Page 23 - Impact: Collected Essays on the Threat of Economic Inequality

worked in the same Portland factory for more than a decade, making wages at or barely above minimum wage despite their long tenure at the factory .8 Although they were frugal enough, albeit with help from friends and family, to purchase a modest home financed by a prime rate home loan, their meager income left them unable to save for necessities such as home maintenance .9 Resultantly, they borrowed money from Beneficial Oregon to finance the purchase of a vacuum cleaner, which prompted Beneficial to send them solicitations for its home loans .10 When the borrowers needed a new roof, they sought additional financing from Beneficial, which combined the roof loan with the vacuum cleaner loan and their other debts into a second priority (junior) home loan of $17,948, carrying a 23 percent interest rate despite the borrowers’ good credit history .11 Still, the lender wasn’t done . Next, the lender defrauded them (by means of their limited English) into a replacement loan for all their debt, specifically the prime rate first priority home loan .12 Despite the lender’s representations of overall savings, the replacement loan was a worse bargain than what they were paying before .13 At the time of the fraud trial in 2004, both Mexican immigrant borrowers earned only about $7 .75 an hour,14 a touch above the $7 .05 state minimum wage at the time .15 No doubt, these low wages brought them into the clutches of a lender that practiced deceit . Had the borrowers been compensated in the workplace for their experience and loyalty, or been paid a living wage, perhaps they would have been able to afford a cash purchase of the vacuum cleaner and to have either paid for routine roof maintenance to extend the life of their roof, or amassed a savings account sufficient to afford its replacement without financing .
Something had to give for millions of similarly-situated borrowers in a climate of unaffordable homes and stagnant wage growth . Either mortgage loan costs and interest had to come down, wages (income) had to increase, or lenders needed to relax their approval standards and develop new loan structures to account for the affordability problem of high home loan payments constituting a higher than customary percentage of the borrower’s income . Wages were stuck in neutral, and with the originating lender quickly selling the mortgage loan and its loan sales people earning hefty bonuses based on the fees charged, there was little incentive to reduce loan fees . So lenders chose the last alternative, and an array of subprime loan features and programs followed that, for the most, failed spectacularly . •
8 Id. at 943.
9 Id.
10 Id.
11 Id.
12 Id.
13 Id. at 944. (The loan documents were in English but the loan discussions were in Spanish. The replacement loan did not contain an escrow account for real estate taxes and insurance. Therefore, the overall monthly loan payment on the consolidation loan, which was facially cheaper than the total payments on the prior senior home loan (that included a tax and insurance escrow) and the junior home loan, disguised that the overall replacement loan was more expensive. The borrowers discovered they had been defrauded when their annual tax bill arrived and they realized the lender was not collecting escrow monies to pay the taxes as part of their regular monthly payment.)
14 Id. at 943.
15 U.S. Dep’t of Labor, Wage & Hour Div., Changes in Basic Minimum Wages in Non-Farm Employment Under State Law: Selected Years 1968 to 2013, U.S. Dep’T of laBor (revised Dec. 2014), http://www.dol.gov/whd/state/ stateMinWageHis.htm.
Housing and Community
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