Over the last two years we have been amazed by our immigration law clients purchases of homes. Families of four with a combined income of under $25,000 were buying homes in areas such as Palmdale, Bakersfield, Huntington Park, Bell and other ethnically diverse neighborhoods throughout the Los Angeles area.
Three weeks ago a client who reports about $12.000 a year selling vegetables and fruit from a truck bought a $300,000 plus home in Maywood. Home ownership is at a historically high level in this country. No down payment, stated income, interest only loans were the rage fueling housing prices higher and higher by allowing hundreds of thousands of buyers into the real estate market.
Housing prices went up because the lenders had created thousands of customers who drove up the prices of the existing homes. Companies like New Century Financial, whose stocks thirty days ago were trading in the $30 dollar price range, are today selling less than $2. Fremont Financial is down 60% as are most other'subprime" lenders. As interest went up the monthly mortgage payment increased. Since the homeowners should have never been approved for these loans, as soon as the payments increased these folks could not make the payments resulting in the highest foreclosure rates in the last four years.
The 'subprime" market as a whole is estimated to be about 40%. I would guess that in the Hispanic community that figure would be closer to 90%. With 'subprime" loans now a thing of the past what is going to occur to housing prices in heavily Hispanic neighborhoods?
When you remove 90% of the buyers and on top of that add the 1.5 million homes that are in danger of foreclosing plus the existing older homes and the new homes coming on the market you can see that what is happening now on Wall Street. What is a storm now will become an apocalyptic armageddon in the Hispanic real estate market.
I worked for Merrill Lynch and Prudential Bache for a total of thirteen years as a stock and commodity broker. We had a fiduciary responsibility to our clients. You could lose your job and your license by sticking little old ladies and their retirement money into Pork Bellies. Doesn't that same responsibility exist in the real estate market?
Doesn't an agent have to explain that if you fail to pay your mortgage your house will be repossessd, sold at auction and that you could owe the difference between the mortgage that you signed and the price that the house is auctioned off for?
Doesn't a real estate salesman have the duty to tell a client that he is headed into an abyss? I am asking, because I do not know.
With 'subprime" loans a thing of the past, with subprime lenders facing bankruptcy and criminal investigations ongoing, what is going to happen to the hundreds of thousand of Hispanics that bought into the "no down payment own your own home" dream?
Unless Bernake and the Fed react promptly with an interest rate cut you are going to see in six months from now people on the Channel 34 news crying about how they lost their homes and real estate brokers in the back of Police cars.
On Wall Street the storm will within 30 days die down. On Soto St. you will see the first signs of disaster in about 3 to 6 months when all of those buyers (who should have never been buyers) dry up.
Pablo and Jose can't refinance their way out of foreclosure because they are actually going to be asked to produce tax returns. The collapse of the 'subprime" lenders is a dreadful matter on Wall Street. On Soto St., it is economic armageddon.
Alberto Marrero Salas:
Alberto Marrero Salas Cuban by birth American by choice. Partner Nacara 2000 Immigration Law offices.