The spate of hurricanes that battered South Florida three years ago blew the shingles off Tatrisha Harvin's modest house in Miami Gardens, Fla. But this year's housing catastrophe could do something much worse. Two years ago, Harvin, 44, a Miami-Dade corrections clerk, turned to interest rates that were at a historic low to ease her household finances. The apparent windfall came at a critical time: her husband was injured and a daughter was diagnosed with diabetes. She refinanced with an adjustable-rate mortgage, taking out a chunk of her home equity. But she says she never realized the ultra-low teaser rate would jump so high so soon, raising her monthly mortgage payment by more than $1,000. "That was never explained to me," she says. "If it was, I never would have signed any documents." A year behind on her payments, Harvin faces foreclosure.
She and thousands of others in her community. When America's category 5 housing hurricane hit Florida this year, its eye came ashore at Miami Gardens. More than 4,000 of its 22,000 residential units are in foreclosure, giving this predominantly African-American city just north of Miami one of the state's and one of the nation's highest mortgage failure rates. Few places were as glad to hear that Congress this week had passed a housing relief bill that could help some 400,000 desperate homeowners like Harvin keep their homes via mortgage refinancing aid. They're happier still that President Bush said he'll sign it, despite his objections to the refinancing trust fund as well as the $4 billion set aside to help local governments buy up and refurbish already foreclosed homes (the President described these provisions as giveaways). "We feel a large measure of hope," says Miami Gardens councilman and real estate lawyer Andre Williams. "This isn't just about maintaining houses, it's about preventing the destruction of families and communities. A city's quality of life is also on the line."
But the daunting trick for cities like Miami Gardens will be making the federal dollars work effectively and, perhaps more important, equitably. The triage process may require local officials to identify not only those homeowners who are most likely to make the best use of the aid the most long-term, creditworthy bets but also those who were genuinely victimized by predatory or unscrupulous lenders as opposed to those who simply made bad financial decisions (especially property flippers) and took on more housing debt than they and their salaries could ever afford. "We want folks to be able to hold on to the American dream," says Daniel Rosemond, the Miami Gardens director of community development. "But at the same time, in a low-wage region like South Florida, we have to be realistic about people who, frankly, aren't ready to be homeowners yet."
Under the new legislation, which also provides billions to save the country's two largest mortgage banks, Fannie Mae and Freddie Mac, the Department of Housing and Urban Development (HUD) has 60 days to lay out a plan for how the homeowner aid will be disbursed via state and local agencies. After that it has 30 days to send it out. Officials like Rosemond, who this summer created a foreclosure prevention program in his city to help distressed homeowners buy more time, hope that lenders who are poised to pounce with notices will hold off until the money arrives to help debtors make up for delinquent mortgage payments and refinance into more affordable mortgages backed by the Federal Housing Administration. One key, according to homeowner advocates, will be whether or not the program will prompt lenders in general to be more generous from here on out. "So far we're not seeing the loan modifications we need from lenders," says Jackie Duran, a foreclosure counselor for the non-governmental Neighborhood Housing Services, which has been overwhelmed in recent months by homeowners from all over the Miami area. "When you've got people whose [interest] rates have jumped to 11 or 12%, a 1% reduction isn't going to work. You need at least a 3% break."
The housing bubble was good to Miami Gardens, a working/middle-class city that prides itself on its family and community cohesiveness. The city was incorporated, in fact, in 2003, at the height of the boom, which has since helped its population of 110,000 reach a 71% homeowner rate. "It's the core of our existence," says Rosemond. The city's property tax revenue leapt by 65% last year and its property values have risen 120% the past five years. But for a city with a median income less than $40,000, it was all a bit out of whack. Rosemond notes that before the bubble burst last year the average Miami Gardens home value was nearing $300,000 when it should have been closer to $200,000. As a result, the city and its minority residents have been a special target of what Williams calls "scoundrels and criminals dressed as mortgage brokers" duping low income or subprime buyers with risky mortgage products.
Williams is quick to note that not all the lenders involved in the Miami Gardens disaster were disreputable and he acknowledges that "there were too many folks here who were totally irresponsible as buyers and shouldn't be able to take advantage of this process." He agrees, for example, with a stipulation in the new bill that defaulting homeowners who get bailed out must return all or a significant portion of any profit they make on the subsequent sale of their house to the federal government. But he also stresses that one of the things he hopes the city can do with the federal aid is reform the reckless culture of home-buying by setting up tools like lender databases and buyer workshops. "This has to become an educational process as well as a relief process," he says.
Rosemond agrees. He's already envisioning rules for the federal aid when it reaches Miami Gardens such as prohibiting refinancing with adjustable-rate mortgages and requiring 30-year fixed loans in order to be eligible for relief. He also hopes to establish rent-to-own programs, providing landlords with incentives to give house and apartment renters the option to buy their units once they've saved enough and built a strong enough employment and credit history. "We need people to rent longer before they buy houses, but we also need renters to feel like they have a stake in those properties," Rosemond says. "This would motivate them and create the kind of homeownership you want for a community, not the houses built on sand."
Residents like Harvin, however, don't have the luxury of looking that far ahead. When told about the new federal relief, she said it was the best news she'd had in years. "A lot of us in this community haven't even recovered yet from the 2005 hurricanes," she says. "Then the housing mess started hitting us, and you take into account we're all strugglin' to buy food and gasoline. Seems the least they could do." Americans should know by Christmas whether that will be enough to preserve the quality of life in Miami Gardens and countless other U.S. cities still recovering from the housing storm.