Unbelievable! (Subprime lending)

[humandraydel]

An immigrant strawberry picker making 15k a year qualifies for a 720k loan...

Minorities are the emerging face of the subprime crisis

But the couple says they were assured them it was possible. "The monthly payment was supposed to be $4,800, but then after we bought it, it went up to $5,378," says Rosa, speaking of their zero-down mortgage with a one-month "teaser rate." "Our agent told us that once we refinanced, we could get the payments down to $3,000 or less." For a number of months Avila, who arranged for the loan with New Century Mortgage, paid the difference between what the buyers had said they could afford -- $3,000 -- and the actual loan payment. According to the buyers, this arrangement was supposed to carry them over until the group refinanced.

[thekid]

Crazy people!

Seriously, why would anybody want to lend over 700K to anybody making 15K/year? Why would anybody making 15K a year consider 3000$ monthly payments as ok? Why would they take the additional risk of signing for 5K/month payments.

Both lender and borrower get what they deserve. This makes absolutely no sense.

[disneysteve]

Seriously, why would anybody want to lend over 700K to anybody making 15K/year?

That isn't exactly what the story says, not that it makes the end result any more sensible.

"The husband and wife work as strawberry pickers in the fields around Watsonville, and each earns about $300 a week."

They EACH earn $300/week, so that's $31,200/year total. Then the article goes on to say this:

"The other couple -- Jesus Martinez and his wife, who also have three children -- work as mushroom farmers, earning about $500 a week each when there is work. The two couples decided to pool their resources and begin house-hunting."

So the 2nd couple earned up to $52,000/year (though it implies work wasn't always available so their true income is less than that).

The 2 couples went in together to buy the home, so they had an income somewhere in the neighborhood of $80,000, not $15,000. Of course, even with a joint income of $80,000, there is no way they could afford a $720,000 home. You'd need to be making around $240,000/year to comfortably afford that home. It absolutely should be illegal for any lender to make a loan like that. They prey on folks like these who don't speak the language, don't have much education and don't understand the terms of the deal they are signing for. They trust "the man" to do things right. It's really a disgrace.

[Ima saver]

That is just terrible!

[humandraydel]

That isn't exactly what the story says, not that it makes the end result any more sensible.

"The husband and wife work as strawberry pickers in the fields around Watsonville, and each earns about $300 a week."

They EACH earn $300/week, so that's $31,200/year total.

You are correct in that they were not relying on 15k a year to make the payments, however, the loan was in HIS name only, thus the 720k loan WAS approved for someone making 15k a year. In other words, a loan with NO possibility of being paid back was given.

It should be noted that this loan was provided by New Century which is now bankrupt and being investigated for fraud (probably such as this!). Remember that when these loans are securitized, chopped up into pieces, and sold to investors, the original lender doesn't have much incentive to make sure the loan will be repaid.