Subprime Mortgage Crisis

The Effect of the Subprime Mortgage Crisis on Latinos

Introduction

 

With the recent economic slowdown, high gas prices, and the subprime mortgage crisis, Hispanic Americans have taken hard hits in their pursuit of the American Dream.  The struggling economy and rising oil prices are obvious concerns for all Americans, but there is some evidence that the subprime mortgage crisis has had a disproportional effect on Hispanic Americans.

 

Targeting Latinos

 

An analysis by the Center for Responsible Lending found that Latinos were nearly 30 percent more likely to receive subprime mortgages than whites in part due to the lack of information they received from the lender or broker. Contracts are written in complicated legal jargon that is difficult even for a native English speaker to understand. In October 2007, financing experts at a homeownership conference sponsored by the California Latino Legislative Caucus concluded that contracts were often not properly explained to Hispanic Americans that have English as their second language, and little or no education with regards to finance, the daily San Diego Union-Tribune reported. With the growing Latino population and increasing income level, many Hispanic Americans used these low rates as a chance to purchase their first home and had no prior experience dealing with banks, loans, and mortgages. 

 

According to the Union-Tribune, many Latinos traditionally feel more comfortable paying in cash rather than using credit cards, they frequently have low credit scores or no access to traditional credit.  This made the subprime loans they were offered, that should not have been approved, seem very attractive and as a way to move forward with their pursuit of the American Dream.  Brokers that were offered high commissions used this lack of experience, credit and information to target Latinos with ads in Spanish language newspapers offering zero down, 1 percent loans, with little regard to the Latino borrower’s ability to sustain payments given a shift in the market.  The result was that Latinos and blacks were affected more than whites. It is expected to cost people of the minority communities close to $213 billion, according to Foreclosed: State of the Dream 2008, a report by the Boston-based United for a Fair Economy.

 

The Aftermath of the Mortgage Crisis

 

A further negative effect that can be attributed to this subprime mortgage crisis and the role it plays among Latino communities is the fact that many homes become vacant after a new homeowner can no longer afford to make payments.  This attracts squatters, increases the risk of fire and generally brings down the value of other homes in the neighborhood, even if neighboring homeowners were not taking out bad, sub-prime loans.  Given that people of Hispanic descent frequently live in the same neighborhoods, the domino effect of the disproportionate targeting of Latinos causes whole Hispanic communities to deteriorate and lose value.

 

Another effect is that with the stricter loan standards engendered by this wave of foreclosures, Latinos without much prior credit history now have even less chance of receiving a good loan than they had before the crisis.  This hinders Hispanic access to new credit and homeownership, and is compounded by the fact that the credit scores of those who received these bad loans are now damaged forever. 

 

 

New Market Opportunities 

 

A positive aspect coming out of the subprime crisis is the devaluation of many homes that are now available on the market at affordable prices.  This gives Latino families that did not jump at the offer of low interest mortgages a chance to buy homes in one of the best buyer’s markets in history, and get their piece of the American Dream at a good price. 

 

Conclusion

 

In the wake of the subprime mortgage crisis rules have tightened so that bad loans will be less likely to be made in the future.  However, the general precautions do nothing to adjust for the disproportionate effect this crisis had on Latinos.  One thing that could be done to specifically aide Hispanic borrowers from accepting bad loans is to ensure complete transparency of information in the loan contracts.  By requiring contracts to be available in Spanish for native Spanish speakers, or having a bilingual person on staff to fully explain the contract to a Spanish-speaking borrower, Latinos would have more equal access to information about the logistics and consequences of the loan.