Immigrants are emerging as among the first victims of a growing wave of home foreclosures in the Washington area as mortgage lending problems multiply locally and across the country.
Nationally, 375,000 high-interest-rate loans were made to Hispanics in 2005, and nearly 73,000 of them are likely to go into foreclosure, said Aracely Panameno, director of Latino affairs for the Center for Responsible Lending. About 1.1 million homes in the United States are expected to go into foreclosure in the next six years, and many native-born Americans are likely to be stuck with burdensome loans. But immigrants are getting hit first in part because their incomes tend to be lower and many have lost construction jobs.
Homeownership rates among immigrants surged in the first half of the decade, making their prosperity an economic success story. Now it is becoming apparent that many people managed to buy homes in an inflated real estate market by turning to unusual new mortgages only now receiving scrutiny from regulators and legislators. Many of these loans start with attractive low “teaser” rates but feature payments that can suddenly increase.
Unfamiliar with the U.S. mortgage market, unable to speak or read English well and vulnerable to the blandishments of real estate professionals who told them property values always rise, many immigrants are struggling to deal with high mortgage payments as their homes sag in value, making it harder to escape the loans by selling.
Some lenders allowed people to take out loans without verifying their income or their ability to repay. Traditionally, lenders have made loans only to people they thought could pay them back. Banking regulations forced lenders to adhere to strict lending policies, not just for the protection of borrowers but also to protect bank depositors, who would be hurt if the banks collapsed. But in recent years, lenders have found alternative sources of financing for the loans by turning to investors who bought the loans as packaged securities. These kinds of loans are not supervised in the same ways as loans made by banks and held in their portfolios.
Laissez-faire regulatory policies made other government agencies reluctant to intervene.
“The market changed so investors were setting the standards for qualifying people for mortgage lending,” said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America. “They had a higher appetite for risk, which led to the lax standards that are resulting in delinquencies. The regulators should have been more concerned about protecting consumers than about protecting financial institutions.”
Officials at the Mortgage Bankers Association were unavailable for comment. In previous interviews, they have said that loosened credit policies allowed more families to become homeowners and that reputable lenders do not make loans that cannot be repaid.
Many immigrants initially welcomed the lending changes as the only way they could afford to buy.