The Poster Boy For Subprime Mortgage Lending

The Poster Boy For Subprime Mortgage Lending

I've seen this one mentioned before, but here is the primary source: the May 3, 2007 Hollister (Cal.) Freelance:

Hollister - Despite making only $14,000 a year, strawberry picker Alberto Ramirez managed to buy his own slice of the American Dream. But his Hollister home came with a hefty price tag - $720,000.

A year and a half later, Ramirez has defaulted on his loan, and he's hoping to sell the house before it's repossessed. And according to many housing advocates and civil rights groups, Ramirez is not alone. As mortgage foreclosures rise, many minorities are suffering.

In April, the Leadership Conference on Civil Rights, the NAACP, the National Fair Housing Alliance, the National Council of La Raza and the Center for Responsible Lenders called for a six-month moratorium on subprime home foreclosures. Those groups reported that minorities receive a disproportionate share of riskier subprime loans, and while those loans make up only 13 percent of the overall mortgage market, they account for more than 60 percent of new foreclosure filings.

...

Deidre Swesnik, director of public policy and communications at the National Fair Housing Alliance, said non-English speakers and minorities have been targeted by subprime mortgage brokers. A study by the National Council of La Raza showed that nearly all mortgage advertisements in Spanish-language newspapers were for subprime brokers, Swesnik said.

But Rafael Cebrero, whose company Rancho Grande Real Estate sold Ramirez his home and arranged his mortgage, said subprime loans are getting a bad rap. Those loans, he said, have made it easier for many people, including Latinos, to purchase a home.

So how did Ramirez, the strawberry picker with an annual income of just $14,000, purchase a $720,000 home in Hollister without any money down?

He had help, for one thing. Although Alberto Ramirez was the only one to sign the purchase agreement and the only one named on the loan documents, he actually bought the house with his wife Rosa Ramirez, as well as their friends Jesus Martinez and his wife. However, even in a good month, the Ramirezes and Martinezes together don't earn much more than a combined $6,500, and their official monthly payments were around $5,200.

Karl Skow, president of the Greater Monterey Bay Area Chapter of the California Association of Mortgage Brokers, said that as a rule of thumb, people shouldn't pay more than one-third of their income for their housing. In California, where homes are more expensive, that's a little unrealistic, Skow said, but he said most lenders still draw the line at 50 percent.

With their combined incomes, the Ramirezes and the Martinezes estimated that they could afford monthly payments of $3,000 - around 50 percent of their income. However, the Ramirezes said Rancho Grande real estate agent Maria Avila promised they could refinance their home in three to six months to an affordable rate; until then, Rosa Ramirez said, Avila said she would pay for whatever they couldn't afford.

Avila did supplement the mortgage payments on the Hollister home, paying about $2,200 per month for nine months.

But the refinance never happened, and Martinez said Avila stopped helping with the payments at the end of 2006. A notice of default has been filed on the home, but no foreclosure date has been set, and the Ramirezes and the Martinezes are hoping they can sell the house before they lose it in a repossession.

I'm trying very, very hard to imagine how a subprime mortgage lender that wasn't completely out of his mind approved this loan.

And what was the real estate agent thinking, agreeing to subsidize the loan payments for that long? That's $19,800 that she kicked in--almost half of the entire 6.5% typical commission on the sale of a $720,000 house.

I'm not thrilled that the buyers did something this stupid--but I am having a hard time seeing them as eyes open, fully aware consumers. Even a fair number of college graduates don't fully understand mortgages, interest rates, and the like. And this guy picks strawberries for a living, and needs an interpreter to talk to a reporter.

This Rafael Cebrero, who thought that he was doing someone a favor by helping them in over their head on a mortgage, of course, phrases it in terms of helping Latinos get their first house. And helping them get their first really, really bad item on their credit report: a foreclosure.