Hispanics feel subprime home lending pain
Wed Mar 14, 2007 4:28PM EDT

By Patrick Rucker - Analysis

WASHINGTON (Reuters) - Only a few weeks ago, a borrower in Southern California could qualify for 100 percent financing for a house, with no proof of income or assets.

Now, the lending spigot is dry.

"Everybody is running scared, " said Yamila Ayad, a San Diego mortgage broker who specializes in serving Hispanic clients.

"I have been getting these flashes across my screen: This product is going away," she said. "They have retracted the products."

U.S. Hispanics may disproportionately feel the pain as the subprime mortgage sector implodes, shutting off the credit they had relied on to realize the American dream of owning a home.

Hispanics hold roughly 40 percent of mortgages in the troubled subprime mortgage market, a sector that caters to those with damaged credit or little borrowing experience, according to the Center for Responsible Lending.

As late payments and defaults have risen in recent months, many subprime borrowers now risk losing their homes.

More than two dozen subprime lenders have gone out of business in the last year in the face of rising interest rates and falling U.S. house prices in many regions.

Many subprime finance companies jumped into the mortgage business with lax underwriting standards during a five-year run up in home values that ended in 2005.

Looser credit meant home ownership became available for many Hispanics working in a cash economy and who do not have the extensive credit histories that traditional lenders require.

"These borrowers do not have bad credit but thin credit histories. They have not participated in the banking industry," said Gary Acosta, a founder of the National Association of Hispanic Real Estate Professionals.

Roughly one in four Hispanic adults do not have credit scores from rating agencies and so are immediately off-limits to many mainstream lenders, Acosta said,

Despite recent woes, subprime lenders made homeownership possible for many worthy Hispanic borrowers, he added. But as lenders abandon the sector, Hispanics are likely to lose out.

TAKING A CHANCE

Subprime lenders might have offered too much easy money at the end of the housing boom, but for years they were the only source of funding for Hispanic borrowers, said Ayad.

Those lenders deserve a large share of credit for a five percentage point increase in Hispanic home ownership in the last five years, according to both Ayad and Acosta.

The Hispanic home ownership rate has risen to 49.7 percent from 45.5 percent in seven years.

"There is no question that product innovation has, to a large degree, happened in the (subprime) segment and that has helped impact Latinos in a positive way," Acosta said.

While subprime has served a purpose, the long-term goal should be getting Hispanic borrowers into prime rate mortgages, said Janice Bowdler, a housing specialist with the National Council of La Raza, a Latino advocacy group.

Rather than rely on credit card histories to assess a borrower, lenders could accept timely rent and utility payments as proof of being a good risk, she said.

But traditional lenders have resisted that change and often turned away Hispanic borrowers because they do not fit a cookie cutter profile, she said.

"Defacto, lenders are pushing these borrowers into subprime products," she said.

While subprime delinquencies have climbed to over 13 percent, Acosta said many Hispanics would still take a chance on homeownership under those terms.

"If you tell the average Hispanic consumer you have a 90 percent chance of success -- that's pretty good compared to, probably, some of the odds they have had to overcome to get where they are today."

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