Thursday, February 19, 2009
Open most any urban newspaper to the foreclosure notices, and you'll find the list heavy with Hispanic names. Times are tough for Americans of every demographic, but for Latinos they are grimmer still.
Is this the end of the Latino-American Dream? The answer, in Spanish, is "no."
President Obama has just unveiled a $75-billion plan that includes helping homeowners who are behind in their monthly payments but could keep up if their mortgage terms were eased a bit. Many Latinos would fit this category.
Almost one in 10 Latino homeowners reported missing a mortgage payment -- or being unable to make a full one -- in 2008, according to a Pew Hispanic Center survey. Over a third said they feared their own home might go into foreclosure. For foreign-born Latinos, that number rose to 53 percent. (Pew doesn't ask about immigration status.)
Many Latinos bought or refinanced homes at the worst possible time -- just before the housing bubble went splat. Lots of people fell for the pitch that real-estate was an up-only escalator into the American Dream. But with more than half of Latino families still renting their homes, they became a very juicy target for the builders, brokers, loan originators and banks seeking to prosper off mortgage mania.
As with other fans of easy credit, many Latinos were reckless in their borrowing. Some lied about income on their loan applications, often egged on by brokers and mortgage companies. But more were simply clueless. Mortgage companies wrote contracts designed to confuse even the most fluent speakers of English. Those with limited English were especially hard-pressed to understand the terms.
Subprime mortgages were invented for borrowers with poor credit ratings. They come with higher interest rates and often-punishing fees to supposedly compensate lenders for the added risk. But the road to riches was to make the deal, collect the fees, then palm the dodgy loans onto other investors. Wall Street took its cut packaging the mortgages into securities.
For an unscrupulous lender, the ultimate win-win is convincing a good credit risk that he or she isn't one -- and can only qualify for an expensive subprime mortgage. Subprime lenders found minority neighborhoods fertile ground for playing this trick. For example, 40 percent of African-Americans who took out subprime mortgages would have qualified for more affordable mainstream loans.
The subprime craze crested in 2005. That year, less-than-prime mortgages sold to Hispanics jumped 169 percent. (They rose 110 percent for whites and 122 percent for blacks.)
Further lowering the guard of Hispanic homebuyers were the strong efforts of their so-called allies -- low-income housing groups and Latino lawmakers -- to herd them into the tent. The Hispanic Congressional Caucus Institute's Hogar ("hearth" in Spanish) initiative was funded by the subprime industry. Subprime executives served as advisers.
California Rep. Joe Baca, a Democrat, pushed for lower lending standards as a way, he said, to "open the door to the American Dream." Brokers hawking the most toxic subprime products rushed into his 58-percent Hispanic San Bernardino district, now one of America's foreclosure capitals.
The question must be asked: How many people now facing the loss of their homes would be OK had been given the easier terms of a prime mortgage? The Obama Homeowner Affordability and Stability Plan may provide part of the answer.
Things will calm down. The United States will recover from the economic crisis. Debt-burdened families will restore sanity to their personal finances. (They've already begun.) Meanwhile, lower real-estate values could help some who lost their home get back in the homeownership game. For the many Latinos among them, the American Dream is not dead. It's just been put on hold.
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