First-time homebuyers walk into financial trap

Oakland Tribune, Mar 12, 2007 by Pete CareySTAFF

Two years ago, Luis Mapula was living in a converted garage with his wife and two daughters, earning $54,000 a year as a fence company construction worker. Then, almost like magic, he became the owner of a $543,000 home with no down payment.

Situated on a quiet cul-de-sac off Quimby Road in East San Jose, the two-bedroom home was to have been his family's piece of the American dream. Instead, it became a financial trap that consumed most of Mapula's income. He got out only after his real estate broker took back the home and paid off the loan as part of a legal settlement.

Renters once again, the family has no plans to buy another home.

"Better a garage than live without enough to eat," Mapula's wife, Cristina Plata, said through a translator.

The couple are among a growing number of Latinos in Santa Clara County who say they've been victimized by a dark side of the housing boom in which people who speak limited or no English bought homes they couldn't afford based on exaggerated statements of income they say they knew nothing about. The deals generate commissions and fees for a chain of intermediaries, but can leave home buyers in foreclosure with ruined credit.

In one case, a janitorial worker was credited with a $100,000-a- year income. In another, a construction worker's loan documents reported fat savings accounts and expensive jewelry and furniture he didn't own. And in others, third parties said they were offered money to provide phony employment verifications or credit histories for buyers.

Their stories reflect a national problem that is particularly acute in California, where thousands of lower-income families became first-time homeowners during the housing boom by getting nontraditional "subprime" loans. Those loans, which carry higher interest rates, have typically been given to borrowers who are higher credit risks or have income that is difficult to verify. But as lenders face a wave of defaults, they're getting stricter about who receives money just as borrowers are trying to refinance their way out of mortgages they can't afford.

It's not always clear whom to blame when false statements appear on loan documents or when payments are obviously more than the buyer can afford, because the buyers sign the papers.

Attorneys say their clients, largely lower-income, Spanish- speaking buyers who did not understand what they were signing, were misled by real estate professionals whom they trusted.

"People are being told they're getting a great deal, and they buy a house they otherwise couldn't afford and often are lied to about the terms," said Kerstin Arusha, directing attorney for the nonprofit Fair Housing Law Project in San Jose, which represented Mapula and his wife.

Yet brokers, lenders and real estate professionals say borrowers bear responsibility for knowing what kind of loan they're getting and whether they are getting more than they should based on their income and credit history.

"No one should sign something they don't understand," said June Barlow, counsel with the California Association of Realtors.

Mapula and his wife weren't looking to buy a home when Plata was approached at the San Jose Flea Market in April 2004 by a representative of Century 21 Su Casa, according to their lawsuit. The company is a franchise of Century 21 that is independently owned and operated by Vision Quest 21, which has 315 salespeople and several offices in San Jose.

Plata deliberately gave the representative an incorrect phone number, she said in an interview. But when her daughter corrected her, she gave

the right number.

"Then they started calling Luis," she said.

Three months later, Mapula, whose take-home pay was

$3,400 a month, and Plata, a homemaker and mother of two, bought a half-million dollar home on Burdick Way. Originally from Sonora, Mexico, Mapula moved to San Jose six years ago.

Mapula qualified for the loans through a stated-income process, which offers less-rigorous verification of income than conventional loans, his attorney said. Though Mapula signed the loan application from Long Beach Mortgage, his lawsuit says he learned later that it falsely claimed he was making almost $100,000 a year from two jobs and receiving an additional $16,800 a year in rental income. The application also said he had $19,700 in the bank, owned a $22,000 Acura and had $28,000 in furniture and personal property. Mapula said none of that was correct. His only asset was a recently purchased truck.

It's not clear who filled out his application. The terms and payments were clearly stated in the loans, brokered by Mariposa Mortgage, which shares the same parent company as Century 21 Su Casa. But the documents were in English, which the couple said they could not read. California's civil code requires loans negotiated in Spanish to be completed with Spanish-language disclosure statements or a full Spanish translation.

The payments on the loans were more than $3,500 a month, slightly more than Mapula's after-tax pay. After two years, their primary loan for about $434,000 would become adjustable at six-month intervals. Today, they would be paying a total of $4,306 a month, according to a mortgage expert who reviewed the loans. The primary loan also carried a heavy prepayment penalty.