Safeguards Sought for Inner City Borrowers

With higher mortgage payments scheduled to kick in soon, Armando Ugalde worries that he won’t be able to hold on to his South Los Angeles house.

The 40-year-old airport service worker has tried to refinance a high-interest loan, but lenders shy away, noting he would have to add several thousand dollars in debt to cover a large prepayment penalty.

“It’s very difficult to make the payments,” he told a conference Saturday on predatory lending practices in low-income neighborhoods.

The event, held at a South-Central community center, organized by the community group ACORN, drew about 200 residents, as well as federal and state lawmakers, who promised a grass-roots drive for stricter regulation of so-called hard-money home lenders.

Organizers say companies are pushing high-interest, high-fee refinancing and purchase loans to the poor and immigrants who can’t repay, causing a wave of hardships and foreclosures. In January, ACORN officials said, there were more than 10 times as many foreclosures in Central and South Los Angeles than in a swath of upscale Westside and San Fernando Valley neighborhoods.

Moreover, recent federal and private studies have found that 20% to 30% of those who agree to so-called subprime mortgages could have qualified for lower interest loans that banks offer to their best customers.

Rep. Maxine Waters (D-Los Angeles) said the reluctance of large banks and mortgage companies to lend in the inner city makes residents of her South Los Angeles district “prime targets for the sleazy institutions . . . the people waiting to pounce.”

Saturday’s event was called to rally support for new state legislation that would require government-approved counselors to review certain hard-money mortgages with borrowers before deals are completed. The bill, by state Sen. Hilda Solis (D-La Puente), would also eliminate the sorts of prepayment penalties that Ugalde faces.

Assembly Speaker Antonio Villaraigosa and Assemblyman Roderick Wright, both Los Angeles Democrats, pledged their support.

But similar legislation has failed repeatedly in recent years in the face of strong opposition from the subprime lending lobby. Such mortgage brokers argue that “they are the lenders of last resort for people really in need of these loans,” said Dan Garrett, a spokesman for the state Department of Real Estate.

Although there are gross inequities in lending rates, enforcement actions are difficult, he said, because investigators must prove fraud and misrepresentation.

“A lot of people get in over their heads by signing perfectly legal documents,” Garrett said.

Assemblyman Wright said some low-income borrowers have lobbied against any government restrictions on their ability to borrow. He spoke of a woman who testified that she had to go to a hard-money mortgage lender to finance a medical procedure for her grandson.

“It was the only way she could do it,” he said.