Friday, December 07, 2007

Mortgage meltdown hits Latinos

By Diana Marrero • The Indio Sun • December 7, 2007

Until recently, Marco Castillo was living the American dream.

A small-business owner, he owned two homes: a five-bedroom house in Indio where he lived with his wife and two children and a rental property in La Quinta.

But business slowed, Castillo's tenants moved out and the housing market cooled. Castillo, a Mexico City native who runs a pool maintenance business, eventually lost both homes to foreclosure after months of struggling to make payments on two adjustable-rate mortgages that were set to increase.

"Things happen," said Castillo, who now rents a house in La Quinta. "You just have to keep going. If you have your family together, it doesn't matter."

The real estate boom of recent years ushered a record number of Latinos into the housing market. The community hit a milestone this year: Half now own homes. But the recent credit crunch and escalating foreclosure rates threaten to erode some of the gains.

Foreclosures have hit Riverside and San Bernardino counties especially hard. The counties comprise the metro area with the third-highest foreclosure rate in the nation, according to home loan database RealtyTrac.

Across the country, hundreds of thousands of homeowners are facing foreclosure. Many of them are Latino - foreclosures in the community are estimated to reach $24.8 billion this year, according to the National Association of Hispanic Real Estate Professionals.

"For many in our community, home ownership is the key to making the American dream a reality," said Sen. Robert Menendez, D-N.J., the son of Cuban immigrants. "We need to do everything possible to prevent these families from losing their homes."

Jose Miralla, who lives in Beaumont, is already three months behind on the mortgage on his four-bedroom house. He worries he'll lose the house to foreclosure.

His troubles began on closing day, when he was presented with a higher interest rate than he expected. With a credit score of 670, 50 points higher than the general cutoff for a subprime loan, Miralla said he could have qualified for a better rate. But he accepted the subprime rate for fear of forfeiting a $5,000 security deposit.

Miralla, who sells home alarm systems and works on commission, figured he could make the payments although money would be tight. But his sales figures slipped. A newlywed, he now wishes he'd backed out of the deal.

"All the dreams we had to be together, to have a life together have just been ruined," he said.

Miralla, who is Puerto Rican, is among the 42 percent of Latinos who have taken out subprime loans. That's almost twice the percentage of whites with such loans, which typically are given to borrowers with poor credit ratings who are more likely to default.

Taking it on the chin

Adjustable-rate mortgages to subprime borrowers accounted for about 44 percent of all new foreclosures in the second quarter of this year, according to the Mortgage Bankers Association.

Many subprime borrowers also refinanced their homes to pay off credit card debt or pay for costly remodeling projects.

Others, including Latinos who have trouble understanding English, were given loans they could never have afforded or that quickly reset at higher interest rates, according to counselors and real estate agents.

Until a few months ago, rapidly rising home prices in California led many potential buyers to opt for nontraditional mortgages such as interest-only loans.

Last year, the state had one of the highest rates of interest-only loans in the country.

"It got out of hand," said Rudy Valenzuela, owner of Century 21 De Oro Realty. "There's a certain percentage of loans that shouldn't have been made."

Valenzuela, who has offices in Cathedral City and Indio, said many Latinos in the Coachella Valley did not understand the terms of their loans.

Some may have signed papers they couldn't read because they were in English. Others may have been duped by real estate professionals, he said.

Carlos Pena, a real estate broker who works in the east valley, said that although lending has gotten tighter, lower prices are making homes more affordable for buyers who qualify for loans.

"There is a lot of inventory," said Pena, who has clients trying to sell homes for less than they're worth because they can't afford their monthly payments.

In the past three months, 450,000 properties across the country were in foreclosure proceedings, according to RealtyTrac. Nevada, California and Florida, which have large Latino populations, were the top three states for foreclosures.

Riverside County has seen a sharp increase in foreclosure proceedings in recent months, with 11,969 filings in the third quarter of this year compared with 3,143 in the third quarter last year, according to RealtyTrac.

Palm Springs had 94 foreclosure filings in September alone.

As foreclosure rates climb, so has the number of homes available for purchase, said Greg Berkemer, director of the California Desert Association of Realtors.

"There is more inventory than there is demand today," he said, noting about 9,000 homes are for sale in the desert.

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