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Sunday, January 4, 2009
WSJ: "Housing Push for Hispanics Spawns Wave of Foreclosures"

"From the Wall Street Journal:

"Housing Push for Hispanics Spawns Wave of Foreclosures"
By SUSAN SCHMIDT and MAURICE TAMMAN

California Rep. Joe Baca has long pushed legislation he said would
"open the doors to the American Dream" for first-time home buyers in
his largely Hispanic district. For many of them, those doors have
slammed shut, quickly and painfully.

Mortgage lenders flooded Mr. Baca's San Bernardino, Calif.,
district with loans that often didn't require down payments, solid
credit ratings or documentation of employment. Now, many of the
Hispanics who became homeowners find themselves mired in the national
housing mess. Nearly 9,200 families in his district have lost their
homes to foreclosure.

For years, immigrants to the U.S. have viewed buying a home as the
ultimate benchmark of success. Between 2000 and 2007, as the Hispanic
population increased, Hispanic homeownership grew even faster,
increasing by 47%, to 6.1 million from 4.1 million, according to the
U.S. Census Bureau. Over that same period, homeownership nationally
grew by 8%. In 2005 alone, mortgages to Hispanics jumped by 29%, with
expensive nonprime mortgages soaring 169%, according to the Federal
Financial Institutions Examination Council.

An examination of that borrowing spree by The Wall Street Journal
reveals that it wasn't simply the mortgage market at work. It was
fueled by a campaign by low-income housing groups, Hispanic lawmakers,
a congressional Hispanic housing initiative, mortgage lenders and
brokers, who all were pushing to increase homeownership among Latinos.

What about President Bush and his 2002 White House Conference on
Minority Homeownership, where he called for adding 5.5 million
Hispanic and black homeowners via cutting back on barriers to the
American Dream, such as down payments?

The network included Mr. Baca, chairman of the Congressional
Hispanic Caucus, whose district is 58% Hispanic and ranks No. 5 among
all congressional districts in percentage of home loans not tailored
for prime borrowers. The caucus launched a housing initiative called
Hogar -- Spanish for home -- to work with industry and community
groups to increase mortgage lending to Latinos. Mortgage companies
provided funding to that group, and to the National Association of
Hispanic Real Estate Professionals, which fielded an army to make the
loans.

In years past, minority borrowers seeking loans were often stopped
cold by a practice called red-lining, in which lenders were reluctant
to lend within particular geographical areas, often, it appeared, on
the basis of race. But combined efforts to open the mortgage pipeline
to Latinos proved successful.

"We saw what we refer to in the advocacy community as reverse red-
lining," says Aracely Panameno, director of Latino affairs for the
Center for Responsible Lending, an advocacy group. "Lenders were
seeking out those borrowers and charging them through the roof," she
says.

Ms. Panameno says that during the height of the housing boom she
sought to present the Hispanic Caucus with data showing how many
Latinos were being steered into risky and expensive subprime loans.
Hogar declined her requests, she says.

A very large fraction of the people steering Hispanics into risky and
expensive subprime loans were Hispanics, so it's hardly surprising
that their political representatives weren't interested in hearing
about predatory lending abuses. Hispanic mortgage brokers, real estate
agents, and construction workers were making a killing off easy
credit, so why kill the goose that laid the golden egg?

When the national housing market began unraveling, so did the
fortunes of many of the new homeowners. National foreclosure
statistics don't break out data by ethnicity or race. But there is
evidence that Hispanic borrowers have been hard hit. In part, that's
because of large Hispanic populations in areas where the housing
bubble was pronounced, such as Southern California, Nevada and
Florida.

And why was the Housing Bubble pronounced in those areas with large
Hispanic populations? In the propaganda of the time, population growth
was constantly cited as justifying rising home prices, but there was
no mention of whether these new people had the earning capacity to pay
back their mortgages.

In U.S. counties where Hispanics account for more than 25% of the
population, banks have taken back 6.7 homes per 1,000 residents since
Jan. 1, 2006, compared with 4.6 per 1,000 residents in all counties,
according to a Journal analysis of U.S. Census and RealtyTrac data.

Hispanic lawmakers and community groups have blamed subprime
lenders, who specialize in making loans to customers with spotty
credit histories. They complain that even solid borrowers were steered
to those loans, which carry higher interest rates.

In a written statement, Mr. Baca blamed the foreclosure crisis
among Hispanics on borrowers' lack of "financial literacy" and on
"lenders and brokers eager to make a bigger profit." He declined to be
interviewed for this story.

But a close look at the network of organizations pushing for
increased mortgage lending reveals a more complicated picture.
Subprime-industry executives were advisers to the Hogar housing
initiative, and bankrolled more than $2 million of its research.
Lawmakers and advocacy groups pushed hard for the easy credit that
fueled the subprime phenomenon among Latinos. Members of the
Congressional Hispanic Caucus, who received donations from the lending
industry and saw their constituents moving into new homes, pushed for
eased lending standards, which led to problems.

