Contempo Magazine Blog

When I was growing up in the Rio Grande Valley of South Texas in the 1960s thousands of Mexican-American migrant workers would travel around the country performing seasonal agriculture work and then return home to the “Valley” for the winter.

Mexican American immigrants as well as those whose ancestors were annexed to the United States following the Mexican-American War carry a heritage of merit concorded to home ownership. A major incitement for the tumultuous history of Mexican revolution dealt with land reform for the campesinos  seeking land ownership instead of participating in a feudal system. In the search for a better life in America  home ownership continued as an important end goal of a successful life.

In those days the poverty and irregular income meant that the migrants had to find other ways to build a home than with the traditional bank loan and builder.  Instead they would buy land in unincorporated areas and themselves build homes in communities which came to be known as colonias.  This was generally accomplished in a piecemeal fashion from season to season so that it might take several years to complete. Often times family or friends might help out but there were usually no large loans.  There have been many justified criticisms of this process because not infrequently unscrupulous land deals were made and inadequate infrastructure like flood prevention, water quality, or sewage systems occurred.

Economic progress came to the Mexican-American population through 60s and 70s so that more families where able to stay in the area throughout the year. As their incomes began to increase from poverty to working class they began to live in better planned areas but still the concept of minimal debt and self sufficiency often remained.

An academic study originally published in 2006 looking at the Subprime Mortgage Segmentation in the American Urban System reported that McAllen Texas had the highest level of subprime mortgages in the United States at 42.1%. How did Mexican-Americans go from being self sufficient to dealing with debt and foreclosure?

In 2003 the Congressional Hispanic Caucus created the Hogar initiative to improve home ownership which for Hispanics was 47% compared with 68% for Americans as a whole. An alliance was created between the Congressional Hispanic Caucus, Fannie Mae, Freddie Mac, and many private lenders like Countrywide to make housing more affordable. At the time “mortgage lenders appear to have regarded Latinos as a largely untapped demographic. Many were first or second-generation U.S. residents who didn’t own homes. Many Hispanic families had multiple wage earners working multiple cash jobs, but had no savings or established credit history to allow them to qualify for traditional loans” as reported in the Wall Street Journal. By 2005 the number of Hispanics with subprime mortgage loans was up 169%.

Unfortunately there were very close financial ties established between the Congressmen and the lenders. Companies political donations gave them significant roles in the program. A Washington Mutual Vice-President served as the chairman of the advisory committee (note that Washington Mutual went bust from defaults). For a donation of $150,000 banks could hire a research fellow who often collaborated with industry lobbyists. Joint news releases were sent out from the Hispanic Caucus with banks who donated $100,000 .

According to a Pew Hispanic Center report in January 2009, 36% of Latinos admit having mortgage problems themselves and 62% say that there have been foreclosures in their neighborhood. As reported by Froma Harrop in Rasmussen Reports many Latinos made significant mistakes in taking subprime loans. They bought homes at the worst possible time when the housing values where the highest. However, lenders also played a significant role be writing contracts that were difficult to understand. The State of Florida just recently settled an important case. According to the Originator Times “the agreements require Streamline Mortgage Solutions, Inc.; Simple Home Loans; Premier Mortgage Funding, Inc.; CFL Home Equity, Inc., and JVD Financial Services, Inc., to strictly adhere to the federal Truth in Lending Act, as well as other state statutory regulations and mandates. The companies allegedly advertised financing options available to Hispanic homeowners, but the advertisements’ disclosures were frequently written in English, failing to fully and clearly disclose terms of the financing options.”

No doubt there is some criminal culpability for those companies that participated in predatory lending to Hispanics. But there is also a lesson and a message about what happens when society tries to bend the rules of economics and the market laws of commerce to carry out a social initiative.  Not only have thousands of Mexican-Americans been put at risk of economic catastrophe by these government sponsored programs but by cooperating with these programs they abandoned their cultural experience of self sufficiency and wariness of heavy debt burden which define the Latino experience.

Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years.He is a member of the National Association of Hispanic Journalists.

This week Texas State Representative Leo Berman (R-Tyler) made the news by getting in a shouting match with an immigration attorney over Mr. Berman’s proposed legislation to create ” sanctuary cities” in Texas.  Texas House Bill 254 will “restrict” illegal immigrants to certain geographic areas within the state of Texas as enforced by the Texas Department of Public Safety. An”Illegal immigrant” means an individual who is not a citizen or a national of the United States and who has entered the United States without inspection and authorization by an immigration officer.  A”Sanctuary city” means a municipality that adopts a resolution declaring that the municipality does not discriminate or deny municipal services on the basis of a person ’s immigration status and that all persons are treated equally regardless of immigration status. All illegal immigrants residing in this state shall reside in a sanctuary city. The bill is scheduled to be heard before the State Affairs Committee.

Representative Berman has acquired quite a reputation serving in government with a history of  authoring eight bills aimed at illegal immigrants, including provisions to challenge birthright citizenship, bar illegal immigrants from public universities and tax money orders sent between Texas and Mexico. He told his home town newspaper, The Tyler Morning Telegraph, his agenda is

1. Penalties for businesses that knowingly employ illegal immigrants.
2. A challenge to the concept of “birthright citizenship” for the children of illegal immigrants born in the United States.
3. Ending all public assistance benefits for illegal immigrants.
4. Empowering state and local police to enforce federal immigration laws.
5. Taxing the $6 billion per year sent to Mexico from Texas by illegal immigrants, and setting that money aside for indigent health care.
6. Preventing illegal immigrants from filing lawsuits.
7. Making English the official language of Texas.
8. Requiring photo IDs for voting.

In the late 1970’s and 80’s American Churches began a movement to protect Central Americans who were fleeing death squads in their native countries.  Those who advocate for sanctuaries give several justifications.  In cities with large populations of immigrants either legal or not they contend that making local law enforcement the active enforcers of immigration law will deter the population from reporting crime and cause them to live in an underworld to the detriment of the whole of the community. Immigration agents have the power to detain and question not only illegal aliens but also legal residents or citizens who they suspect of aiding illegal immigration.  Extending this power to local police could allow warrantless searches and detentions. Some cities, like Ann Arbor, Michigan have had confrontations between immigration officers and police develop because immigration raids wantonly destroyed private property and have caused injury to innocent bystanders.

Critics of the sanctuary movement point to the real problem of growing violence and crime being committed by illegal alien gang members whose presence they claim is encouraged by sanctuary cities. However, as we reported earlier this year there is a program called SCAAP (State Criminal Alien Assistance Program) from the Federal government to assist state and local governments which was spending about 287 million dollars a year as recently as 2004. SCAAP provides federal payments to states and localities that incurred correctional officer salary costs for incarcerating undocumented criminal aliens who have at least one felony or two misdemeanor convictions for violations of state or local law, and who are incarcerated for at least 4 consecutive days during the reporting period. Note that the alien must be convicted for the Federal authorities to act. If police arrest an “illegal alien” there is no reimbursement for the local jail until he is convicted. Already crowded jails could be overrun. Many policemen will tell you that immigration authorities often do not respond to local law enforcement information about those arrested because frankly there is no housing available for them.

Many of Representative Berman’s Republican colleagues have not supported his measures, in fact, they have often blocked them early on at the committee level. Anti-immigration zealots have generally not supported sanctuary city initiatives and usually vigorously oppose them.  What is motivating Berman who appears also to be in the running for the governor? Texas has three sanctuary cities, Houston,Austin, and Katy.  Is he trying to create divisive politics within the state? Is he proposing Houston and Austin be fenced off like the Jewish ghetto’s of Poland were during the 1930s? Will the agency Texans call the “DPS” now become the new Gestapo?

