Hispanics feel subprime home lending pain

By Patrick Rucker - Analysis

WASHINGTON (Reuters) - Only a few weeks ago, a borrower in Southern California could qualify for 100 percent financing for a house, with no proof of income or assets.

Now, the lending spigot is dry.

"Everybody is running scared, " said Yamila Ayad, a San Diego mortgage broker who specializes in serving Hispanic clients.

"I have been getting these flashes across my screen: This product is going away," she said. "They have retracted the products."

U.S. Hispanics may disproportionately feel the pain as the subprime mortgage sector implodes, shutting off the credit they had relied on to realize the American dream of owning a home.

Hispanics hold roughly 40 percent of mortgages in the troubled subprime mortgage market, a sector that caters to those with damaged credit or little borrowing experience, according to the Center for Responsible Lending.

As late payments and defaults have risen in recent months, many subprime borrowers now risk losing their homes.

More than two dozen subprime lenders have gone out of business in the last year in the face of rising interest rates and falling U.S. house prices in many regions.

Many subprime finance companies jumped into the mortgage business with lax underwriting standards during a five-year run up in home values that ended in 2005.

Looser credit meant home ownership became available for many Hispanics working in a cash economy and who do not have the extensive credit histories that traditional lenders require.

"These borrowers do not have bad credit but thin credit histories. They have not participated in the banking industry," said Gary Acosta, a founder of the National Association of Hispanic Real Estate Professionals.

Roughly one in four Hispanic adults do not have credit scores from rating agencies and so are immediately off-limits to many mainstream lenders, Acosta said,

Despite recent woes, subprime lenders made homeownership possible for many worthy Hispanic borrowers, he added. But as lenders abandon the sector, Hispanics are likely to lose out.

TAKING A CHANCE

Subprime lenders might have offered too much easy money at the end of the housing boom, but for years they were the only source of funding for Hispanic borrowers, said Ayad.