The “Latino Debit” Explained Part I: Paying To Play
Put forth on February 12, 2009 by XicanoPwr
Posted in Immigration
The is a two part series on the home foreclosure crises affecting the Latino community.
In 2008, more than 2.3 million American homeowners who thought they had attained the “American Dream,” saw it shatter into a nightmare once they began defaulting on their loans. In American society, home ownership has always symbolized the triumph of moving up the economic and social ladder from the lower rungs of renting. It has always been associated with security and stability and is often thought to be an essential ingredient of the “American Dream.” That was all true until now. Owning one’s own home has now become nightmare for a growing number of American families.
| Subprime Snapshot: January 8, 2009 | |
|---|---|
| Homes already lost through subprime foreclosures | 1.5 million |
| Subprime mortgage holders currently delinquent | 2 million |
| Subprime loans originated during the second half of 2005 that are currently delinquent | 26% |
| Subprime loans originated during the the first half of 2007 that are currently delinquent | 42% |
| Estimated cost of subprime foreclosures near foreclosed homes | $352 billion |
Last month, fellow blogamiga, Adriana of Latino Politics Blog, blogged about the latest article by the Wall Street Journal on how CA Rep. Joe Baca and the Congressional Hispanic Caucus Institute (CHCI) “launched a housing initiative … to increase mortgage lending to Latinos.”
The Wall Street Journal ties a portion of the mortgage meltdown to a Hispanic first-time home buyers program, HOGAR, because they enabled people to get home mortgages without good credit, down payments or reliable evidence they could repay the loans. The article also states that the program was pushed by a coalition of mortgage industry professionals and Hispanic lawmakers. According to the Wall Street Journal:
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.
The network included [California Rep. Joe] Baca, chairman of the Congressional Hispanic Caucus [Institute Inc], 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.
It is not surprising that both Baca and CHCI refute the accusation that they aided the foreclosure crisis. So, what exactly was Rep. Baca and Congressional Hispanic Caucus Institute’s role in the housing collapse?
Pay-to-play
The fact a pay-to-play system exists in our political system simply is not only bad business, but it taints the political process. The first thing that comes to mind when some mentions pay-to-play is the impeachment Illinois Governor Rod Blagojevich for his “play for pay” scandal relating to Barack Obama’s vacated Senate seat. However, there are different forms when it comes to this practice. “Pay-to-play” is the practice of a business entity making some type of contributions with the hope of in hopes of getting in return.
According to the WSJ, HOGAR was financed some of the nation’s top subprime lenders that are either now defunct or now taken over because they ran into trouble in mortgage markets. HOGAR’s backers included: Countrywide Financial Corp, Washington Mutual Inc, New Century Financial Corp, and Ameriquest Mortgage Corp. Two of their largest sponsors are mortgage giants Fannie Mae and Freddie Mac, both now under federal control.
The article also revealed that companies that donated $150,000 a year got the right to place a research fellow who would conduct HOGAR’s studies to be used later by industry lobbyists. Those who donated over $100,000 a year, HOGAR would highlight the lender’s commercial products intended for the Latino market in their news releases.
The Players
It was reported that HOGAR and Freddie Mac had partnered with each other on a two-year study identifying the state of Latinos homeownership in 63 Congressional Districts in 11 states, including Puerto Rico. The study in question is HOGAR’s The Potential of Hispanic Homeownership: Challenges and Opportunities, authored by HOGAR Fellow and former U.S. Department of Housing and Urban Development (HUD) insider, Alejandro Becerra.
After a closer look, XicanoPwr.com discovered that Freddie Mac was not the influential play that took part in the HOGAR study. As noted in the WSJ report, the National Association of Hispanic Real Estate Professionals (NAHREP) sponsored the study, however, former Housing and Urban Development Secretary and CityView Executive Chairman, a national housing investor, Henry Cisneros also had input into the study. Other influential people in the housing industry included Moises Loza, President and CEO of Housing Assistance Council (HAC) and Ron Jauregui of Hispanic National Mortgage Association (HNMA).