Immigration is a serious issue that requires deliberate and informed discussion not bedlam. Texas is leading the nation in employment and economic output because of our belief in freedom and individual liberty. Those like Representative Leo Berman who countenance an Orwellian police state are betraying the core of conservative belief.

Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years.He is a member of the National Association of Hispanic Journalists.

One of the most controversial parts of the Homeowner Affordability and Stability Plan announced by President Obama is the provision for mortgage modification by bankruptcy judges sometimes called “strip-down”. Currently bankruptcy judges cannot change the ultimate value of the mortgage and change the terms for payment. Under the Obama proposal judges would be able to sign away portions of debt and rewrite the terms for repayment.

The borrower’s payments would be limited to no more than a certain percentage of income and the interest rate would be reduced to a very low level initially for five years than allowed to rise to the market level. The Treasury would “share” in the costs by paying an up-front fee of $1,000 for each eligible modification. As in incentive for borrowers to keep current in their payments the Treasury will contribute $1,000 a year in payments for 5 years.

The guidelines for use of modifications will be issued by the Federal government to Fannie Mae, Freddie Mac, and all private institution participating and will be mandated as a requirement to participate.

Supporters of the concept of strip-down point to a study published last year by Adam Levitin and Joshua Goodman in which they claim that permitting bankruptcy modification would not substantially affect the loan market. Advocates say that hundreds of thousands of homeowners could avoid foreclosure if strip-down is enacted.

There are many critics, however, who say that strip-down is the wrong solution and will have exactly the opposite effects of those intended.

By conservative estimation there may be 3 to 4 million homeowners who might be eligible to undertake mortgage modification in bankruptcy. Evan Newmark of the Wall Street Journal points out that that this will be a bureaucratic nightmare requiring millions of meetings between bank officers and lenders verifying and agreeing to terms. Further he, Andrew Grossman of the Heritage Foundation, and many other experts point out that this program will not really help the millions of of homeowners who paid no down payment and are clearly in mortgages for property that was really above their means to purchase. Most of the credit challenged borrower’s will likely walk away than pay 31% of their income for a home they will never own within a lifetime of payments.

Chapter 13 bankruptcy currently affords borrowers relief from foreclosure and revising the law is unnecessary says Grossman. For a three to five year period payments can be reduced until a borrower gets back on his/her feet than the schedule resumes until the loan is paid off. Discussions of reductions of principal or long term payment changes are allowed between debtor and lender but unlike the proposed loan modification mandate are not rigidly fixed to a government approved schedule. Many of the experts fear that the proposed system would encourage those who do not need to file bankruptcy to proceed with it for financial advantage and would waste time on those who will end up in foreclosure anyway.

The Obama administration believes that the “strip-down” program will not increase the costs of mortgage but again many experts disagree and say that the overall cost of mortgages will be higher for all Americans especially for those first time home buyers. Mortgage lenders will need to increase the up-front costs of loans and demand higher down payments. A Federal Reserve Board Senior Economist, Karen Pence found that increasing the costs to lenders resulting in higher costs to families to buy smaller houses in Review of Economic and Statistics 2006. There will be tremendous pressure to increase mortgage rates.

Another issue that could determine whether an housing initiative will be successful in preventing foreclosures significantly is what is the future of housing prices. Noted economist Robert Schiller was quoted in MSN Money as saying that home prices are likely to decline for the next two years. Credit challenged troubled borrowers may still end up with mortgages worth more than their homes. The taxpayers will have paid billions of dollars (the cost of the program is estimated officially at $75 billion) in a futile attempt that will not change the outcome for most of those whose loans are modified.

In the end the measures of the Obama proposal are not likely to help stabilize the economy say most of the above quoted experts. Many more families will be put in bankruptcy than if  the measures were not instituted, many will still lose their homes, and paradoxically housing will likely become less accessible and more expensive. Government will be taking over the financing of the housing market by pushing out private lenders. Corrections in the real estate market that need to happen to allow recovery will only be delayed.

Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years.He is a member of the National Association of Hispanic Journalists.