Concerned at the possibility of being priced out of the American Dream, lower-income minority families are increasingly getting swept up in L.A. County's housing mania.
During the last year, sales and price appreciation in predominantly Latino and African-American communities have greatly outpaced countywide figures.
The sales activity is largely being fueled by lenders offering interest-only and no-down payment sub-prime mortgages loans made to higher-risk borrowers that carry above-market interest rates.
While market-rate loans with similar structures have fueled the overall housing market, some fear poorer families could have a harder time withstanding a sudden drop in home prices or even a slowdown in appreciation.
Lenders are convincing poorer borrowers to buy homes using low-payment adjustable-rate loans with promises that prices will continue to appreciate rapidly, said Christopher Thornberg, a senior economist with the UCLA Anderson Forecast.
If interest rates rise past 7 percent and California home appreciation rates return to their traditional range of about 4 percent annually, borrowers may find they owe more than their property is worth, Thornberg said.
"These people are being encouraged to take on debt they can't possibly afford," Thornberg said. "They are going to lose their home and what little life savings they have when this whole thing collapses and that's just ridiculous."
Last week, the Federal Reserve released data that supported research by the Greenlining Institute, a Berkley-based advocacy group for poor and minority communities. They found that blacks and Latinos are three times more likely to receive a high-cost sub-prime loan than white borrowers, with interest rates sometimes topping 15 percent.
In L.A. County last year, Latinos received 1,940 sub-prime loans more than any other racial group, according to the Greenlining study. Of the 56,263 mortgages made to Latinos and blacks last year, 4.7 percent were sub-prime 1.5 points above the county average.
Several of the areas that have seen the sharpest rise in sales activity and price appreciation are also some of L.A. County's poorest neighborhoods.
In South L.A.'s 90248 ZIP code, which is about 36 percent Latino, there was a 77.8 percent jump in the number of homes sold in August, when the area's median home price shot up to $504,000 a 26 percent premium from a year earlier, according to data from HomeData Corp.
Also in South L.A.'s 90001, 50 homes sold in August for a median price of $372,000 a 72.4 percent increase in sales volume and a 56.3 percent rise in home prices from a year ago. The district is 84.5 percent Latino, according to the 2000 Census.
And in East L.A.'s 90022, which is 96.3 percent Latino, there were 30 homes sold for a median price of $412,000 a 36.4 percent increase in transactions and a 37.3 percent leap in value from the same time last year.
Hawaiian Gardens, Lawndale and Pico Rivera all communities where Latinos are in the majority made the top 10 list of cities with the highest appreciation levels in the L.A. County Assessor's 2005 annual report.
"The preponderance of Latinos in L.A. County got into the game late," Thornberg said. "Now they're getting swept up in the mania and jumping into the market. It's sad because this is a community that can least afford it."
No money down
Lenders and real estate agents argue the availability of flexible sub-prime mortgages is giving more families the opportunity to own their own home.
That has allowed them to build equity and get on a more stable financial footing. "People who bought in these areas five years ago are refinancing or selling now," said Daniel Alvarez, a Realtor with American Team Realty Properties Inc. in South Gate. "When they cash out all their equity, they are buying a bigger home or a new home and an investment property."
In California, 47.4 percent of Latinos are homeowners the lowest among all ethnic groups. Just less than half of African Americans own a home, while 60 percent of Asians and 76 percent of whites are homeowners, according to the Joint Center for Housing Studies at Harvard University.
In many predominantly Latino communities, it has become fairly typical for a family with grown children to combine their incomes to qualify for a mortgage. Also popular, two or more families will buy a home together most often a duplex or a property with a guest house.
R. Ceci Dymally, a realtor with Paramount Properties Realty Corp. in Woodland Hills, said she is working with three families, each with between six and 10 people, who are looking to buy.
"That way there's more money for a down payment and they can make up for bad credit," she said. "To acquire the American dream, which is an honorable thing, they are working together as a family."
Like many realtors, Alvarez and Dymally said they've had a sharp increase in the number of their customers who are Latino and they said sales in Latino communities are skyrocketing.
Dymally said she routinely works with homebuyers who are putting up just enough cash to pay for closing costs that means no down payment or mortgage points.
"For as low as $3,000 you can get in a home I do that for people all day long," she said. "Even then, most times we can negotiate to split those costs with the seller."
As sales have heated up in poorer communities, there are complaints that lenders have begun to use high-pressure sales tactics to win over customers.
Some of the practices border on or cross into predatory lending when lenders pressure homeowners into high-interest loans to refinance mortgages, home equity loans or home repair loans that the borrowers may not be able to repay.
While legal, the loans have stirred community protest and calls for regulators to curb the practice.
UCLA's Thornberg said mortgage lenders are seeing their business drying up in traditional markets and with traditional borrowers. Now they are targeting those who might not know better, he said.
"It's the same thing in the last part of the Internet rush," he said. "When the markets get over-heated the sophisticated guys back out and they prey on the people who may not understand it as well."
Still, Pastor Herrera, Jr., the director of the L.A. County Department of Consumer Affairs, said predatory lending is hard to prove and most borrowers don't know that they are being victimized.
For that reason, Herrera said his department has received few complaints of unfair lending practices. His 90-year-old mother still lives in his boyhood home in the 90001 ZIP code in South L.A., and he said he has been startled by the sales activity and price appreciation in the neighborhood.
The consumer affairs department has a check list of suspicious lending practices on its Web site, and its employees will explain sales contracts or mortgage agreements to anyone who brings one in to the downtown office.
But Herrera succinctly summed up how all borrowers can protect themselves. "If it looks too good to be true," he said, "then it probably is."
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