Mr. Jauregui currently serves as Vice President for Community Alliances for the HNMA and has one of the most interesting backgrounds out of HOGAR’s fellows. According to Mr. Jauregui’s bio on Hispanic National Mortgage Association, Mr. Jauregui was not only a Fellow; he also served as HOGAR’s Director. Prior to working for CHCI, he worked for Bank of America, where he worked on processing and underwriting mortgages Bank’s Spanish Language pilot Fulfillment Team.
While subprime loan products can sound relatively simple and attractive, some people have benefited from their use. As more details of the industry’s activities begin to surface, it is evident Jauregui was at the forefront pushing lenders different subprime loan products to increase homeownership among Latinos, such as ITIN mortgages. American Prospect defines subprime lending as:
Sub-prime lending is a fancy financial term for high-interest loans to people who would otherwise be considered too risky for a conventional loan.These include middle-class families who have accumulated too much debt and low-income working families who want to buy a home in the inflated housing market. To cover their risk, lenders charge such borrowers higher-than-conventional interest rates. Or they make ‘adjustable rate’ loans, which offer low initial interest rates that jump sharply after a few years.
Real estate blogger, Pam MacKenzie, explain that in 2007, a Texas-based national consulting firm, the Gonzalez Group, advised a group of Realtor on how to effectively market themselves to minority groups. One particular group she was concerned was the push to lend money to undocumented immigrants. She wrote that Wells Fargo and Deutche Bank (two of HOGAR’s backers) and some other bankers were “lending money to people who didn’t have Social Security numbers” by using ‘ITINs’ – Individual Tax Identification Numbers – to process their applications.
After Ms. MacKenzie wrote her post about this questionable practice, Ron Jauregui replied. Jauregui defended this practice because he felt that “ITIN loans perform better than the rest of the market.” However, if one were to look closer at his statement, the purpose of this practice is to exploit the “underground economy.”
It is undeniable the issue of immigration became one of the most significant economic themes during the housing boom. Under the guise of immigration reform, a 2004 study was conduct by The Immigration Policy Center of the American Immigration Law Foundation for NAHREP. Rob Paral & Associates performed the study. Paral was a research fellow with the Immigration Policy Center, though the report was performed outside his duties at the center. The report asserted that nearly a quarter of a million undocumented immigrant households in the US could become homeowners if barriers such as identification, legalization, traditional credit requirements and language were no longer an issue.
Presenting the study, Tim Sandos, president of the NAHREP – a group made up of Latino and non-Latino representatives of banks, real estate firms, developers, homebuilders and real estate service providers – advocated that if the mortgage companies made greater use of ITIN, $44 billion in new mortgages – primarily to first-time buyers – could be originated.
Leaders from the corporate arena applauded the findings of the study, particularly those in the industries that are challenged with developing initiatives for the under-served market. Making matters worse, they interest in immigration reform was never out of altruism but out greed. Once in the hands of the mortgage lending industry, subprime loans became predatory loans – a faulty product that was ruthlessly hawked even though financial institutions were aware of its defects. The spillover effect from theses wholesale bad loans, communities have been torn apart, with one house after another in a neighborhood becoming vacant and property values deteriorating by thousands of dollars.
It is unfortunate civil rights organization like Congressional Hispanic Caucus Institute, National Council of La Raza and Immigration Policy Center of the American Immigration Law Foundation pushed for these lending practices, which has made a mockery of the American dream and has ruined many economic lives and many communities. What was supposed to be a financial product intended for limited use by a limited number of people has been parlayed into another ill-fated bubble by mortgage lenders lacking the integrity, foresight, and any vestige of civic concern.
The subprime crisis continues to threaten US society by deepening the already existing wealth divide. The foreclosure of the dream must be prevented. Millions of Americans still live in communities that are separate and unequal. Empowering the Latino community means helping Latinos make informed financial decisions; not using them as a vehicle to reap huge profits by ignoring their ability to repay a loan and/or neglect to document the homeowner’s income. We must hold those who engaged in predatory lending practices accountable.
With a new Administration in place, we must that this moment to recognize the failures of existing government policies and address predatory lending through vigorous enforcement of safety and soundness standards, consumer protection, financial education programs, credit counseling, and a new legislative solution.
