The American Dream, with a Twist

A son of Mexican immigrants, Agustin Villegas became the first person in his family to purchase a home.

Villegas, 30, had owned that west suburban Berwyn home for about four years when his aunt and uncle sought his assistance in purchasing a west suburban Franklin Park residence about two years ago.

Villegas agreed to co-sign with his uncle. But when Villegas went to fill out the paperwork, the real estate agent encouraged Villegas to sign as the sole owner, since he had a better credit history than his uncle. The real estate agent assured Villegas that in a couple of years Villegas could refinance and put the house in his uncle’s name; however, before the refinancing could happen, his aunt and uncle moved to Texas in September 2006.

Villegas thought he could manage the mortgage payments on both homes. He earned between $800 and $900 working 60- and 65-hour weeks as an inspector for a factory. His cousin and mother helped him with payments for the house in Berwyn. And Villegas rented out the Franklin Park home to two tenants.

But when all overtime hours were cut at his job and one of the tenants fell behind in her payments, Villegas did, too. Hoping to make the payments more manageable, Villegas refinanced the Franklin Park home into an “80-20” plan with 7.175 percent interest on the 80 percent portion and 10.95 percent interest on the 20 percent portion.

He borrowed money from friends, family members and his company. But Villegas couldn’t keep up the payments on both houses and maxed out all his credit cards trying to do so. May came and went, and he missed the payment on the Franklin Park home. He knew he would miss payments for June and July, as well.

“What in their mind [were] they thinking when they gave him a loan?” said Alma Rojas, a housing counselor with the Community and Economic Development Association of Cook County, known as CEDA, a private nonprofit offering various community development services, such as housing education. “They saw his income, and they know he already has a home. He’s making payments on that home; he has expenses on that home and the new property is costing this much. Come on.”

Based at CEDA Near West, the organization’s office in west suburban Cicero and serving families in Berwyn, Cicero, Oak Park, Riverside and River Forest, Rojas is helping Villegas pursue a deed in lieu of foreclosure, in which a mortgage company would reclaim control of the Franklin Park property. Villegas is not alone.

In the Chicago metro area, Latinos are the fastest-growing consumer group of subprime lenders–”companies that specialize in high-cost loans, like the 10.5-percent loan Villegas received. From 2000 to 2005, the number of Latino homeowners receiving first- or junior-lien mortgages from subprime lenders grew from 2,272 to 28,162, a 1,140 percent increase, according to a Chicago Reporter analysis of federal home mortgage data.

In addition, suburban municipalities Cicero, Aurora, Joliet and Elgin have become focal points for high-cost lending to Latinos. In 2006, those municipalities had the metro area’s highest volume of high-cost loans to Latinos outside Chicago. In Cicero, more than 48 percent of Latino homeowners got high-cost loans. In Aurora, more than 46 percent of mortgages to Latinos were high-cost loans.

Housing education advocates believe Latinos could be at higher risk for predatory lending because they’re more likely to be first-time home buyers and rely too heavily on their loan officer or real estate agent for mortgage information.

Latino clients from Mexico, for example, often are not familiar with the mortgage process because property there is typically purchased with cash, advocates said. Also, some don’t always understand that paying a mortgage differs from paying rent–”monthly costs may vary; there’s home owner’s insurance and property taxes, as well.

Advocates say troubles occur when lenders and customers do not take the time to clarify all the details involved with a mortgage.

“Everybody’s so busy. They want to sign the papers and go. But there’s a lot to do; it takes a lot of time to explain everything,” said Ann Rodriguez, director of Consumer Credit Counseling Services of Elgin, which provides community members with budgeting advice and consumer education programs. “There’s a lot of information they need to cover. I’m sure they cover most of it, but I don’t think they go into it like they should.”

Latino immigrants who’ve recently arrived often don’t have credit histories. Subprime lenders have been willing to take on the risk of accepting these clients–”something traditional banks have not always done. But the subprime lenders pass on that risk to their clients in the form of high-interest loans.

Loan officers immerse themselves in Latino communities as friends or family members, gaining trust by speaking their native language and receiving referral customers from previous clients, which helps increase the number of high-interest loans in certain areas.

While several nonprofit programs are available to offer mortgage advice, many Latinos don’t seek this assistance until they’re months behind on their payments, said Rodriguez. “If they come to us for the pre-purchase, that helps them a lot because then they know how much they can afford to pay,” she said. “The problem is they usually come after, when it’s pre-foreclosure. At that time, there’s not much we can do for them.”

Aurora is conducting a community needs assessment. During that process, city officials will give some attention to foreclosures and consider potential remedies, said Carie Anne Ergo, public information officer for the city of Aurora.

Besides government regulation of the lending companies, housing counselors have other laws in mind that could prevent Latinos from entering into unmanageable mortgages. Rodriguez of Elgin suggests that all first-time home buyers should have to take a home-purchasing class before even seeking out a realtor.

“Knowledge is power,” said Rodriguez. “If [Latino home buyers] have this knowledge, I think some of them wouldn’t buy a home; they’d wait a couple of years to get better credit and work history.”

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