LatinaLista — For sometime now, popular opinion has automatically blamed the downfall of the housing industry, a.k.a. home foreclosures, on subprime mortgages. It was thought that people, who were high-credit risks, were awarded these mortgages so they could fulfill their American Dream of owning a home, only to later default on their loans. Little was ever talked about how these same people were preyed upon by unscrupulous lenders who cared less if these people could afford their mortgages or not.
Unfortunately, that same public opinion equated high-risk mortgagers as Latinos and other minorities. Yet, a study from the State Foreclosure Prevention Working Group found that more home loans are falling into foreclosure, not from bad credit loans, but from conventional loans.
These are people who had good credit histories, paid their bills and either lost their jobs or experienced a pay cut or suffered a catastrophic illness that put their finances and home at risk.
To make matters worse, when trying to get help from banks and other lenders, the help was never significant enough to really help the family.
According to the working group’s study, only four in 10 delinquent borrowers are working with loss-mitigation programs. Not enough mortgage lenders are reducing the principal balance of mortgage loans, whether prime loans or bad credit loans, either.
According to the study, only 9 percent of mortgage loan modifications in October of 2009 involved a reduction in principal balance by more than 10 percent. This is unfortunate, as other studies have shown that reducing this balance more often results in homeowners not falling into foreclosure.
As a result of this unwillingness by the mortgage industry, a new report released today by the National Council of La Raza reveals that approximately 1.3 million Latino homeowners are expected to lose their home to foreclosure between 2009 and 2012.
The repercussions of these home foreclosures are devastating to these families’ long-term financial, emotional and physical well-being — with the need to act before it gets even worse.
The Foreclosure Generation: The Long-Term Impact of the Housing Crisis on Latino Children and Families found that when a family loses their home a host of emotions and insecurities set in for not only the parents, but the children as well.
The study found five major findings:
Following the foreclosure, signs of depression, increased anxiety and tension, and feelings of guilt and resentment were commonplace. Parents reported troubling changes in their relationships with their children and the children’s relationships with each other. Several parents stated that their children blamed them for the foreclosure.
Children’s academic performance declined while problematic behavior at school increased. Several parents reported that children had to change schools as a result of the foreclosure. Parents often perceived their children as withdrawn and having trouble making new friends.
Family finances were devastated, with the families reporting an average loss of $89,155 due to the foreclosure, leaving them without a safety net to cope with financial emergencies. None of the families reported receiving significant help from their lender to avoid foreclosure.
Families were forced to change their long-term financial plans, including plans to help their children with major life expenses such as education, a car, or a home.
All but one family were left without reserves they could tap into in case of a financial emergency and many skimped on needed medical care to save money. Fifteen of the 25 families interviewed reported turning to unemployment insurance, food assistance programs, and other programs to help make ends meet.
Grant it, none of these findings is unique to Latinos. All families who undergo a traumatic event as losing a home experience the same roller coaster of emotions and family exchanges of leveling blame.
What makes it so much harder for Latinos is that given that Latinos have experienced more severe wide-spread job losses because of the industries most work in, their ability to get back on their financial feet may take longer and prove harder to achieve.
The report’s authors had several recommendations that could ease this traumatic situation and help the lending industry create an environment of helping rather than persecuting families. Among the recommendations are:
Connect families to sound financial advice to aid their financial planning and recovery.
Establish a refundable tax credit to subsidize the cost of visiting a private, certified financial planner.
Prevent future steering of vulnerable homebuyers into unsustainable mortgages by deceptive lenders.
Inform the public of the multigenerational impact of foreclosure on families through coordinated public campaigns.
However, the most important recommendation from the report’s authors is:
Provide a means for families who experienced a foreclosure to enter into homeownership again.
The old adage that “Bad things happen to good people” needs to be taken to heart and understood that when circumstances go beyond the normal control of a person — like a recession that teeters on an economic depression, a 9 percent unemployment rate and plunging home prices — a person shouldn’t be punished for the rest of their lives, and certainly not by the industry that compounded their situation by refusing to work with them in a meaningful way.