Home Ownership Dream Can Turn Into Nightmare

Real Estate Profiteers Put Consumers at Risk

To most people, the American dream includes owning a house. Next best is ownership of a condo or co-op. The advantages of home ownership are well known: tax breaks, equity accumulation, privacy, extra space, no rent increases.

Faith McIver, a unit clerk at Brooklyn’s Interfaith Medical Center, at the home she purchased with assistance from the 1199SEIU Home Mortgage Program.
PHOTO: Rick Reinhard

Subprime loans originally were intended for people with adequate income but who did not qualify for traditional loans because of their low credit scores. But unscrupulous brokers and lenders, encouraged by Wall Street investors, drastically lowered loan standards.

Anything from a missed car payment to a delinquent cell phone accounts or faulty information from credit bureaus can put a borrower in the subprime market. The loans carry higher fees because they carry a greater risk of failure.

Eighty percent of the nation’s subprime loans come with a low, two-year introductory rate, then may adjust 30 percent to 40 percent higher.

Many of these loans come with expensive prepayment penalties - meaning the homeowner must pay thousands of dollars if forced to refinance.

The subprime mortgage market surged to $600 billion in 2006 from $120 billion in 2001. Subprime mortgages increased from 5.4 percent of the total market in 2001 to 20.1 percent in 2006. Half of all African American homes and 40 percent of Latino homes have been financed with subprime loans. And about 80 percent of subprime loans include prepayment penalties if the borrower pays off the loan early.

A study released in March by NY Senator Charles E. Schumer found that over the next two years, the soaring rate of foreclosures means that more than 50,000 families in upstate New York—the greatest number in the Hudson Valley—are at risk of losing their homes.

The Center for Responsible Lending (CLR) estimates 17 percent of Massachusetts homebuyers who received bad credit home loans in the past two years will ultimately lose their properties. CRL is a not-for-profit, non-partisan research and policy organization.

“Wall Street became ravenous for these loans, seeking mortgages that provide a high yield,” reported CLR president Michael Calhoun at a May 8 Congressional hearing in Washington. “This demand from Wall Street encouraged subprime lenders to abandon reasonable qualifying standards, to forget about standard documentation requirements, and to ignore whether borrowers could actually afford the loan.

“Families that get mortgages are seeking long-term security, but Wall Street has been seeking fast profits.”

Fortunately, 1199SEIU members can avoid the predatory traps by beginning their home search with our National Benefit and Pension Fund’s Home Mortgage Program. The department offers free monthly seminars and individual counseling for members who are planning to buy a home. It assists in helping with credit repair and finding low interest mortgages, home inspections, home insurance, refinancing, and more. Eligible members may borrow from their pensions for closing costs.

“Our Mortgage Department took a lot of worry out of the process for me,” says Faith McIver, a unit clerk at Brooklyn’s Interfaith Hospital.

McIver purchased a home in Elkton, Maryland.

“I had attempted to get a mortgage before, but had problems,” McIver says. “Then I went to the 1199SEIU Mortgage Department, and I got the help I needed.”