Minorities are the emerging face of the subprime crisis

When Alberto and Rosa Ramirez began looking for a home, they never imagined that 18 months later they would personify a national real estate crisis. It's not that they bought a house with walls crawling with toxic mold or inherited an insane neighbor next door or, even, God forbid, that they didn't buy at all. They bought, and they love, their slice of the American Dream.

"It's all very nice and beautiful," Rosa tells me through a translator. "The neighborhood is very peaceful. The problem is not with the house at all. It's the price of the house."

Indeed, in a different era (when housing prices were lower), their story might have been one of those bootstrap tales about homeownership transforming immigrant lives. The husband and wife work as strawberry pickers in the fields around Watsonville, and each earns about $300 a week. They have three children. Not only did they dream the impossible dream, they managed to finance it.

It all began when they were talking to another family about escaping their subsidized apartments and getting a real house. The other couple -- Jesus Martinez and his wife, who also have three children -- work as mushroom farmers, earning about $500 a week each when there is work. The two couples decided to pool their resources and begin house-hunting. Given their total income, they estimated that they could afford payments of $3,000 a month. They spotted an ad in the local magazine La Ganga for Maria Avila of Rancho Grande Real Estate and called her.

"We wanted to live in Watsonville," says Rosa. "But [the real estate agent] said the houses there were older and more expensive." One of the first homes they were shown was a "new" four-bedroom, two-bath house in Hollister for $720,000. When the Ramirez's heard the price, they worried that they couldn't afford it.

But the couple says they were assured them it was possible. "The monthly payment was supposed to be $4,800, but then after we bought it, it went up to $5,378," says Rosa, speaking of their zero-down mortgage with a one-month "teaser rate." "Our agent told us that once we refinanced, we could get the payments down to $3,000 or less." For a number of months Avila, who arranged for the loan with New Century Mortgage, paid the difference between what the buyers had said they could afford -- $3,000 -- and the actual loan payment. According to the buyers, this arrangement was supposed to carry them over until the group refinanced.

The money-saving refinance failed to materialize, and eventually, Avila stopped subsidizing their current mortgage. (According to my analysis of interest rates during the period, hitting the $3,000 number would have been virtually impossible under any circumstances. An interest-only $720,000 loan at a 5 percent interest rate [15-year fixed] yields a $3,000 mortgage, but such mortgage rates weren't available to anyone, much less a laborer with low income, no down payment and no other assets. Plus, that doesn't count another $750 a month in taxes and insurance.) The two families continued to make the payments, sometimes sacrificing basic necessities, other times borrowing more. "It was very difficult," Rosa says. "Sometimes we would eat less, and we took out personal loans from Bank of America."

(Maria Avila and Rancho Grande Real Estate declined to comment. Earlier this month, New Century Mortgage, the nation's second largest subprime mortgage lender, filed for bankruptcy. It's also facing a federal criminal probe.)

Last November, the families stopped paying their mortgage and sought the advice of Pamela Simmons, an attorney who specializes in predatory-lending cases. Upon reviewing the loan documents, they discovered more bad news. Despite the intention that both couples would be buying the home together (they'd submitted income information for three of the four buyers), the loan was made exclusively in Alberto Ramirez's name. This meant that he was solely responsible for the debt. The couple also discovered that the home wasn't nearly as valuable as they thought: When a new real estate agent valued the house, he told them he'd list it between $560,000 and $580,000. They have sent a letter of demand to Rancho Grande, claiming the brokers breached their fiduciary duties by selling Alberto Ramirez a home he couldn't afford. Rancho Grande declined comment.

How did a strawberry picker earning $15,000 a year qualify for a loan of $720,000? The answer, say the experts, lies in a lending industry that got too innovative for its own good.

