September 19, 2009
By Dyana Pari Nafissi
Juan M. Alvarez is a by-the-books kind of guy. When he immigrated to the United States from Mexico in the 1990s, he hired a lawyer to assure his paperwork was correct. With his blue-collar salary from a large home building company several miles east of San Francisco, his family of four lived on a frugal budget as he diligently set aside money to purchase a home as well as sent money to his family in the Mexican state of Sinaloa.
In economic slowdown of 2001, as his workmates’ retirement accounts crashed, he used his savings that he has stashed in a bank account to buy a home in Contra Costa County. He realized the American Dream.
“I tried to be correct but now, everything is bad.”
Today, eight years later, Alvarez is actively seeking alternatives to foreclosure as the value of his greatest investment – and dream - plummets.
To Alvarez, this extreme turn of fortune triggers sadness, but it angers his family and Hispanic friends who believe Alvarez is a nice, too-trusting guy who was targeted and victimized due to due to his Latino descent. Recent reports reveal his friends and family may have a valid point.
Contra Costa County, just outside of San Francisco, boasts a Hispanic population of approximately 250,000, 23% of the population base. With some towns foreclosing 1 in 28 homes, the county holds the spot of 18th most-foreclosed county in the USA based on RealtyTrac’s monthly survey. Although the county averages 1 in 8272 units in foreclosure, foreclosure rates above stand above 75 percent for both black and Hispanic majority neighborhoods, according to a 2008 study from the Center for Community Innovation at the University of California at Berkeley.
8 out of 10 of the Contra Costa foreclosures are due to sub-prime loans and most belong to minorities. In 2006, Hispanic home buyers are much more likely to receive a sub prime loan according to The Center for Responsible Lending Report, “Unfair Lending: Race and Ethnicity on the Price of Sub Prime Mortgages.” The study further compared non-minority to minority borrowers with the same credit score, living in the same neighborhood; African-American and Latino borrowers are a third more likely to engage in a high-priced loan. In primarily white communities, like those in Contra Costa county, Instituto de la Raza studies conclude that Latinos are 2.5 times more likely to have received a sub-prime loan.
Nevertheless, Alvarez doesn’t feel he was a victim of racial targeting. “I make my own decisions; I broke my own American dream,” he laments.
In mid 2005, Alvarez met a Spanish-speaking mortgage broker at a cookout in a local park. Alvarez had never heard of the bank, but felt the broker was a good guy, and in their conversion, Alvarez proudly shared that he was already a homeowner. He was confident in sharing his financial success story, but the broker struck a cord when he implied that Alvarez likely was paying too much monthly for his mortgage. Soon after, Alvarez hired the broker to refinance his mortgage and decrease his monthly payments.
Alvarez’s Spanish-speaking broker, who peddled a mortgage on the brink of foreclosure, is less than an anomaly and more of a national trend. The Center for Fair Lending research reveals the majority of credit issuers marketing in minority neighborhoods, in particular Spanish-speaking ones, engage in predatory lending techniques, such as loans that charge excessive interest rates, high refinance fees, and they don’t take into account the borrower’s ability to pay. The resulting loans strip $9 billion of wealth annually from the nation due to fees and default. Large banks with a variety of mortgage products lack motivation to market in underserved areas due to little understand of local culture, and language barriers. And leaders who do cater to the Hispanic community conduct business in Spanish, thus evading the oversight of many borrower rights consortiums.
With the boost in monthly take-home income from switching from a fixed-rate loan to an adjustable-rate mortgage, Alvarez felt more confident about his financial situation, started saving for retirement, sent more money to Mexico, and loosened the spending reigns in his daily family life. Soon the extra $500 per month – a 14% increase in disposable income – seemed insufficient to pay for s newly desired luxuries, like cell phones, a flat screen TV and a new car.
Short-term thinking is one of the biggest obstacles to Hispanic personal financial success, claims Louis Barajas, author of the book “The Latino Journey to Financial Greatness: The 10 Steps to Creating Wealth, Security, and a Prosperous Future for You and Your Family.” Barajas is not surprised that Latinos fall victim to unsuitable refinance and foreclosure schemes. Once a community starts employing a shortcut, it is quickly accepted as a norm.
Alvarez is not pointing his finger at his heritage – nor does he blame the bank or his mortgage broker. Instead, he points to himself; he blames his “suenos” -- his dreams, his heart.
