Thursday, January 19, 2006
Most everyone wants a piece of it: the American Dream. That house with the big yard and the white picket fence. But few have the hundreds of thousands of dollars needed to buy a home stashed in a cookie jar or under the mattress.
So instead, most apply for a bank loan and, if approved, pay for a very expensive dream over the next 30 years.
A growing problem these days, however, is that many homebuyers unwittingly agree to high-interest loans. In 2004, that meant paying an annual interest rate of 10 percent or more on a home loan, rather than the average interest rate of 6 percent. This means shelling out hundreds of additional dollars on a house payment, every month.
Higher-cost loans may, in fact, turn out to be one-way tickets to the poor house.
A report released last month by the California Reinvestment Coalition (CRC) shows that higher-cost loans are more frequent in rural towns and minority communities. The study looked at federal lending data for 2004 in 12 California cities—including Salinas—and concluded that minority groups could be paying $50 million more than white borrowers every month as a result of higher-cost home loans. Additionally, up to half of all borrowers of high-cost loans may actually qualify for a lower-cost loan.
In Salinas, 1,157 of the 7,826 home loans made in 2004 (about 13 percent) were higher-cost loans, according to the report. And 189 of those higher-cost loans (or 15 percent) were made by two financial institutions: Lehman Brothers/Finance America and New Century Mortgage.
“What you look like and where you live should not determine how much you pay for a loan,” says Kevin Stein of the CRC. “Higher-cost lenders are draining wealth from families’ pocketbooks and doing so in a way that is having a large and disproportionate impact on certain California communities.”
Salinas landed in the middle of the pack of the 12 cities studied in the report. However, having 13 percent of all home loans representing high-cost loans is still too high a number, says Maria Giuriato, a Salinas City councilwoman and candidate for mayor.
“We may not have the highest rate, but we are still on the list,” Giuriato says. “What our intent is now is to make sure that Salinas gets off the [higher-cost loan] list. And a way to do that is for the most vulnerable members of the community to be informed about the home-buyer process and about predatory lending practices.”
Giuriato, who also chairs the Monterey County Housing Alliance (MoCHA), is spearheading a town hall meeting in Salinas on Jan. 28 to inform people about predatory lenders. About 15 local, state and federal organizations, including Monterey County Association of Realtors, will attend.
Scheduled to speak at the event is Nancy Flores of the Department of Housing and Urban Development (HUD).
Flores says that HUD has a number of departments that police illegal lending practices. But, she adds, many high-cost loans are not necessarily illegal. Sometimes, Flores explains, persons who may have qualified for a lower-cost loan may simply have settled for a higher-cost loan because they didn’t know any better.
“The best form of defense is to be informed,” Flores says.
Higher-cost lending is slowly but surely coming under the glare of state legislators, says state Assemblyman Simón Salinas.
“What happens is that a lot of the time, borrowers aren’t told that their payments will exceed what they can realistically afford,” says Salinas, who will also be speaking at the town hall meeting. “So you end up with a lot of people now who can’t make their mortgage payments.”
Salinas blames part of the problem on people’s own sense of urgency to get in on the real estate boom. “The way real estate is today, people take greater risks than they should,” Salinas says. “And their actions are based on the fear that housing prices will keep escalating.”
TO VIEW A COPY OF THE REPORT, VISIT WWW.CALREINVEST.COM. THE TOWN
HALL MEETING WILL BE HELD FROM 1PM TO 5PM, JAN. 28, AT THE
FIREHOUSE RECREATION CENTER, 1330 E. ALISAL ST., SALINAS.
Number of hours, working for minimum wage, necessary to earn enough money to buy a $425,000 house. Source: State Senator Abel Maldanado (R-Santa Maria), author of a recent bill to raise minimum wage