Last week, a coalition of civil rights groups, including the National Council of La Raza, the Center for Responsible Lending and the NAACP, called for a national six-month moratorium on foreclosures -- after observing that the subprime crisis disproportionately affected minorities. "The point is to just take time out and provide services to families who might be vulnerable as a result of payment shock," says Janice Bowdler, senior policy analyst for housing for the National Council of La Raza, referring to the hybrid loans that begin with low fixed rates, then jump to adjustable-rate mortgages. Bowdler adds that they are hoping many homeowners can avoid foreclosure by taking advantage of such financial tools as changing their current loan terms or refinancing.

According to NCLR, "[f]orty percent of Latino families and over half of African Americans who receive home loans get higher-cost mortgages, predominately subprime loans." In a study released last month, an analysis of 2005 federal mortgage lending data of large subprime originators in six metropolitan areas, African American borrowers were 3.8 times and Latino borrowers were 3.6 times more likely to receive a higher-cost home purchase loan than white borrowers. One argument is that these groups naturally get subprime loans because they have bad credit or are buying in riskier neighborhoods. But according Fannie Mae, there is an enormous lending disparity across the nation: One study found that 50 percent of all borrowers qualified for a cheaper loan than the one they eventually got. They even discovered that female buyers tend to get higher-cost loans than male counterparts.

But for Rosa and Alberto Ramirez and many others like them, a foreclosure moratorium won't help. It's not that a better loan would have remedied their situation -- it's that they can't afford the home they bought. "Many of my clients can't afford their homes in any circumstance," says Simmons. "I have a dishwasher who bought a house and never even moved in. The moment he saw the first payment, he knew he couldn't afford it."

Indeed, the Ramirez family exemplifies a type of new buyer that didn't exist a decade ago. Neither Rosa nor Alberto speaks English, so they were completely dependent on their real estate agent and their mortgage broker for advice and to translate and educate them about the process. "In other business transactions in California, if you negotiate in Spanish, you are required to provide translations of all documents. But real estate contracts are exempt from this," explains Simmons, who currently has 30 active cases and sees her potential caseload growing by the day. "There's a large increase in the amount of borrowers reaching out to lawyers with subprime loans. I've gotten to the point that I have to say to a lot of people, 'I can't represent you, I have too many clients.' It's astounding to me. I neither expected nor have I seen anything like this in all the years I've practiced law. It's as if in real estate it's gone back to the Wild, Wild West of San Francisco in the 1800s."

Simmons says that she's seeing more non-English-speaking clients -- mostly Latinos but also one Filipino -- who had little understanding of what they had gotten themselves into. "I meet with a lot of clients who have negative-amortization loans who are stunned to find out that their payments are not even covering their full interest," she says, mentioning a couple she met that morning whose adjustable negative-amortization payments had risen beyond their ability to pay. "The wife is crying -- it was awful. I had the very sad task of explaining to them that they cannot afford their home. Forget about actually paying off their home in 30 years -- they can't afford the interest-only payments."

Maeve Brown, co-founder of Oakland-based Housing and Economic Rights Advocates, says most of her clients fall into one of two categories. There are the non-English-speaking, first-time home buyers who "buy homes that they can't afford, with mortgage brokers raking in the fees and an added twist that the homes are often substandard and they are appraised above their actual value." The other kind of cases involves seniors -- often African American -- who are persuaded to refinance their homes with more expensive adjustable-rate loans that carry steep prepayment penalties.

"Buying a housing is a complex process," says Brown. "I think we've been sold a bill of goods about the American dream: that it's fast, it's fun, it's easy. Well, it's not easy -- it's really complex. The ideal would be that every buyer retain their own counsel to protect them from their realtor and their broker, because though there are great agents and brokers out there and they have a fiduciary duty to represent your best interests, in the end, it's a contract and you're on the hook for it."

Regarding subprime lenders going bankrupt, she has "no sympathy whatsoever. They created this monster."

What if you're not up to reading (and comprending) the fine print of a refinance or a new home loan? Housing advocates offer the following advice: