(Photo: Josette Herdell/KPBS)
As home values went up in recent years, more minorities bought houses in San Diego County than ever before. Many used high interest, subprime loans. Now civil rights groups say lenders targeted minorities for those loans which are more expensive than conventional credit. KPBS Reporter Amita Sharma has more.
Esperanza Martinez bought a home in a working class neighborhood in Chula Vista two years ago. It's a tiny, two-bedroom house. Her four children sleep in a single room. The 30-year-old house has bumpy walls, missing fixtures and a bathroom floor that caved in soon after she moved in. The price -- $400,000. Martinez walks through her home now with pride and hope, but also fear.
Sharma: What does this house mean to you?
Martinez: All my life.
Martinez put no money down. Instead, she got two adjustable rate mortgages with an initial monthly payment of $2,700 to finance 100 percent of the cost of her home. Now, her monthly payments have jumped to nearly $4,000. If that weren't bad enough, her husband has lost his construction job. The family is now two months behind on the mortgage. Martinez phones the banks constantly trying to cut a deal.
Martinez: It's three times a day. I just explain my situation. I try to tell them that I want to keep this house.
Stein: We do feel there's an element of targeting by subprime lenders of people of color, of neighborhoods of color of low-income people.
Kevin Stein is associate director of the California Reinvestment Coalition . His group did a statistical analysis of lending practices across the state.
Stein: In San Diego specifically looking at the county for 2006 and this is the most recent data we have, we find that Latino borrowers and African-American borrowers are both twice as likely to get these higher cost subprime loans.
Stein's analysis is based on neighborhoods and income levels. But Bill Himpler of the American Financial Services Association whose members include subprime lenders, says there may be other reasons why subprime loans are more common in poor and minority neighborhoods.
Himpler: The problem with this approach is it doesn't have any credit information that lenders use to determine what sort of risk a borrower brings to a mortgage transaction.
But Stein's study shows even black and Latino borrowers with high incomes pay more for credit than similar white borrowers. On average, the difference is about $600 more a month.
Stein: People have put themselves in positions where they are feeling stretched.
Stein says families are choosing between paying the mortgage or paying for food and healthcare. And for some, that's meant losing their home. There were 5,700 defaults in the county from June to September. Stein says some minorities who got subprime loans actually qualified for cheaper, conventional loans but weren't offered them. Others shouldn't have gotten loans period because it was clear they'd never be able to pay the money back. So what happened?
Coughlin: Greed occurred and the lenders saw a chance to literally make hundreds of millions of dollars.
That's San Diego attorney Patrick Coughlin who's suing six lenders, including Wells Fargo.
Coughlin: You know they didn't have money to put down. So somebody would put them into a house that they knew was going to fold up in a year or two and they would not be able to pay that and the reason that the lenders did it is because they weren't going to hold on to these loans. They were selling them almost immediately.
Civil rights groups say Spanish speakers were particularly vulnerable. For example, Esperanza Martinez's lender discussed her loan terms in Spanish. But the actual loan documents were in English. She says she never realized her mortgage payments could almost double. She feels taken advantage of.
Martinez: It's because we don't read exactly those little words on the loans. And we just sign it. It's because we're dreaming to buy a house.
The future continues to look dim for subprime borrowers. Federal Reserve Chairman Ben Bernanke says 450,000 borrowers with adjustable mortgages each quarter are likely to be hit with higher monthly payments every quarter until the end of next year.
Amita Sharma, KPBS News.
