The terms of the loans may have been unusual. But for many of the immigrants who signed up for them, they were simply a way to afford the $300,000 and $400,000 new homes along streets with names like Rancho Encantado and a litany of saints.
"They had relatives that had bought houses. They went to the barbecue and they were seeing people enjoying this environment and people they trusted were doing it," says Aly Vizcarra, area head of the National Association of Hispanic Real Estate Professionals. "So they jumped in and got these exotic loans, and the thought process was: 'These values are going to keep going up. Once our payments change, we can sell it or refinance it.' "
Nor was that risk well understood across barriers of language and culture. For example, the propensity of Latinos to cosign on loans for relatives and even friends now snares some who would otherwise be on solid footing, says Eduardo Morales, a loan counselor with El Concilio, a nonprofit Spanish-speakers community center in Modesto.
Now, many here wonder if fraud is one of the roots of the housing bust here.
While the exotic mortgages – known as subprime loans – did offer many immigrants and low-wage earners a ladder up into the middle class, loan counselors in Modesto estimate that anywhere from 40 to 60 percent of people they help are victims of loan fraud.
Modesto is now aggressively cracking down on the problem. The local district attorney received 56 complaints last year; by June of this year, the number already stood at 42.
Nationally, mortgage fraud is one of the fastest growing white-collar crimes in the United States, the Federal Bureau of Investigation says. The number of pending FBI mortgage-fraud cases has nearly tripled since fiscal year 2003. The number of reports it received of suspicious activity related to mortgage fraud is up nearly sevenfold in the same period, totaling some $813 million.
"It's affecting every single class of homes: affordable homes, middle-price homes, upper-end homes, condos," says Ralph Roberts, a realtor and coauthor of "Protect Yourself from Real Estate and Mortgage Fraud." He estimates that in some markets, 40 to 50 percent of all transactions contain some element of fraud – a major driver, he believes, for the current housing bust.
Here in Modesto, the fraud runs the gamut of bogus appraisals, phony loan applications, forged titles, and foreclosure "consultants" taking advantage of desperate people, says Deputy District Attorney Marlisa Ferreira. "Sometimes, we are seeing with the Hispanic community that the salient points [in loan documents] aren't being translated."
The result is abandoned homes, leaving Modesto and other cities in the Central Valley boarding up homes and drafting other defensive measures against blight.
For all of Stanislaus County, the strain on government services has started to show. Housing counseling agencies were already short-staffed before the foreclosure wave, says Ana Rocha, an official in the county planning office. Code enforcement officers, fire departments, and the sheriff's office have gotten involved, particularly with blight issues. The district attorney's office now has three people assigned to loan-fraud cases.
"What we often see with mortgage fraud is that it's not an isolated incident," says Laurie Maggiano, a senior official with the Federal Housing Administration in Washington, Often, con men will target an entire group in a community, she adds. Generally speaking, people with limited experience in the home-buying process are the most easily victimized.