One of the several components of the ‘American dream’ is home ownership – that rent receipts could become receipts for payments on, ‘a home for two, out in the blue,’ as a popular western song of the ’40s had it.
But with a sour economy, that promise is disappearing, as home ownership, after rising steadily since 1994, has leveled off and begun to fall, propelled by foreclosures that are as high as 2.2 percent of outstanding home mortgages in some states.
The Mortgage Bankers Association reports that creditors across the country began foreclosing on nearly 135 thousand homes, or about four in every thousand in the three months ending in June – the highest rate in 30 years. The association said creditors have a record-setting backlog of more than 400,000 foreclosed homes.
Although foreclosures among families with ‘conventional’ mortgages are still rather rare, that number is also increasing and has grown to the highest level since 1990. Families with ‘subprime’ mortgages – loans with higher interest rates – are hit even harder. One hundred fifty thousand of the 5.4 million families with such loans were facing foreclosure in June.
While several factors such as unemployment and family disasters have contributed to the rise in foreclosures, many minority and low-income families bear the additional burden of subprime loans and predatory lending practices that have the clear objective of pushing borrowers into foreclosure.
Subprime loans carry higher rates and fees, and in many cases involve abusive features that have come to be known as predatory lending. While not all subprime loans are predatory, all predatory loans are subprime. And many borrowers – about 35 to 50 percent – are being forced to accept subprime loans despite the fact they could have qualified for conventional loans.
According to a recent study by the Association of Community Organizations for Reform Now (ACORN), minority and low-income applicants for prime credit are rejected much more frequently than others, with more than two-fifths of the refinance loans made to low-income African-American homeowners and 35 percent of the refinance loans made to moderate-income African-American homeowners.
Latino home owners fared somewhat better but they, too, were forced to turn to subprime lenders in disproportionate numbers: Subprime lenders accounted for nearly 20 percent of the refinance loans made to low-income Latino homeowners and only slightly less of loans made to Latino homeowners with moderate incomes.
About one-fifth of the conventional refinance loans to upper-income African-American homeowners were from subprime lenders, as were 10 percent of loans made to similarly situated Latinos. Fewer than 5 percent of refinance loans given to upper-income white homeowners were from subprime lenders.
While perhaps an isolated case, the following example taken from the ACORN website describes the predatory practices of at least one lender: A man bought a home for a 6.9 percent fixed interest rate mortgage for around $67,000 and monthly payments of $447. He has a serious heart condition and a lender began sending him live checks in the mail. The first one he cashed resulted in an unsecured loan, with an extremely high interest rate, for $2,500, which he used to pay off medical and other bills as working became more difficult. After he cashed another check or two, the lender began soliciting him to take out a second mortgage. He ended up receiving an open-ended line of credit with an initial advance of $26,000 with a credit limit of $25,000, which ‘reduced’ his interest rate to 23.9 percent. The monthly payments of $590 were significantly higher than the first mortgage, which has about two-and-a-half-times as large a balance. The loan also included an ‘origination fee’ of $1,300 and a five-year pre-payment penalty for nearly $2,500.
An ACORN-led campaign has succeeded in winning court settlements and fines against two major subprime lenders – Household and The Associates. Maude Hurd, ACORN’s national president called the settlements ‘positive,’ but warned their limitations demonstrate the need for a legislative solution. ‘State and local laws have proved successful, where they exist,’ Hurd said. ‘But segments of the financial industry view the Republican takeover of the Senate as an opportunity to preempt these laws without setting any new, meaningful safeguards for homeowners at the federal level. We’re organizing to stop them.’
The author can be reached at fgab708@aol.com
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