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As soon as he told her they wouldn't be able to pay the mortgage, Ruben Loera's wife's heart clenched. She started packing away the angels and pulling down the paintings. Five months later and one step away from foreclosure, half-empty boxes are piled in a corner of the living room in their home in Maryvale, a suburb of Phoenix, Arizona.
Loera had been hearing tales of people losing their houses, but he never thought it would happen to his family. "I had to make a decision: I pay the house, or I feed my kids," said Loera, who migrated legally to the United States from Mexico almost 30 years ago and has a daughter and a son, ages 17 and 11.
Loera's story is common these days. Although many families are experiencing foreclosures, job losses and increased debt, community advocates say that Latinos and Blacks are feeling the effects most acutely. These two communities are bearing the brunt of high unemployment rates, a disproportionate rate of receiving subprime mortgages and greater risk of foreclosures.
"People are getting hit from all sides," said Heidi
Shierholz, an economist at the Economic Policy Institute, a Washington-based nonpartisan think tank. "It's not just their income. Any wealth [that] families had is getting erased, too."
A United for a Fair Economy study released in 2008 estimated that the foreclosure crisis might strip as much as $213 billion in assets from Black and Latino households.
Loera bought his home in 2002. He had a perfectly good loan with a fixed interest rate until 2006, when he got a phone call from Countrywide Financial promising a great deal on a refinance. He was trustful, since it was the same company that gave him his first loan. "They told me it was money I earned that I wouldn't have to pay," he recalled.
He used the money to pay for his daughter's quinceañera party, a truck, and a sound system for the family's alabanzas, a band of inspirational songs for the music ministry at their Catholic church. It took only two months for him to realize he had made a big mistake. His monthly payment jumped from $1,000 to $2,000.
The family started eating up their savings and then began using their credit cards. When the housing bubble burst, Loera's $230,000 home depreciated to $180,000. At the end of 2007, he lost his job of 12 years driving a concrete mixer truck. He found another job as a painter with a commercial construction business but was laid off, along with 50 coworkers, last April. His wife's occasional work in children's daycare came to a halt, too.
With his credit cards maxed, Loera took a $2,000 high-cost loan using his car as collateral to pay for gas and groceries. He paid interest of $175 every 15 days but was unable to pay towards the principal. The $300 that Loera made working three days a week at a restaurant, along with other income from painting and handyman jobs, wasn't enough. He stopped paying the mortgage last May.
While Loera's situation, like so many others, unraveled quickly, housing advocates contend that the problems facing communities of color today have been brewing for the last decade. Blacks and Latinos "were targeted for the unfairness of the loan products that have literally poisoned the entire credit system now," said Jim Carr, chief operating officer of the National Community Reinvestment Coalition, a group of 600 organizations that promotes access to credit and affordable housing.
According to the 2007 Annual Minority Lending Report, about 47 percent of Hispanics and 48 percent of Blacks who purchased mortgages in 2006 got higher-cost loans, compared with about 17 percent of whites and Asians. The predatory lending that targeted minority communities has now resulted in "extreme geographic concentrations of foreclosures," said Jason Reece, a senior researcher at the Kirwan Institute for the Study of Race and Ethnicity.
Cities like Baltimore, Maryland, have initiated lawsuits against lenders for targeting Blacks with sub-prime loans. Two-thirds of the foreclosures related to Wells Fargo in that city were in census tracts where Blacks account for 60 percent of residents.
The highest rates of foreclosures in the nation in August 2008 were led by Nevada, followed by California and Arizona, according to RealtyTrac, a firm that tracks national foreclosure filings. All are states with large numbers of Latinos. California had eight of the 10 metropolitan areas with the highest foreclosures in the country. Stockton, with a 37-percent Latino population, came in first with one foreclosure for every 50 homes.
In Arizona, the confluence of the foreclosure crisis, the unemployment in the housing industry that had fueled the state's economy, and tighter local immigration restrictions have made the impact of foreclosures exponential. Neighborhoods in the West Phoenix area such as Maryvale, where more than 58 percent of residents are Latino, have experienced foreclosure rates of up to 8 percent.
