Thursday, December 18, 2008

Paterson, New Jersey: 1 in 10 homes are in foreclosure

Paterson, New Jersey is one of the most diverse cities in the nation. Population of Paterson is approximately 50% Latino, 32% African-American and 27% from other races including middle eastern, pacific islander, etc. as well as white, a startlingly diverse city and a total population of 150,000. Shockingly, Paterson is third in the state behind Jersey City and Newark, New Jersey.

In this city of immigrants and African-Americans one in ten homes lay in foreclosure. Habitat for Humanity has built a thousand homes and the Mayor Jose Torres says a great many of these homes are now in foreclosure. The Mayor says at fault is unscrupulous lending practices and the push of the "American Dream" to buy a home. Not everyone can buy a home, says Mayor Torres. But, the problem is if a lender is telling you - that you can buy a home are most people going to disagree?

So, the great majority of homes in foreclosure are from the sub-prime mess where these homeowners could not afford to buy and the lenders (to make huge amounts of money) preyed on these folks, having them put down 5% or less and gave "balloon" mortgages in which at the end of 5 to 7 years, the loan is required to be paid in full. But, the lender tells the buyer: "don't worry about that - you can refinance." And now we have virtually no refinancing at all and so to pay the loan in full is virtually impossible. What happens? Foreclosure.

A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages. Because subprime borrowers present a higher risk for lenders, subprime mortgages charge interest rates above the prime lending rate. But, lenders became more liberal in granting these mortgages because of low interest rates and enormous profits to be made because of the high risk of the loan. It is unfair to blame the crisis on people with poor credit history because all of us are experiencing this devastating economic crisis. The subprime loan is so unfair that a late bill can send your interest rate up.

The issue becomes should we be punishing these homeowners for not being able to afford a loan in an economic crisis not seen since the Great Depression. So, instead of bailing first time home owners, or young people struggling, or young Dominican, Indian, Costa Rican, Black or Arab Americans we bail-out the banks who preyed upon this community and countless other vulnerable communities. Now, I know to a certain extent this had to happen, but should we not be keeping these families in their homes? With an unemployment rate of nearly double the national average (10%) this crisis is only going to get worse. Governor Corzine has sent some money to Paterson, but will it be nearly enough?
Hear Mayor Torres discuss the crisis, and try and put a bit of a spin on it, but the outlook is very bleak.

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