The drive to reach the American Dream o distorts decision making for Latinos, cites Ariel Curo, a cultural expert and host of the show Tu Tecnología on Univision. Hispanics, in particular recent immigrants, value home ownership as an essential base of their hierarchy of needs and they make major lifestyle sacrifices – and over-commit - to fulfill the American Dream. Coro says Hispanics who are told they’ve been pre-approved for a loan view it as an indication that they are capable of paying, a cultural characteristics preyed upon by sub-prime lenders.
Coro’s insight may explain why Latinos to spend more on housing costs than whites (26% of their income vs. 19%), according to The Institute for Latino Studies. This disparity increases the probability of default for Hispanics holding sub-prime adjustable rate mortgages. Alvarez is one of 11% of Hispanics nationally considered cost burdened by housing as he spends more than 40% of his income on housing; before refinancing, 60% of his income was committed. The reduced monthly rate of the new adjustable-rate mortgage seemed like a blessing.
“I took what looked like a cheap loan as a reward for my hard work. But in reality, it was a penalty.”
Layoffs at Alvarez’s company started in 2007 but so far, his position has not been eliminated. He has not gotten a raise, either, and he notes the cost of food and transportation continue to rise. As he began to use his credit cards to meet expenses, his inability to meet the monthly payments meant his was charged nearly 30% on his past-due balance. His 401(k) halved in the past year when the stock market slumped, but that is the least of his woes.
Today, Alvarez is researching options to refinance his mortgage before his monthly payment sky-rockets next year as interest rates rise on his adjustable loan. He is using the Internet to research options and plans to contact with a local counseling office. Amazed by the amount of information available on the Internet, Alvarez laments he didn’t get online 5 years ago.
“I lost my ability to reach my dreams,” concludes Alvarez.
Drained from recounting his story, Alvarez remains bewildered about his disappointing quest for the American Dream. He feels he might be able to refinance using one of the Obama administration’s programs but admits to having less confidence in the system now as he already worked to do everything right but ended up with a whole lot of wrong.
This article was published with the support of the International Center for Journalists (ICFJ)
By Dyana Pari Nafissi
Juan M. Alvarez is a by-the-books kind of guy. When he immigrated to the United States from Mexico in the 1990s, he hired a lawyer to assure his paperwork was correct. With his blue-collar salary from a large home building company several miles east of San Francisco, his family of four lived on a frugal budget as he diligently set aside money to purchase a home as well as sent money to his family in the Mexican state of Sinaloa.
In economic slowdown of 2001, as his workmates’ retirement accounts crashed, he used his savings that he has stashed in a bank account to buy a home in Contra Costa County. He realized the American Dream.
“I tried to be correct but now, everything is bad.”
Today, eight years later, Alvarez is actively seeking alternatives to foreclosure as the value of his greatest investment – and dream - plummets.
To Alvarez, this extreme turn of fortune triggers sadness, but it angers his family and Hispanic friends who believe Alvarez is a nice, too-trusting guy who was targeted and victimized due to due to his Latino descent. Recent reports reveal his friends and family may have a valid point.
Contra Costa County, just outside of San Francisco, boasts a Hispanic population of approximately 250,000, 23% of the population base. With some towns foreclosing 1 in 28 homes, the county holds the spot of 18th most-foreclosed county in the USA based on RealtyTrac’s monthly survey. Although the county averages 1 in 8272 units in foreclosure, foreclosure rates above stand above 75 percent for both black and Hispanic majority neighborhoods, according to a 2008 study from the Center for Community Innovation at the University of California at Berkeley.
8 out of 10 of the Contra Costa foreclosures are due to sub-prime loans and most belong to minorities. In 2006, Hispanic home buyers are much more likely to receive a sub prime loan according to The Center for Responsible Lending Report, “Unfair Lending: Race and Ethnicity on the Price of Sub Prime Mortgages.” The study further compared non-minority to minority borrowers with the same credit score, living in the same neighborhood; African-American and Latino borrowers are a third more likely to engage in a high-priced loan. In primarily white communities, like those in Contra Costa county, Instituto de la Raza studies conclude that Latinos are 2.5 times more likely to have received a sub-prime loan.