Foreclosures are not only affecting the people who are losing their homes. They are changing entire communities. With fewer homeowners, local businesses and schools are seeing fewer customers and students. City governments are not receiving revenue, and abandoned houses are becoming sites for criminal activities.
"With all the prices going up, and the gas increase, t's a headache to run a business like this," said José Carrizosa, a Mexican-American owner of Oasis Raspados in Arizona. In 2008, he had a 20-percent drop in sales of raspados, the Mexican version of the snow cone. Rather than open two more stores as he had planned, Carrizosa is deciding which one to shut.
Manuel Siguenza, who owns a used-car lot, says customers can't get credit. He should know, since a branch of the Bank of America recently turned him down for a $60,000 loan he wanted to buy new car stock, using his home as collateral. Sales have gone down at least 35 percent for his business, and Siguenza estimates he will pay the city only a quarter of the $50,000 he used to contribute annually in sales taxes.
Local governments are finding themselves in a vicious cycle: the more they lose revenue due to foreclosures, the more crime increases, which requires cities to provide more services, which they can't because of the dent in revenues from foreclosures.
Robert Frietz, a neighborhood specialist who acts as a liaison between communities and the city of Phoenix, gets dozens of complaints every week from residents in West Phoenix about abandoned houses. For Sale signs and overgrown lawns have made vacant homes more attractive to copper thieves and even human smugglers, who use these properties as stash houses.
Phoenix received $39 million last September in neighborhood stabilization funds as part of the Housing and Economic Recovery Act approved by Congress. But it is not enough to purchase even half of the foreclosed homes in West Phoenix, said Joseph Belval, project manager at the Community Development Division of the Neighborhood Services Department in Phoenix. Even if it were enough money, Belval doesn't think that's the way to go. He believes funding should be used for acquisition, rehabilitation of the homes and providing assistance to the home buyers at a time when the credit markets are tight.
The concentration of foreclosures is also hurting schools in West Phoenix. The Cartwright Elementary School District lost at least 2,000 of its 20,000 mostly Latino students at the beginning of the year, losing $8 million in state funding based on student enrollment. We'll probably have to close one of our schools," said district superintendent Michael Martinez. "We're facing some tough, tough times."
When Loera got behind on his mortgage payments to Countrywide, he called the bank to get help, but they turned him down. "It didn't make any sense. I was trying to prevent my credit from getting ruined. But now it's too late,"
Loera's hopes now rest with ACORN (the Association of Community Organizations for Reform Now), which is working with people of color to have financial institutions modify mortgage loans. "Banks almost have to listen. It's either that or we keep the foreclosure rates going up," said José Velásquez, a housing counselor for ACORN.
Unfortunately, that's what may happen.
Nearly 80 percent of all seriously delinquent homeowners are headed towards foreclosure with no help in sight, according to a recent report of sub-prime services by the State Foreclosure Prevention Working Group.
"There isn't a lot out there for consumers at all," said Carr.
He cites as an example the Foreclosure Prevention Act approved by Congress in 2008, which provides up to 400,000 households with help for refinancing. The country, however, experiences 300,000 foreclosures every month, according to RealtyTrac Inc.
As Loera and hundreds of thousands of Americans suffer from the recession, the federal government approved an $800-billion bailout last fall with no widespread relief in sight for homeowners. Carr contends that the bill could further discourage loan modifications in the future. "What is the incentive to help a homeowner with a problem loan, when in fact now they can sell it to the federal government?" he asked.
Progressive economists and consumer advocates believe the government could change bankruptcy laws to allow people to have their home mortgage renegotiated in court. Housing advocates would also like to see tighter regulations of the financial institution industry and laws to protect communities from predatory lending practices.
"We see this as one of the premier civil rights challenges in the upcoming decade," said Jason Reece, adding, "This is also an opportunity now for the federal government to have a much more active role in giving housing tax credits to these communities."