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New Legislation Targets Sub-Prime Loans

But is it too late for black and Latino families?

New America Media, News Report, Viji Sundaram Posted: Dec 20, 2007

Editor's Note: This week, the Federal Reserve proposed a broad set of rules that would curtail predatory lending practices by lenders and mortgage brokers, which follows bills in the House and Senate with similar aims. But these measures are coming too late to help the many immigrants who are already in jeopardy of losing their homes. Viji Sundaram is an editor for New America Media.

It took Jos Meja 20 years of hard work to finally realize the American dream in his case, a modest three-bedroom, one bath, single-family home in East Oakland, Calif.

Within a year, the dream ended, when the Salvadoran native found himself, like hundreds of thousands of other homeowners across the United States, facing foreclosure because of shady lending practices by mortgage brokers and financial institutions that have caused the real estate market to go berserk.

On Dec. 18, in a bid to end the sale of deceptive home mortgage loans to people with weak credit and other risk factors, the Federal Reserve proposed a broad set of rules that would curtail predatory lending practices by lenders and mortgage brokers.

The regulations would also limit mortgages with future monthly payments beyond those that could be justified by a borrowers projected earnings. And they would place limits on penalties for borrowers who repay their debts.

The regulations are expected to be approved after a three-month period for public comment.

Last month, the House passed a bill sponsored by Massachusetts Democrat Barney Frank that would impose tough restrictions on many sub-prime practices, including those requiring lenders to ensure borrowers are given loans they can afford to repay. It would also strengthen oversight of mortgage brokers.

A similar bill is pending in the Senate.

When he applied for a loan 18 months ago, Meja, now 48, the father of a two-year-old child and expecting his second in a few months, had to make a $45,000 down payment in order to qualify for the so-called teaser, or sub-prime, loan. His mortgage broker assured him that it would be fine because housing prices were going to go up. This meant he would be building up equity, which meant he could refinance after six months when his teaser rate expired.

He came to me and I warned him against it because the market was already doing badly, but he wouldnt listen to me, said Mejas nephew, Ernesto Alvarado, who is also a mortgage broker. Alvarado said he cautioned his uncle against the so-called teaser loans offered by banks.

Such loans are usually made to people with less-than-perfect or incomplete credit histories. Borrowers could apply for stated income loans loans that do not require them to provide evidence of their income and assets. Alvarado said unscrupulous mortgage brokers are able to purchase for their clients the documents required to secure a loan.

The whole thing has been a big scam, allowing mortgage brokers and lenders to get away with (irregularities), asserted Alvarado.

He said that immigrants like his uncle who dont speak English are especially hard hit because they have trouble understanding the language lenders spew out at them.

According to the NAACP, African Americans hold more than half of the sub-prime mortgage loans at risk of foreclosure. And blacks and Latinos are far more likely to be issued high-cost home purchase loans than white buyers.

Mexican native 53-year-old Martha Cueva, a single mother, spoke fluent English, yet couldnt understand her lender's sub-prime loan lingo, she said.

He used language that misled me, Cueva said, adding: If the loan officer had only explained to me what the borrowing entailed, I would not have gotten suckered into it. The way its going now, I am on the verge of losing my home.

She wonders: How in the world was I not bright enough to see it?

Cueva said it took her 20 years of backbreaking work to get a home, scraping and saving along the way. She said she began working almost immediately after coming to the United States in 1978 on a tourist visa. She legalized her status through an amnesty program the federal government offered in 1982, and then put herself through college, earning a degree in early childhood education.

I have been working for all these years in the United States non-stop, said Cueva, program director of the Berkeley-based preschool and after school care program called BAHIA (Bay Area Hispanic Institute for Advancement), Inc.

She said she took a 30-year fixed interest loan when she bought her single-family home in Richmond Annex nine years ago. She was thrilled with the spacious backyard, which she has converted into a fruit and vegetable garden.

Buoyed by the booming real estate market in 2001, she decided to refinance so she could pay off some of her loans and start sending money to her 90-year-old father in Mexico. That too was a fixed interest loan.

Then, in 2005, she refinanced again so she could put her only son through college, fix her home and buy herself a new car. But this time, the only kind of loan she could afford was the two-year sub-prime loan with a 7.5 percent interest rate.

In the last few months, the interest rate has nearly doubled, and Cueva is finding it increasingly difficult to make her mortgage payments. Not a penny of the nearly $2,000 she is currently paying in mortgage is going toward the principal, she said. And the value of her home is dropping.

Oh my God, if I lose my home, it will be so sad, so sad, said Cueva, wiping her eyes with a tissue. It will break my heart.

Related Articles:

Sub-Prime Loan Crisis Hits Asian Media

A Silver Lining in the Subprime Meltdown

An Inside Look on Who the Sub-Prime Mortage Crisis Really Affects

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