Also this issue: Like Night And Day -Howard Altman Letters to the Editor

June 26-July 2, 2003

slant

Lend Help

Subprime loans strangle communities.

by Maria Polanco

Some American banks and lenders still make their money by helping families get into homes. Others profit from loans that regularly force families out of their homes. In recent years, those lenders have been aggressively pushing large numbers of homeowners in our neighborhoods into high-cost refinance loans that strip equity and often end in foreclosure. While elected officials have begun to recognize the damage caused by predatory home loans, most of the worst abuses remain completely legal, and some of the biggest mortgage lenders continue to make predatory loans in Philadelphia and across the country.

Just ask Jessie and William Navarro, who have lived in their home in Phoenix for 30 years. William works for the local Catholic diocese and Jessie recently retired. A few years ago, they refinanced their mortgage with Norwest Financial in order to make a few improvements, like adding a patio.

But the loan, a high-cost or "subprime" loan, included an outrageously high interest rate and huge fees that cost them more than $7,000 of their home equity.

When Wells Fargo, a well-known bank and the country's biggest mortgage lender, bought Norwest, you might expect things would have improved for the Navarros. Instead, they got worse.

Wells Fargo Financial, a high-cost lending affiliate of Wells Fargo, repeatedly phoned the Navarros urging them to consolidate a few other debts into their home loan, which they did in July 2001. The $65,000 Wells Fargo loan took away almost $10,000 of their home equity between lender fees (they charged 10 percent of the loan amount, when banks charge around 1 percent) and an abusive credit insurance policy. The Wells Fargo loan has an interest rate of 13.6 percent -- at a time when prime loan rates were about 7 percent. The loan pushed their payments up to $915, forcing cutbacks on other living expenses; by comparison, a 7-percent interest rate would result in monthly payments of $668, saving them almost $250 every month.

Sadly, the Navarros' situation is not unique; we see Wells Fargo borrowers just like them in ACORN's (Association of Community Organizations for Reform Now) community organizing efforts all around the country: homeowners who were solicited to refinance at a particularly vulnerable time, some people who wanted to pay off credit cards and got hoodwinked while adding those debts into their mortgage and others who mistakenly believed that a loan officer had their best interests at heart.

These high-cost loans are inflicting tremendous damage in our neighborhoods, often trapping homeowners in excessive interest rates and high payments they cannot afford. Rather than helping families build wealth like fairly priced home loans, predatory loans drain that wealth away.

Making it worse, lenders like Wells Fargo know how to make good, reasonably priced mortgages. Wells Fargo has lending divisions where a person with good credit can get a home loan at 5.5 percent interest with almost no fees. But they also run subprime units like Wells Fargo Financial, where the loans contain much higher costs, often bearing little relation to real credit risk.

For borrowers, the difference between a prime and subprime loan is enormous: a subprime loan can easily cost $200,000 in extra payments over 30 years. Industry sources estimate that up to half of the millions of homeowners in subprime loans have good enough credit to qualify for prime loans, which would likely reduce each of their mortgage payments by hundreds of dollars.

Increasingly, the growth in subprime lending is looking less like good business than like a feeding frenzy. Subprime loans are concentrated in low- and moderate-income neighborhoods. The concentration is greatest among lower-income minorities. Subprime lenders account for 41.7 percent of the refinance loans made to low-income African-American homeowners, 18 percent of those made to low-income Latino homeowners and 11.8 percent of those made to low-income white homeowners. In contrast, subprime lenders make just 4.8 percent of the refinance loans to upper-income white homeowners.

In response, homeowners with high-cost loans from Wells Fargo and other lenders are fighting back all around the country. Many are getting help to refinance into more reasonable interest rates, saving hundreds of dollars each month. Others are calling on Wells Fargo to reform how they do business and correct problems with loans they have already made. Only when homeowners who've been hurt step forward and join together will we ever stop these loan sharks from preying on our neighborhoods.

If you think you might have received a predatory loan, or to get involved in the fight against predatory lending, please contact the Philadelphia ACORN office at 215-765-0042.

Maria Polanco is national vice president of ACORN. If you would like to respond to this Slant or have one of your own (800 words), contact Howard Altman, City Paper editor in chief, 123 Chestnut St., third floor, Phila., PA 19106 or e-mail altman@citypaper.net.