Mortgage lenders appear to have regarded Latinos as a largely
untapped demographic. Many were first or second-generation U.S.
residents who didn't own homes. Many Hispanic families had multiple
wage earners working multiple cash jobs, but had no savings or
established credit history to allow them to qualify for traditional
loans.

The Congressional Hispanic Caucus created Hogar in 2003 to work
with industry and community groups to increase mortgage lending to
Latinos. At that time, the national Latino homeownership rate was 47%,
compared with 68% for the overall population. Hogar called the figure
"alarming," and said a concerted effort was required to ensure that
"by the end of the decade Latinos will share equally in the American
Dream of homeownership."

Hogar's backers included many companies that ran into trouble in
mortgage markets: Fannie Mae and Freddie Mac, both now under federal
control; Countrywide Financial Corp., sold last year to Bank of
America Corp.; Washington Mutual Inc., taken over by the government
and sold to J.P. Morgan Chase & Co.; and New Century Financial Corp.
and Ameriquest Mortgage Corp., both now defunct.

Hogar's ties to the subprime industry were substantial. A
Washington Mutual vice president served as chairman of its advisory
committee. Companies that donated $150,000 a year got the right to
place a research fellow who would conduct Hogar's studies, which were
used by industry lobbyists. For donations of $100,000 a year, Hogar
offered to provide news releases from the Hispanic Caucus promoting a
lender's commercial products for the Latino market, according to the
group's literature.

Hogar worked with Freddie Mac on a two-year examination of Latino
homeownership in 63 congressional districts. The study found Hispanic
ownership on the rise thanks to "new flexible mortgage loan products"
that the industry was adopting. It recommended further easing of down-
payment and underwriting standards.

Representatives for Hogar declined repeated requests for comment.

The National Association of Hispanic Real Estate Professionals,
one of Hogar's sponsors, advised the group, shared research data and
built a large membership to market loans to Latinos. By 2005, its
ranks had grown to 16,000 agents and mortgage brokers.

The association, called Nahrep, received funding from some of the
same players that funded Hogar. Some 22 corporate sponsors, including
Countrywide and Washington Mutual, together paid the association $2
million a year to attend conferences and forums where lenders could
pitch their loan products to loan brokers.

While home prices were rising, the lending risk seemed minimal,
says Tim Sandos, Narhep's president. "We would say, 'Is he breathing?
OK, we'll give him a mortgage,' " he recalls.

Nahrep's 2006 convention in Las Vegas was called "Place Your Bets
on Home Ownership." Countrywide Chairman Angelo Mozilo spoke, as did
former Housing and Urban Development Secretary Henry Cisneros, a force
in Latino housing developments in the West.

The words "Las Vegas" constantly pop up in these kind of articles.

Countrywide and other sponsors contracted with Nahrep to set up
regional events where they could present loan products to loan brokers
and their customers. Mr. Sandos says his organization doesn't get paid
to promote particular lenders.

At the height of the subprime lending boom, in 2005, banking and
finance companies gave at least $2.3 million in campaign contributions
to members of the Hispanic Caucus, according to data from the Center
for Responsive Politics.

In October 2008, a charitable foundation set up by Mr. Baca
received $25,000 from AmeriDream Inc., a nonprofit housing company and
Hogar sponsor. Mr. Baca has long backed AmeriDream's controversial
seller-financed down-payment assistance program. AmeriDream provided
down-payment money to buyers, a cost that was covered by home builders
in the form of donations to the nonprofit.

This is a tax evasion scam, often organized through minority
charities, such as churches. The Bush Administration tended to push it
as "compassionate conservatism."

New housing legislation last fall outlawed the program. Mr. Baca
is cosponsoring a bill that would allow AmeriDream and similar
nonprofits to resume arranging seller-financed down-payment assistance
to low-income Federal Housing Administration borrowers.

Such seller-financed loans comprise one-third of the loans backed
by the FHA, and have defaulted at nearly triple the rate of other FHA-
insured loans, according to agency spokesman William Glavin.
[prime candidates chart]

In a news release, AmeriDream said the donation to Mr. Baca's
foundation was intended to fund the purchase of gear for firefighters
in his district. Local news reports say the foundation gave away
$36,000 in scholarships this year.

Internal Revenue Service records indicate that Mr. Baca's son, Joe
Baca Jr., has an annual salary of $51,800 as executive director of the
Joe Baca Foundation, which is run out of the congressman's home. Joe
Baca Jr. says he currently is taking only about half that listed
salary.

Mr. Baca's office declined to comment on the AmeriDream
contribution.

Mr. Baca remains opposed to strict lending rules. "We need to keep
credit easily accessible to our minority communities," he said in a
statement released by his office.

Mortgage lending to Hispanics took off between 2004 and 2007,
powered by nonprime loans. The biggest jump occurred in 2005.

If this had been merely a cynical re-election ploy by the Bush
Adminstration, Bush could have pulled the plug on it the day after the
November 2004 election. But, instead, this was a practically universal
delusion among the Great and the Good. To Karl Rove, it was a
permanent good idea that would bring about long-term realignment by
making Hispanics into home-owning Republicans. To Democrats, it was
pork for their constituents.

