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Study of California Mortgage Defaults Finds Most Not Caused by Over-Borrowing

August 23, 2010

As Riverside loan modification attorneys, we were pleased to see reports of a recent study that shatters some of the myths about foreclosures in California. As the Ventura County Star reported Aug. 17, the nonprofit Center for Responsible Lending put out a study showing that most foreclosed Californians were not people who bought more house than they could afford. Rather, the study said, the average value of the home when the loan was made was just under $400,000, and the average square footage was a modest 1,494. More commonly, the study said, people who were foreclosed on were more likely to have gotten high-interest loans, often subprime or Alt-A loans. Those people were disproportionately minorities, the study noted, which led to a disproportionately high rate of foreclosures among Latino and African-American borrowers.

The study is based on foreclosures of 877,173 homes in California between September of 2006 and November of 2009. In addition to the data on original price and size, the study noted that three-quarters were priced below median home values in their areas, and that 50.3 percent of foreclosures stemmed from refinancing rather than original loans. It also included a great deal of data about how subprime and expensive loans related to race. In 2006, it said, 53.7 percent of African-Americans and 46.5 percent of Hispanic borrowers received high-rate mortgages, while only 17.7 percent of non-Latino white borrowers did. This was true across all sizes of mortgage, it said, suggesting that income and size of home were not factors. As a result, the study said, 48.7 percent of the people foreclosed on were Latinos, even though they are 36.6 percent of the state's population and received 29.9 percent of loans. Figures were not given for other racial groups. Foreclosures were concentrated inland, in the San Joaquin and Sacramento valleys and the Inland Empire.

Our Rancho Cucamonga loan modification lawyers have known part of these conclusions for months. Several studies, including the Federal Reserve Board study cited in the article, have shown that subprime loans are more likely to lead to defaults, even after looking at factors like housing price changes and credit score. At least one other study, and several lawsuits, suggests in turn that subprime loans were far more likely to be offered to minorities during the "housing boom"; at least one "reverse redlining" lawsuit has been file alleging that a bank specifically targeted African Americans for such loans. This data does not prove that lenders made decisions purely on racial grounds -- we would prefer to see data on the borrowers' incomes and credit -- but it provides strong evidence suggesting it. If it's true, it is not just shameful, but also illegal.

At Howard Law PC, we have represented homeowners since early in the mortgage crisis. Our clients come from all parts of California and all backgrounds, but they all tend to be fed up with the way they were treated by their lenders. Very often, clients come to us after months of direct negotiations with lenders that got them nowhere. We can frequently do better, which we believe is partly because we are Placentia loan modification attorneys. When we call, lenders and loan servicers listen because they understand that we can and will sue them if we discover that they have broken the law. In fact, we prefer to negotiate loan modifications without going to court -- but if necessary, we absolutely will sue to stop an unfair foreclosure or cancel a predatory loan. We want all of our clients to leave with lower, sustainable monthly payments.

Howard Law offers free, confidential consultations, so you risk nothing by speaking to us about your rights and your case. To learn more, call us today at 1-800-872-5925 or send us a message online.