Central Valley

Latinos hit hard by mortgage crisis

WASHINGTON -- The Latino community has been hit hard by the subprime mortgage crisis and the situation could get worse, the president of a Latino civil rights group told Congress on Thursday.

Janet Murguia, president of the National Council of La Raza, told a key House panel that Latinos are vulnerable to abuse in the housing market because of many factors, including a lack of banking and credit history, and often are steered into high-risk loans even when they qualify for better rates.

About one in 12 mortgages to Latinos in 2005 and 2006 will end up in foreclosure, she said, citing a report by the Center for Responsible Lending, a nonprofit consumer advocacy group.

The Northern San Joaquin Valley has been ground zero for foreclosures. Stanislaus, Merced and San Joaquin counties are at the top of the list of areas with the most foreclosures in the country.

Experts attribute this in part to the high percentage of subprime loans that were made in the valley. One study put that figure at more than 46 percent. It also found that more than 60 percent of Latino home buyers in the valley received subprime and other high-cost mortgages.

"NCLR is deeply concerned that a generation of Latino wealth is under attack," Murguia told the House Appropriations Subcommittee on Financial Services.

Nearly half of Latinos are homeowners

Latinos have made strides in homeownership in recent years, from 42 percent in 1995 to nearly half in 2005, but those loans were often at higher rates.

Murguia said Latinos were 30 percent more likely than whites to receive a high-cost mortgage and twice as likely to receive an "option-adjustable rate mortgage" known as an ARM.

The latter has been used in predatory lending in which the homeowners begin with a low monthly payment and are unknowingly adding a balance to their mortgage each month. Eventually, the payment increases significantly, which is known as a "reset," and many homeowners can't afford to pay.

Because of upcoming resets, the peak of foreclosures for Latino households will be in 2009 and 2010, Murguia said.

She urged lawmakers to take action because "we know this is on the horizon," she said.

Murguia recommended creating a community-based financial counseling network to help consumers manage their finances and learn how to avoid unmanageable debt.

In addition, she said, federal agencies, credit card companies and local consumer protection agencies should partner with community-based organizations to raise awareness of financial scams.

Donna Gambrell, director of the Commu-nity Development Financial Institutions Fund at the Treasury Department, also testified before the panel.

1.8 million mortgages will reset

She said that 1.8 million ARM mortgages are scheduled to reset in 2008 and 2009 and her agency is trying to get ahead of the problem.

Gambrell touted the HOPE NOW Alliance, a partnership between the government, mortgage lenders and nonprofit counselors, to help consumers avoid foreclosure.

The effort, started in October, has sent 1 million letters to at-risk homeowners offering help, and a nationwide foreclosure prevention hot line, 888-995-4763, receives 4,500 calls a day.

"Homeowners must take responsibility and respond to this outreach," she said. "Struggling homeowners must actively engage with their lenders and demonstrate that they want to keep their homes in order for our initiatives to be effective."

Rep. Jose Serrano, D-N.Y., chairman of the subcommittee, asked the witnesses whether the government should have seen the mortgage crisis coming.

Lydia Parnes, director of the Bureau of Consumer Protection at the Federal Trade Commission, said that it was a "hard issue."

"We saw specific issues with specific companies. We did not see a prevalent practice across the industry that would have flagged this," she said. "It was hard to crystal-ball that."

  Comments