Lauren and Frank Cosamano last August stopped renting in Voorheesville and bought a blue bungalow on North Toll Street in Scotia.
The Cosamanos were attracted to North Toll by the other families with children in the neighborhood and its proximity to Scotia-Glenville schools. But in the nine months since they moved, the view of North Toll from their porch has changed dramatically.
“Since we’ve moved, this one has popped up for sale and those three popped up for sale,” Lauren Cosamano said. The 29-year-old stay-at-home mom pointed at the houses on both sides of her bungalow while holding her 8-month-old son.
Part of what Cosamano was seeing was the mortgage crisis’ advance into the heart of the Capital Region’s middle-class neighborhoods.
After festering in the lower-income areas of Albany, Troy, Cohoes and Gloversville, foreclosure problems are increasingly creeping into area suburbs. Small clusters of foreclosures have recently emerged in Altamont, Malta and Scotia, according to RealtyTrac.com, an Irvine, Calif., foreclosure tracking firm.
The spread of foreclosures into suburbia could worsen this year as homeowners with good credit fall behind on mortgage payments because of inflationary pressures, especially from gasoline and food. Many prime borrowers are also expected to default on the home equity loans they mostly used to pay off credit card debt, resulting in what industry experts are calling the “alt-A mortgage crisis.”
“What you’re seeing in the suburbs is going to be the next phenomenon,” said Bob Eberle, president of the New York Real Estate Investors Association, a Latham trade organization.
On the Cosamanos’ block of North Toll, three properties have entered pre-foreclosure in the past year. A neighboring bungalow with a small disheveled yard re-entered foreclosure in January. A nearby two-story house entered pre-foreclosure in July, but a bank dropped its pending lawsuit last month. Another bank in December repossessed the vacant building at the corner of North Toll and Lark streets, according to Schenectady County Court documents.
“You never know who’s going to buy them. I think we’re going in a bad way,” said Ada Johnson, 50, who has lived on North Toll for six years.
A similar scenario is playing out on nearby North Holmes Street, where another three homes within yards of each other have entered pre-foreclosure since August.
Among those properties are a two-story home that a county judge ordered to auction last month and a bungalow with unruly hedges that a bank repossessed late last year. The owner of the third home took out a subordinate mortgage in September and had the foreclosure action against her discharged, according to court documents.
“It’s a tragedy for the village because of the families affected,” said Scotia Mayor Kris Katsberg.
But the tragedy is not limited to debtors. While foreclosures displace families, they also threaten to hurt neighbors’ property values and plague communities with eyesores. Katsberg said the village’s strict property maintenance rules should stave off blight at foreclosed homes.
During the first quarter, foreclosure filings in the five-county region surrounding Albany increased more than fivefold to 608, compared with 111 a year earlier. That spike put one out of every 622 properties in Albany, Rensselaer, Saratoga, Schenectady and Schoharie counties in foreclosure. The national foreclosure rate is much higher, one out of every 194 properties, according to RealtyTrac.com.
“In New York, we’re just waking up that this is really going to hit us,” said Kirsten Keefe, a staff attorney for the Empire Justice Center in Albany.
One disturbing aspect of rising foreclosures in the suburbs is how little is known about their impact. To date, much of the research on the impacts of foreclosures has been in low-income, urban areas, Keefe said.
“There’s been nothing to study. We never had a record number of foreclosures in middle-class neighborhoods. We’re in uncharted territory now,” said Keefe.
A 2005 study by the Woodstock Institute found that in Chicago, a property’s value declined by 1.44 percent to 1.8 percent for each conventional foreclosure within one-eighth of a mile of it in a low- or moderate-income neighborhood. Woodstock, a Chicago nonprofit organization that advocates for economic development in low-income communities, said that property value impact could average at a loss between $1,598 to $1,998 per foreclosure.
“How that translates in Loudonville could be really different,” Keefe said.
Katsberg does not expect village property values to be hurt by homes in foreclosure. Citing the strength of the local housing market, he said, “I’m hopeful they’ll turn over quickly.”
However, by the end of the first quarter, single-family home sales were down 23 percent in the greater Capital Region, compared with the same period of 2007. During that period, the region’s median sale price defied the national trend and actually rose 3 percent to $190,000, according to the Greater Capital Association of Realtors, a Colonie trade organization.
“It’s cyclical. It will come back. I do think the area is pretty strong. We’re lucky,” said a woman who requested to be identified only as Theresa. For 10 years, she has lived on Route 9 in Loudonville. In the past 13 months, two nearby homes on Route 9 — including one with an estimated market value of $662,000 — have entered foreclosure, according to RealtyTrac.com.
Since last summer, federal and state lawmakers have been beefing up public defenses against foreclosures. The state budget that legislators in Albany approved last month included $25 million in grants and aid for nonprofit organizations that assist homeowners in foreclosure.
In Washington, the Senate Banking Committee last week approved legislation that would authorize the Federal Housing Administration to back $300 billion in new mortgages, which can be used to help sinking homeowners refinance.
The Bush administration threatened to veto a House version of the bill, but the Senate version was received more warmly. Under the Senate bill, fees paid by mortgage originators to the federally chartered mortgage buyers Freddie Mac and Fannie Mae will be used to cover the costs of failed loans, shielding taxpayers from those expenses. The legislation could aid 500,000 homeowners.
In October, Eric Stein, the senior vice president for the Center for Responsible Lending in Durham, N.C., told a U.S. House panel that Americans not in foreclosure could save $72.5 billion in property wealth through the aversion of 600,000 foreclosures. To achieve that goal, Stein backed legislation that would reform the U.S. Bankruptcy Code, especially in regard to Chapter 13 restructuring, which halts foreclosure.
Between October and January, efforts to save homeowners from foreclosure were largely failing. The state Foreclosure Prevention Working Group in April reported seven out of 10 seriously delinquent borrowers had not taken necessary steps to avoid foreclosure.
“It’s a little too early to know whether that’s going to have an effect [on property values], but you’re going to see more foreclosures in the suburbs,” said Eberle, at the real estate investors group.