This is the first of a two part series on the foreclosure/banking crisis and the Latino Community.
The Latino community has been one of the hardest hit by the recent foreclosure crisis. A recent Pew Center report indicated that nearly one in ten Hispanic homeowners say that they have missed a mortgage payment or were unable to make a full payment in the last year. In addition, 3% say that they have received a foreclosure notice according to the Pew Center survey, and over a third of those surveyed are worried that their home may go into foreclosure.
Back when credit was easy just a few years ago, many Latinos along with other Americans were lured into the American Dream of homeownership by easy mortgages and the notion that real estate and home prices were only headed up. Sure, many people were misinformed and did not fully comprehend what exactly they were buying or signing their life away for, but some groups were aggressively targeted by slick marketing and other tactics designed to encourage home purchases. And some people were just careless with their finances assuming that they would be able to make payments on mortgages that would eventually readjust.
One obvious indicator that should have tipped off policy makers about the impending housing bubble and mortgage crisis was the national average wage. Since about 1973, median home prices have risen more quickly than have wages, and since Latinos typically earn less than their white counterparts, the prospect of homeownership became even more risky. In the five years from 2000-2005, the median American family’s income slid by 2.9% in contrast to a gain of 11.3% experienced by American families in the second half of the 1990s. During that same period, wages in Hispanic and black families fell by even more. However, corporate profits rose from 17.7% in 2000 to 20.9% in 2003.
Early in George W. Bush’s first administration, a home ownership initiative was introduced, sometimes referred to as the Blueprint for the American Dream, to close the homeownership gap by 5.5 million minority families. Along with this homeownership initiative, there were other policies implemented to dismantle barriers to homeownership in minority communities. In December of 2003, President Bush signed into law, the American Dream Downpayment Act, which incorporated three steps to broaden the homeownership. The first rule was to warn buyers about mortgage costs up front so that they could make informed decisions about their purchase. Funds for home counseling services were doubled (some funds went to faith based groups to provide such counseling). The second rule was supposed to make it easier for home buyers to decipher closing costs, and the third rule was to make the paperwork for home loans easier to read.
Around the same time, Fannie Mae and Freddie Mac increased lending efforts to minority families. For instance, Fannie Mae changed loan underwriting guidelines to remove some of the barriers that immigrants encounter such as “denial of credit because of inadequate or short credit histories, reliance on communal funds for downpayment money, and language and cultural issues.” Fannie also pledged to reach out to faith based groups and minority churches to fund mortgages for their congregations. Freddie sought to implement “cross-border credit” where credit histories from banks in borrower’s home countries could be submitted as valid documentation for home loans. It’s odd that Freddie would honor credit histories from other countries, especially those that might have higher levels of fraud than here in the US.
In the fall of 2003, the Congressional Hispanic Caucus Institute was launching its own homeownership program, the Hogar Housing initiative. If you try to find information about Hogar on the CHCI website, you will notice that they have removed most references to this program. Just visit Xicanopwr.com, and note the links that are now broken referenced in this article. The Hogar initiative had three components: a fellowship program to increase Latino leadership in the housing sector, housing community events to increase consumer literacy and understanding of the mortgage process, and research and analysis addressing homeownership barriers that Latinos face.
The Congressional Hispanic Caucus Institute‘s Hogar Advisory Committee included some high profile people of the banking and housing sector including representatives from Washington Mutual, the National Council of La Raza, the Executive Director of NALEO, Congresswomen Ros-Lehtinen and Velazquez, and former HUD Secretary and CEO of American City Vista, Henry Cisneros. Hogar Sponsors included the following entities: Fannie Mae, Freddie Mac, Citigroup, HSBC, Countrywide Home Loans, PMI Mortgage Insurance Company, State Farm, Washington Mutual, Wells Fargo Home Mortgage, Chase Home Finance, New Century Financial, G.E. Consumer Finance, and Ameriquest.
Two months ago, The Wall Street Journal reported on Hogar’s ties to the subprime industry. Specifically, companies that donated $150,000 could place a research fellow to conduct Hogar’s studies to be used by the mortgage and housing industry lobbyists. For donations of $100,000 per year, Hogar would provide press releases from the Congressional Hispanic Caucus to promote a particular lender’s products to the Latino community.
Some of the sponsors of the Hogar Initiative are no longer in business. One sponsor, Ameriquest, had a history of being sued for predatory lending practices as far back as 1996 and even paid $3 million into an educational fund to settle a Justice Department law suit. In 2005, Ameriquest announced that it has set aside $325 million to settle attorney-general investigations in 30 states. Some of the allegations against Ameriquest included preying on borrowers with hidden fees and ballooning payments. In May 2006, Ameriquest announced that it would close all of its retail offices.
New Century and its related entities filed for bankruptcy in the spring of 2007 seeking relief under Chapter 11. About a year ago, a report by a bankruptcy court examiner found “significant improper and imprudent practices related to its loan originations, operations, accounting and financial reporting processes.”
Chart credit: Forbes.com
To be continued…