriced, distressed properties in need of major rehab that many can’t pay for. Houses have been foreclosed. Then they’ve been “flipped” to other na