The 169% increase in nonprime mortgages to Hispanics that year
outpaced a 122% gain for blacks, and a 110% increase for whites,
according to a Journal analysis of mortgage-industry and federal-
housing data. Nonprime mortgages carry high interest rates and are
tailored to borrowers with low credit scores or few assets.

Between 2004 and 2007, black borrowers were offered nonprime loans
at a slightly higher rate than Hispanics, but the overall number of
Hispanic borrowers was much larger. From 2004 to 2005, total nonprime
home loans to Hispanics more than tripled to $69 billion from $19
billion, and peaked in 2006 at $73 billion.
Tricks of the Trade

Mortgage brokers became a key portion of the lending pipeline. Phi
Nguygn, a former broker, worked at two suburban Washington-area firms
that employed hundreds of loan originators, most of them Latino.
Countrywide and other subprime lenders sent account representatives to
brokerage offices frequently, he says. Countrywide didn't respond to
calls requesting comment.

Representatives of subprime lenders passed on "little tricks of
the trade" to get borrowers qualified, he says, such as adding a
borrower's name to a relative's bank account, an illegal maneuver. Mr.
Nguygn says he's now volunteering time to help borrowers facing
foreclosure negotiate with banks.

Many loans to Hispanic borrowers were based not on actual income
histories but on a borrower's "stated income." These so-called no-doc
loans yielded higher commissions and involved less paperwork.

Another problem was so-called NINA -- no income, no assets --
loans. They were originally intended for self-employed people of
means. But Freddie Mac executives worried about abuse, according to
documents obtained by Congress. The program "appears to target
borrowers who would have trouble qualifying for a mortgage if their
financial position were adequately disclosed," said a staff memo to
Freddie Mac Chairman Richard Syron. "It appears they are
disproportionately targeted toward Hispanics."

Freddie Mac says it tightened down-payment requirements in 2004
and stopped buying NINA loans altogether in 2007.

"It's very hard to get in front of a train loaded with highly
profitable activities and stop it," says Ronald Rosenfeld, chairman of
the Federal Housing Finance Board, a government agency that regulates
home loan banks.

Regions of the country where the housing bubble grew biggest, such
as California, Nevada and Florida, are heavily populated by Latinos,
many of whom worked in the construction industry during the housing
boom. When these markets began to weaken, bad loans depressed the
value of neighboring properties, creating a downward spiral.
Neighborhoods are now dotted with vacant homes.

By late 2008, one in every nine households in San Joaquin County,
Calif., was in default or foreclosure -- 24,049 of them, according to
Federal Reserve data. Banks have already taken back 55 of every 1,000
homes. In Riverside, Calif., 66,838 houses are owned by banks or were
headed in that direction as of October. In Prince William County, Va.,
a Washington suburb, 11,685 homes, or one in 11, was in default or
foreclosure.

Gerardo Cadima, a Bolivian immigrant who works as an electrician,
bought a home in suburban Virginia for $330,000, with no money down.
"I said this is too good to be true," he recalls. "I'm 23 years old,
with a family, buying my own house."

When work slowed last year, Mr. Cadima ran into trouble on his
adjustable-rate mortgage. "The payments were increasing, and the price
of the house was starting to drop," he says. "I started to think, is
this really worth it?" He stopped making payments and his home was
sold at auction for $180,000.

In the wake of the housing slump, some participants in the
Hispanic lending network are expressing second thoughts about the
push. Mr. Sandos, head of Nahrep, says that some of his group's past
members, lured by big commissions, steered borrowers into expensive
loans that they couldn't afford.

Nahrep has filed complaints with state regulators against some of
those brokers, he says. Their actions go against Nahrep's mission of
building "sustainable" Latino home ownership.

These days, James Scruggs of Northern Virginia Legal Services is
swamped with Latino borrowers facing foreclosure. "We see loan
applications that are complete fabrications," he says. Typically, he
says, everything was marketed to borrowers in Spanish, right up until
the closing, which was conducted in English.

"We are not talking about people working for the World Bank or the
IMF," he says. "We are talking about day laborers, janitors, people
who work in restaurants, people who do babysitting."

Two such borrowers work in Mr. Scrugg's office. Sandra Cardoza, a
$28,000-a-year office manager, is now $30,000 in arrears on loans
totaling $370,000. "Her loan documents say she makes more than me,"
says Mr. Scruggs.

Nahrep agents are networking on how to negotiate "short sales" to
banks, where Hispanic homeowners sell their homes at a loss in order
to escape onerous mortgages. The association has a new how-to guide:
"The American Nightma Strategies for Preventing, Surviving and
Overcoming Foreclosure."
—Louise Radnofsky contributed to this article.

Write to Susan Schmidt at and Maurice Tamman
at

Well, I told you so."

http://isteve.blogspot.com/2009/01/w...cs-spawns.html