Nevertheless, Alvarez doesn’t feel he was a victim of racial targeting. “I make my own decisions; I broke my own American dream,” he laments.
In mid 2005, Alvarez met a Spanish-speaking mortgage broker at a cookout in a local park. Alvarez had never heard of the bank, but felt the broker was a good guy, and in their conversion, Alvarez proudly shared that he was already a homeowner. He was confident in sharing his financial success story, but the broker struck a cord when he implied that Alvarez likely was paying too much monthly for his mortgage. Soon after, Alvarez hired the broker to refinance his mortgage and decrease his monthly payments.
Alvarez’s Spanish-speaking broker, who peddled a mortgage on the brink of foreclosure, is less than an anomaly and more of a national trend. The Center for Fair Lending research reveals the majority of credit issuers marketing in minority neighborhoods, in particular Spanish-speaking ones, engage in predatory lending techniques, such as loans that charge excessive interest rates, high refinance fees, and they don’t take into account the borrower’s ability to pay. The resulting loans strip $9 billion of wealth annually from the nation due to fees and default. Large banks with a variety of mortgage products lack motivation to market in underserved areas due to little understand of local culture, and language barriers. And leaders who do cater to the Hispanic community conduct business in Spanish, thus evading the oversight of many borrower rights consortiums.
With the boost in monthly take-home income from switching from a fixed-rate loan to an adjustable-rate mortgage, Alvarez felt more confident about his financial situation, started saving for retirement, sent more money to Mexico, and loosened the spending reigns in his daily family life. Soon the extra $500 per month – a 14% increase in disposable income – seemed insufficient to pay for s newly desired luxuries, like cell phones, a flat screen TV and a new car.
Short-term thinking is one of the biggest obstacles to Hispanic personal financial success, claims Louis Barajas, author of the book “The Latino Journey to Financial Greatness: The 10 Steps to Creating Wealth, Security, and a Prosperous Future for You and Your Family.” Barajas is not surprised that Latinos fall victim to unsuitable refinance and foreclosure schemes. Once a community starts employing a shortcut, it is quickly accepted as a norm.
Alvarez is not pointing his finger at his heritage – nor does he blame the bank or his mortgage broker. Instead, he points to himself; he blames his “suenos” -- his dreams, his heart.
The drive to reach the American Dream o distorts decision making for Latinos, cites Ariel Curo, a cultural expert and host of the show Tu Tecnología on Univision. Hispanics, in particular recent immigrants, value home ownership as an essential base of their hierarchy of needs and they make major lifestyle sacrifices – and over-commit - to fulfill the American Dream. Coro says Hispanics who are told they’ve been pre-approved for a loan view it as an indication that they are capable of paying, a cultural characteristics preyed upon by sub-prime lenders.
Coro’s insight may explain why Latinos to spend more on housing costs than whites (26% of their income vs. 19%), according to The Institute for Latino Studies. This disparity increases the probability of default for Hispanics holding sub-prime adjustable rate mortgages. Alvarez is one of 11% of Hispanics nationally considered cost burdened by housing as he spends more than 40% of his income on housing; before refinancing, 60% of his income was committed. The reduced monthly rate of the new adjustable-rate mortgage seemed like a blessing.
“I took what looked like a cheap loan as a reward for my hard work. But in reality, it was a penalty.”
Layoffs at Alvarez’s company started in 2007 but so far, his position has not been eliminated. He has not gotten a raise, either, and he notes the cost of food and transportation continue to rise. As he began to use his credit cards to meet expenses, his inability to meet the monthly payments meant his was charged nearly 30% on his past-due balance. His 401(k) halved in the past year when the stock market slumped, but that is the least of his woes.
Today, Alvarez is researching options to refinance his mortgage before his monthly payment sky-rockets next year as interest rates rise on his adjustable loan. He is using the Internet to research options and plans to contact with a local counseling office. Amazed by the amount of information available on the Internet, Alvarez laments he didn’t get online 5 years ago.
“I lost my ability to reach my dreams,” concludes Alvarez.
Drained from recounting his story, Alvarez remains bewildered about his disappointing quest for the American Dream. He feels he might be able to refinance using one of the Obama administration’s programs but admits to having less confidence in the system now as he already worked to do everything right but ended up with a whole lot of wrong.
This article was published with the support of the International Center for Journalists (ICFJ)
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