Subprime mess hurts renters

As the subprime crisis goes on, renters—especially those in small, multifamily buildings—are starting to lose their homes after the lender forecloses on the building’s owner.

In most states, banks can evict tenants, even those with a lease, three days to two weeks after a foreclosure, since the lease was drawn up with someone who no longer owns the building. In places like Oakland, Calif., or Washington, D.C., where local laws give tenants some protection, the banks either ignore them or stop paying utility bills or making repairs.

During the real estate bubble that just burst, many speculators bought small multifamily buildings on speculation with easy money, thinking they would flip these properties before their interest rates reset.

Judith Liben, a housing attorney at the Massachusetts Law Reform Institute, a Boston legal-services center, testified before the House Committee on Financial Services Sept. 20. She pointed out that most of these tenants are low-paid workers or on welfare, and that the plight of these tenants has been “largely ignored by the media and government officials.”

Ms. Liben surveyed other housing activists before she testified and gathered anecdotal accounts of tenant problems due to foreclosures in Minnesota, Nevada, California and New York. She gathered reports of many and varied attacks on renters coming out of the subprime crisis, and how whole neighborhoods in a number of cities are filled with abandoned and decaying apartments.

But there has been no systematic attempt by banking authorities like the Federal Reserve or the Treasury Department to systematically gather data on how the wave of subprime foreclosures affects tenants.

In Massachusetts, the Federal Reserve Bank in Boston is doing some research on the problem. It found that while multifamily units are 10 percent of the housing stock in Middlesex County, in the Boston suburbs, they account for 27 percent of foreclosures.

“This highlights a potentially serious problem for tenants, who may not have known that the owner might be in a precarious financial position,” Eric Rosengren, president of the Federal Reserve Bank in Boston, said in a speech Oct. 10.

The Center for Housing Policy released a report Oct. 10 claiming one in four renters are paying more than half their income on rent. That’s up from one in five renters in 1997.

And the squeeze on renters will probably get worse. The Wall St. Journal examined more than 130 million mortgages and found that as much as $600 billion of adjustable rate subprime mortgages were scheduled to reset to probably much higher interests rates by the end of 2008. (WSJ, Oct. 11).

Outside of areas under rent control, mainly New York City and some neighboring communities, rents are going up by 4 to 5 percent a year. As homeowners become tenants after foreclosures on their houses, the pressure on rents will increase.

Even in the midst of a major financial crisis, the banks and some landlords are finding new ways to force the poor and workers to pay more for shelter, one of the essentials of living.