Last week I urged readers to go see the film Inside Job, which lays out the web of deregulation, deceit and delusion that led to the subprime meltdown and crashed the U.S. economy. It's no slight against the film to say that there is a lot of ground it didn't cover.
Consider, for instance, the Henriquez family of California's Central Valley, one of 25 Latino families interviewed in detail by researchers from the University of North Carolina Center for Community Capital and the National Council of La Raza for a report examining the impact of foreclosures on families. Mrs. Henriquez described how a real estate agent steered the family into an expensive loan:
[The] real estate agencies [said] we'll come out and it was in Spanish, my language - They said, "We can help you, just go to the house, we'll let you know and soon if you qualify or not." ... We said what kind of house can I afford? and his answer was, "If you want a million dollar house, I can give [it to] you." That was his answer. Whatever you want. And I said well, my question is what can I afford? And he said, "You just let me know how much you want to pay."
But the family's trust in the real estate agent was misplaced:
And when we were doing the paperwork, you know, we realized they put that we made more money than we, than we really did... And then he didn't say that he put that till he said okay, this -- "The bank is going to call and you need to say this." So he -- the person told us what to say and then my husband was like, "No, we shouldn't do this."
But the family put their trust in what they believed were knowledgeable professionals. The combination of the dubious mortgage and the loss of one income when their youngest son was diagnosed with autism and Mrs. Henriquez had to stop working and stay home led to foreclosure and financial ruin. A once financially stable family now has nearly $60,000 in debt even after the foreclosure. The emotional toil has strained their marriage and disrupted their children's performance in school.
The Henriquez's story is not unique; it's been repeated many thousands of times in the last few years. In our work with grassroots organizations trying to assist these families, we've heard disturbing numbers of stories of borrowers who were pushed to falsely state a higher income than they really earned or were subject to other questionable tactics, including being sold a loan in their native language and then being forced to sign a contract in another language, with different terms than they had been sold orally.
Such foreclosures are numbers on a balance sheet to officials and economists, but they represent human beings with real lives. The UNC/ National Council of La Raza study found that family finances were devastated, with an average loss of nearly $90,000 -- including money and hard work these families had put into repairs or upgrades to their homes. With their financial safety net obliterated, families had to make devastating choices, from doing without needed medical care to giving up on plans to help pay for their children's education.
Sadly, the human misery we've seen from the foreclosure crisis thus far may be only the opening act. It could get worse -- much, much worse -- if the federal government and lending institutions stay on their present course.
According to figures compiled by the Center for Responsible Lending, a total of 2.5 million homes went into foreclosure in 2007, 2008 and 2009 combined. An additional 5.7 million borrowers are at "imminent risk" of foreclosure, meaning they are two or more payments behind. Analysts predict that there will be between 10 and 13 million foreclosures altogether before the present crisis ends.
For the most hard-hit neighborhoods, this will be the equivalent of a financial nuclear blast. The worst devastation will be among Latino and African American homeowners, over one in five of whom are at imminent risk of foreclosure.
Think of the wreckage we've seen already being inflicted on three to four times more families than have already gone through it. And think of the ripple effects on neighborhoods and communities - the businesses that will go under, the new waves of jobs that will be lost, and so on.
This isn't some far-fetched, worst-case scenario. It's what will happen if we stay on our present course. But there is still time to stop it - if we choose to.
NEXT WEEK: How to stop the coming tidal wave of foreclosures.