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Tags: Congressional Hispanic Caucus, HNMA, HOGAR, Housing Crisis, Latinos/as, NAHREP, NCLR, Ron Jauregui, subprime loans | 
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This is the blog of Edmundo "XicanoPwr" Rocha, a social worker, an activist, freelance writer and founder and editor of The Sanctuary. My interests include: immigration reform, critical race theory and it's interaction with equality/inequality and freedom/oppression as they relate to the experiences of people of color in the Americas.
Para Justicia y Libertad is a Latino-centered political blog focusing on the humanistic perspective of politics, history, and society as they relate to the Latina/o community throughout Texas and the United States.
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The Center for Responsible Lending has also released new projections that estimate over 400,000 foreclosures in the Latino community in 2009 alone. The numbers look worse in the next four years, with over 1.33 million foreclosures to come in the Latino community. Overall, every 13 seconds another family loses its home to foreclosure.
As the article well states, “the subprime crisis continues to threaten US society by deepening the already existing wealth divide. The foreclosure of the dream must be prevented. Millions of Americans still live in communities that are separate and unequal. Empowering the Latino community means helping Latinos make informed financial decisions not using them as a vehicle to reap huge profits by ignoring their ability to repay a loan and/or neglect to document the homeowner’s income. We must hold those who engaged in predatory lending practices accountable.”
Empowering Latinos to make informed decisions, however, requires that we do our utmost to make sure that Latinos are provided with full and accurate information regarding critical issues impacting their lives. The article cited above, however, relies substantially on inaccurate information published by the Wall Street Journal. According to Karl Rove (Wall Street op-ed, Jan 8), some critics continue to blame President Bush because he supported broadening homeownership. However, Rove points out that the President’s goal “was for people to own homes they could afford, not ones made accessible by reckless lenders.” It is then hard to reconcile how the Wall Street Journal justified publishing a front-page article three days earlier that unfairly chastised advocates of Hispanic homeownership for seeking to achieve the same goal.
These advocates have long agreed with the author of the article that loans should only go to people who have the financial capacity to pay, whose income and employment can be fully verified, and who are generally well informed and prepared for the responsibilities of homeownership. In fact, every effort is made to direct Latino borrowers to good, safe sources of credit and to prevent them from being lured into inappropriate, predatory loans.
Ron Jauregui, himself, who is unfairly chastised in the article, has long advocated the curbing of yield spread premiiums, which have long provided an impetus for some unscrupulous brokers to unfairly push borrowers into higher interest loans. All of us agree that predatory lenders should be held accountable. In fact, it is by now well established that these lenders are the real culprits in this crisis, pushing millions of borrowers, regardless of race, ethnic origin, and even income into irresponsible, reckless mortgage loans.
To the credit of Latinos and housing advocates who managed to prod Latinos into good, affordable loans, not predatory loans, and in spite of many of them being affected adversely by subprime and exotic loan lending, many Latinos are still being able to keep their homes.
Keep in mind that the WSJ itself has reported that over the last two years, at least 60% of all borrowers who obtained subprime loans, could have obtained safe conventional loans. For Hispanic borrowers, as many as 33 to 50% of them, could have obtained safe, conventional loans, that is, 30-year fixed rate loans, usually two to three percentage points less than on subprime loans.
The Hispanic homeownership market is resilient and can regain its long-term strength. Since record levels of homeownership were achieved back in 2004, the rate of homeownership for the entire US population has decreased by more than one percentage point from 68.9% to 67.8%. For Hispanics, it has remained relatively the same at around 49%. With many factors involved, including the economic recession and high rates of foreclosure, even Hispanics will most likely see a substantial decrease in their rate of homeownership nationwide.
About 4 million Hispanics, or about 40% of the Hispanic population, now earn an annual income above $40,000. Furthermore, over the past decade Hispanic households who earn more than $100,000 per year grew by 125% to 3.7 million, representing a total net worth of $500 billion. More than 10% of all Hispanic households now earn more than $100,000 a year. Given good jobs, increases in education, and s strong work ethic and entrepreneurial spirit, the Hispanic market can substantially grow in the future.
