Real Estate

Riskiest mortgage common in valley

Nearly half of Stanislaus and San Joaquin counties' home buyers committed themselves to high-cost subprime loans last year, significantly increasing their foreclosure risk, a mortgage study shows.

More than 46 percent of the region's buyers agreed to high-cost loans, although many of them may not realize it because they didn't understand the fine print in their contracts, according to the Association of Community Organizations for Reform Now.

Nationwide, 27.5 percent of home buyers received high-cost loans, but Northern San Joaquin Valley buyers were far more likely to get them, the homeowner advocacy group reported this week.

Lenders make subprime loans to borrowers with poor credit histories and charge more because of the higher risk.

"The fallout from this is going to be devastating for your community," said John Cranshaw, who is on the California executive board of directors for ACORN.

Cranshaw predicted that Stanislaus and San Joaquin counties will see "massive" increases in foreclosures because many of those high-cost loans have adjustable mortgage rates and large prepayment penalties.

ACORN examined data for home loans issued in the United States' 172 largest metropolitan areas, which did not include Merced or Tuolumne counties. It obtained the data through the Home Mortgage Disclosure Act.

For its Foreclosure Exposure report, ACORN defined high-cost subprime loans as those with annual interest rates at least 3 percent above comparable U.S. Treasury securities rates.

Cranshaw said many home buyers may not realize they agreed to such high-cost loans because they received "teaser rate" deals that lowered monthly payments during the first couple of years of their adjustable-rate mortgages. But such loans eventually adjust, which could cause monthly payments to soar.

"It's going to adjust them right out of their houses," warned Cranshaw. "We're in big trouble. People are being forced into poverty because of these payments."

What's worse, Cranshaw said, is many high-cost mortgages have prepayment penalties written into the contracts, which could cost homeowners as much as $10,000 to get out of the deal early. That might make re- financing financially impos- sible.

"When the rate readjusts, lenders have no mercy. They're predatory wolves," Cranshaw said.

Cranshaw suggested recent home buyers pull out their mortgage documents and start reading the fine print.

"You've got to see what you signed and see what you've gotten yourself into," Cranshaw said. "Sometimes, it's two or three years before a home buyer realizes they're in a bad loan."

Figuring that out isn't always easy, Cranshaw said, because mortgages have gotten very complicated and the documents are hard to understand. He said too many borrowers trusted their mortgage brokers or real estate agents to arrange financing without understanding the long-term commitments they were making.

Those brokers and agents too often didn't act in the best interest of home buyers, said Lydia Lopez, office director for ACORN in Fresno.

"There are agents and brokers out there who paint a pretty picture about buying your dream home," Lopez said. "Then once you sign the documents and they've been paid, you'll never hear from them again."

Lopez and her office is authorized by the U.S. Department of Housing and Urban Development to provide counseling to potential home buyers. She said many buyers who were given subprime loans couldn't afford them.

Latino and black home buyers, particularly, were persuaded to take out high-cost loans in 2006, according to ACORN's analysis.

About 59 percent of Latino home buyers received high-cost loans last year in Stanislaus and San Joaquin counties. So did about 67 percent of black buyers.

Among white buyers, about 34 percent in Stanislaus County and 31 percent in San Joaquin County received high-cost loans.

Lopez said Latino buyers particularly have been targets of predatory lending.

"Unfortunately with the His- panic community, they tend to trust their own kind," said Lopez, noting that they get taken advantage of by unscrupulous business people. "We see it all the time."

Bee staff writer J.N. Sbranti can be reached at or 578-2196.

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