If you’ve taken a stroll through your neighborhood, you might have noticed a stream of “for sale” signs popping up on houses, condos and the like. Most are unaware that many of these homes for sale are actually foreclosed property, especially in highly speculative areas such as California and Florida. Homes in foreclosure have topped 1 million according to CNN and they have hit the Hispanic community particularly hard.

Many Hispanics were urged to buy homes during the real estate boom to achieve a new found independence. They wanted a taste of the American dream. Today, due to creative financing, second mortgages and rising interest rates, many Hispanics are close to having their homes taken away. The quest for the American dream has forced many Hispanics into debt due to loans that they were not fit to have. Many were given loans they were not qualified to receive due to a lack of credit history and/or inadequate monthly income. Many were sold adjustable rate mortgages with initial low interest ‘teaser’ rates which simply delayed the day of reckoning until the mortgage reset and full interest and principle payments were due.

The lending institutions that once gave loans only to people who could make the monthly payments had become astonishingly flexible. Many participated in lending to those with zero credit or little savings, all in an effort to sell home loans. Lenders believed skyrocketing home values would continue to make the loans viable and any risk was generally thought mitigated with skyrocketing interest rates. In many of these situations, it will take years of mortgage payments just to start paying the principal on loans. Most payments go towards the interest on the loans, and with home values plummeting, many homeowners are now trapped with loan balances well in excess of the value of the underlying asset. With monthly payments increasing, many are now without a way to pay off their homes. Senator Bob Menendez claimed, “When so many Hispanics have been sold ticking time-bomb loans, it is crucial that we make it a priority to target this kind of predatory lending.” This problem arose due to extreme speculation on the part of both mortgage brokers and home-buyers who both assumed rising home prices, continued refinancing and home equity extraction would allow those who normally would be unable to afford homes to do so.

The Voice of San Diego reported on Rosa Gonzales, who like many in the Hispanic community, signed loan papers written in complex terms in English. Although Spanish is her first language and much of her English is broken, she was not given a contract in her native language. Banks were willing to dole out home loans, even to people who would be unable make monthly mortgage payments, because they assumed that when the value of the home rose as everyone assumed it would, the mortgage would be refinanced, the additional equity extracted and used to make the payments until the next cash out refinance. Yet, when the housing bubble burst, this was no longer an option. It seems like someone needs to step in to protect the Hispanic-American family and the foundation of the American dream – the single-family home.

The Congressional Hispanic Caucus Institute’s National Housing Initiative, HOGAR, published recommendations to prevent future home foreclosures:

“1. Lenders should be encouraged to continue using flexible underwriting methods coupled with home-ownership education by a trained professional.
2. Leaders in the housing community should facilitate communication between real estate professionals and housing counseling organizations to discuss how counseling can help home-buyers get and stay in their homes.
3. Develop a system that allows housing professionals and consumers to anonymously report unethical acts to protect the most vulnerable populations.”

The housing foreclosure crisis has lead to a broken system in the Hispanic community. Homeowners are saddled with mortgages they cannot afford and loan balances that are larger than their homes are worth. Banks are stuck with foreclosed homes they cannot sell without significantly reducing the price and throwing more homeowners under water. As we have only begun the recession and as more mortgage loans reset, housing foreclosures are expected to increase. The toll on the Hispanic community is expected to only worsen as the American dream descends into the American nightmare.

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by Cristina Cordova