Keep in mind that many low- and moderate-income borrowers, including Hispanics, have a record of representing highly profitable loans for ethical lenders as they hold on to their loans for longer periods of time, making their payments diligently. They will continue to represent a viable market in housing for those who are willing to act responsibly, build good,affordable housing, and make safe, sound loans to them.
What has occurred in the marketplace is that we need to have more articulate advocates such as the writer of the article cited above being able to provide good, accurate information on good lending that is available, especially with regard to viable homeownership programs provided by the public and the private sector, with homeownership assistance for first-time home buyers available at all levels of government.
We need to resolve the foreclosure problem for the sake of the entire economy. Currently, one out of every ten American families are having problems making their mortgage payments. It is the nearly same situation for Hispanic families. On top of that, depressed home values and abandoned homes in areas with high rates of foreclosure are deteriorating many communities and are having an adverse effect on surrounding communities.
We must learn from the past that we have much more to gain by achieving major national goals the right way, not by standing idly by and having others exploit those who have lack of access to good information. Lenders must now be ready to make mortgage loans properly and transparently, providing borrowers with home buyer education and counseling, reasonable loan terms and conditions, affordable down payments, and homeownership assistance for those eligible borrowers who are buying a home for the first time. Thousands of Americans, including Hispanics, can achieve sustainable homeownership, but only if we all work together and make sure that it is done the right way.
Welcome to my blog Mr. Becerra and thank you for responding. I do plan to respond to your comment, however, this will be done in part two, since a lot of what I have to say will just mirror part two of the series.
I hope will come back, so we can have a civil conversation about this crises. We may agree to disagree, but it is important everything is out on the table.
There will always be Latino groups, be it politicians, associations of business entities, law-enforcement, city councils who will exploit their own ethnic group for pennies, and sometimes for only the notoriety of the fact that they can do it, and always get away with it. If there were a sense of accountability that existed within the Congressional Hispanic Caucus, NCLR, MALDEF, Villaraigosa, and the numerous Latino dominated city councils in Southern California, Latinos as a populace would not be at the bottom of the food chain in the United States. But that seems to be the prevailing character trait that accompanies these Latino men and women who run for elected office and hold our hopes and dreams in our hands. This is an excellent example of how these politicians worked their way into this grand theft and profited from it. We look forward to Part 2.
Isn’t this pretty much along the same lines of the garbage that some have alleged about ACORN? And does the fact that the Bush administration put a cork in state investigations into predatory lending mean nothing?
I think that encouraging lenders to qualify undocumented people for home loans is very irresponsible. We are talking about a population that isn’t very educated and whose benefit is that they work for less than American workers. If we have citizens who can barely afford housing during the run up of the housing bubble, how could lenders justify qualifying undocumented people without any sort of guarantee that they would have been able to become legal within X amount of time?
“least 60% of all borrowers who obtained subprime loans, could have obtained safe conventional loans..”
I sold a townhouse to purchase my home. I got a jumbo loan and put down 20%. My R.E. agent never considered offering me a subprime mortgage. In fact, I had never heard the term “sub-prime” until the debacle. I bought just before prices fell. The house down the block, which is not really a good “comp” because it has a pool and extra bedroom, is priced now at what I paid for mine. And it´s been on the market for about 4 months now. I´ve just got to ride it out. But, honestly, I had no intentions of selling my home when I purchased it in the first place.
“I think that encouraging lenders to qualify undocumented people for home loans is very irresponsible. We are talking about a population that isn’t very educated and whose benefit is that they work for less than American workers. If we have citizens who can barely afford housing during the run up of the housing bubble, how could lenders justify qualifying undocumented people…”
There is no law that states only American citizens can buy houses. Many undocs are highly educated and, still, many have very profitable and lucrative businesses.
However, I did wonder on a few ocasions how a drywaller (for example) without papers could afford such a “lavish” home while most people I knew, including myself, were living a more modest lifestyle.
I guess it´s because we bought what we could afford.
You can purchase a home and never become a citizen at all.
Please, can you PM me and tell me few more things about this, I am really fan of your blog…
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