From home ownership to foreclosure: Latinos hit hard by mortgage crisis
Dan Simmons/Wisconsin State Journal
22 May 2011
At the end of May 2007, Jorge Sanchez loaded his cousin's pickup truck and moved his young family from an apartment into a house in Fitchburg. The house was just three years old. Its light brown siding was accented by a bright red front door. A park sat invitingly down the street.
That was six years after Sanchez and his wife, Minerva Abrajan, natives of Puebla, Mexico, arrived in Madison. They're not citizens, but, as permanent residents who pay U.S. taxes, the UW-Madison janitors obtained a mortgage under a new loan program aimed at extending home ownership to people who previously couldn't qualify.
"We wanted a house because we had two kids already," Sanchez said. "We wanted something better for them."
The new program opened a door to home loans to non-citizens, helping usher in a sharp increase in homeownership among local Latinos in the second half of the last decade — shortly before a corresponding increase in foreclosure filings against the same group a few years later.
The loans, first offered through a Wisconsin Housing and Economic Authority (WHEDA) pilot program and later by an array of private lenders, allowed people with individual taxpayer identification numbers, or ITINs, to apply for home loans. But ITIN loans suffered from bad timing and, in some cases, left the intended beneficiaries more downtrodden financially than before they got the loans.
In 2004, when ITIN loans started being issued by a local lender, foreclosures were filed against eight Latinos in Dane County, based on a review of court documents identifying Latinos by what the federal Census Bureau defines as commonly occuring last names. In 2009, that number ballooned to 125 — Jorge Sanchez among them —an increase of 1,462 percent. Total foreclosure filings skyrocketed as well but at an increase of 302 percent.
'A civil rights issue'
Previously, homeownership was a nearly impossible dream for people like Sanchez and Abrajan, who are 31 years old. Lenders typically required a Social Security number and credit history.
Things changed in 2004, when WHEDA, a public corporation created by the Legislature, began a pilot program issuing loans to people with ITINs, which were created in 1997 by the Internal Revenue Service for foreign citizens who needed to pay taxes in the U.S. but couldn't get Social Security numbers.
Sen. Glenn Grothman, R-West Bend, unsuccessfully sought to ban the loans. The Wisconsin Bankers Association supported them. The Madison City Council also stamped its approval, granting homeowners with ITIN loans eligibility for down-payment and housing rehab assistance from the city in May 2005. The city issued six of the assistance loans totaling $25,500 in subsequent years.
"In a very real sense, this is a civil rights issue," said then-Ald. Austin King at the meeting when the council granted approval.
By 2008, immigrants had borrowed between $1 billion and $2 billion nationally in ITIN mortgages, according to estimates by two national Latino real estate trade groups.
'Foreclosure generation'
Court records don't reflect a borrower's citizenship status, making it impossible to know exactly how many of the foreclosure filings were against ITIN borrowers. But Ellen Bernards, a foreclosure prevention counselor for Greenpath Debt Solutions and co-chair of the Dane County Foreclosure Prevention Task Force, said at least three-quarters of her Latino clients facing foreclosure had taken out ITIN loans and that many, like Sanchez, were issued subprime mortgages with adjustable rates by private lenders.
She stressed that many of the ITIN loans failed for the same reasons other mortgage loans failed: the recession, which was especially cruel to Latinos. And they suffered from bad timing — a large group of Latinos for the first time became eligible for home loans just when the subprime loan crisis hit its peak.
"It was a nuts lending time across the board," Bernards said.
The confluence of factors created what one national study called "the foreclosure generation" among Latinos, who tend to be younger and have more children than other ethnic groups, according to Census figures. About 1.3 million Latino families will lose their homes by 2012, according to the study by the National Council of La Raza and the University of North Carolina.
Different lenders, different outcomes
Records show that the ITIN loans played out in wildly different ways locally depending on the lender.
WHEDA issued 54 ITIN loans in Dane County totaling $7.8 million, according to agency lawyer John Walsh. Just three have resulted in foreclosures, he said. The government program set the same tight eligibility requirements as it does for other lending programs and granted conventional, instead of subprime, mortgages.
Park Bank was a major source of the ITIN loans locally but fell victim to a widespread fraud operation that resulted in recent convictions or guilty pleas in federal court against five conspirators who cooked up more than 50 fraudulent ITIN loans worth more than $8 million in 2006 and 2007. The bank is listed in 16 foreclosure filings against Latinos since 2004, according to court records.
M&I Bank, another major local ITIN lender, filed for foreclosure against 54 Latino homeowners from 2006 to 2010, county records show. Among them was Jorge Sanchez.
Falling behind
Sanchez and Abrajan scouted about a dozen homes and decided on the one in Fitchburg, moving in late May 2007. They emptied their $5,000 savings for a down payment and signed a 30-year adjustable-rate mortgage for the $165,000 house. Their interest rate would remain at 6.75 percent for the first five years, then adjust annually with a maximum of 12.75 percent, under the terms offered by M&I loan officer Enrique Gandara.
About two years in, well before the payments ballooned, Abrajan got pregnant with the couple's third child and, under doctor's orders, was assigned bed rest for most of the pregnancy because she had a gallstone.
Together, the couple made a little more than $3,000 a month. Now, they were bringing in just $1,500, barely enough to cover the $1,300 mortgage payment. After two months and under severe financial strain, Sanchez stopped making payments. Letters started arriving from the bank announcing their deliquency. Sanchez called Gandara to work out a different payment plan.
They spoke in Spanish, he said, but he wasn't able to work it out. Bernards pointed out that, in this situation, there was little the bank could have done — like plenty of other homeowners during the era, the family was in over its head financially.
Gandara, who left his job with M&I in 2009 to become an international consultant for the state department of Agriculture, Trade & Consumer Protection, declined comment, citing a confidentiality agreement he signed with the bank. He called the issue "delicate" and pointed questions to current bank officials, who didn't return calls.
Bernards said that she's been frustrated by the process.
"The troubling part of these loans, I think, comes in when they're behind on the mortgage," she said. "That for me is where there's a real problem for this community especially," noting that beyond the language and cultural barriers, many Latinos aren't aware they should look for help beyond the bank.
Packing up
Soon a letter came to the house in Fitchburg announcing the bank had started foreclosure proceedings.
In August 2009 — two years and two months after moving in —Sanchez packed up the same cousin's pickup truck and moved his family to its new home: a two-bedroom trailer off the Beltline at Madison Mobile Home Park, which in the last decade has become predominantly Latino.
Sanchez said that even if his wife hadn't had to quit work for six months the family likely would have lost the house after five years, when the payments could have ballooned. He said he often felt confused by the process and acknowledged he should have done more to understand the loan before he signed.
Much has changed for the family, and the more than $30,000 they spent on the house is gone. But their perspective has not.
"We lost our house but we kept our jobs," Sanchez said. "We never thought of leaving Madison."