Foreclosure's shadow falls across diverse set of US homeowners

At the housing boom's peak in 2005, 20 percent of new mortgage loans were subprime, four times the share a decade earlier.

from the April 9, 2007 edition

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As with many borrowers at risk, several changes combined to bring Castro to this point. Things were going well enough for several years. Between his paycheck, his sister-in-law's, and rent from the tenants, he was covering mortgage payments on the loan that had financed 80 percent of his original purchase, as well as on the loan that had financed the other 20 percent of the home's cost.

But in recent months the rental income grew less reliable. The city's water bills multiplied. One of Castro's loans adjusted upward, which pushed his total payments to above $2,600 a month. Then came the biggest blow of all: His job was phased out. Now he's working a full week, but for a temp agency that pays much less.

All this comes at a time when the housing market in Lawrence is reeling. The number of foreclosures in progress doubled in 2006, with 425 as of December.

That's weighing on home values in a city where only about twice that many homes sell in a good year, says Mayte Rivera, a Northeastern University doctoral candidate who is researching Lawrence's foreclosure problem.

Lawrence is in some ways typical of the excesses of the nation's subprime boom.

The expansion of higher-risk credit was fueled by a confluence of factors: rising home values, rising buyer aspirations, and an influx of eager lenders.

The borrowers nationwide tended to be immigrants or African-Americans. Subprime loans accounted for some 40 percent of all mortgages for Hispanic borrowers, and 52 percent of mortgages for blacks, in 2005. Meanwhile, 19 percent of white borrowers took a subprime loan that year, according to research by the Center for Responsible Lending in Durham, N.C.

In a ranking of cities with the highest share of subprime loans that are past due, or in foreclosure, cities with a high share of minority residents top the list. But the list is also dominated by places where the economy has been weak, among them Cleveland, Detroit, and South Bend, Ind.

The subprime problems are growing fastest in a state where residents are stretched the hardest in their quest for homeownership: California.

"The negative impact of foreclosures falls disproportionately on communities of color," the Center for Responsible Lending concludes in a recent analysis. Yet, the report adds, "in absolute terms, white homeowners received three times as many higher-cost mortgages and therefore will experience a significant number of foreclosures as well."

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