By Emmet Pierce UNION-TRIBUNE STAFF WRITER April 20, 2007

San Diego County neighborhoods with large minority populations have been especially hard hit with foreclosures and risky subprime loans, members of the San Diego City-County Reinvestment Task Force were told yesterday.

Steve Bouton, an El Cajon banking consultant, said his analysis of census tracts showed a clear pattern of subprime loans – higher-priced loans for people with tarnished credit or low incomes who are considered greater risks.

"There is a relationship between subprime loans and the fact that they are made in high-minority census tracts throughout San Diego County," Bouton said following his presentation. "We can’t prove that someone was targeted, but we see a lot of foreclosures, we see a lot of subprime loans. . . . We are talking about Hispanic, black, Asian, Native American," he said.

Rob McNelis, former president of the California Association of Mortgage Brokers’ San Diego chapter, said some brokers have preyed upon minority borrowers, selling them costly subprime products when their good credit histories would have allowed them to qualify for loans having lower interest rates.

"They are absolutely targeted, for the most part," said McNelis, a Santee broker. "They have been put in subprime loans when they should have been put in A-paper loans. Someone has taken advantage of them. That is called predatory lending."

When underwriting is sound, there is no reason for neighborhoods with high minority populations to experience higher-than-average foreclosure rates, McNelis said. When a mortgage broker puts someone with good credit into a costly subprime loan, that broker is "burying" them, he said.

People who speak English as a second language are particularly vulnerable to deception, he added.

San Diego City Councilman Tony Young, co-chair of the task force, called the testimony by Bouton and McNelis "deeply disturbing." He said the targeting of minorities for high-risk loans amounted to "institutional racism."

"I don’t know of a better way to describe it," he said. "It is greed."

David J. Karlin of the San Diego City Attorney’s Criminal Division, told the panel that consumers who feel deceived should contact his office. So far, complaints have been few.

Mary Scott Knoll, executive director of the Fair Housing Council of San Diego, said violations of the Fair Housing Act may have taken place "where we have targeting to certain communities."

Several local lending counselors addressed the task force. Mary Otero Gonzalez, executive director of the San Diego Home Loan Counseling and Education Center, said most of the people she counsels who are going through foreclosures are Hispanic or African-American. They say they weren’t warned of the pitfalls of subprime and adjustable-rate mortgages (ARMs).

"They didn’t understand their loans," she said.

Countrywide Home Loans, one of the nation’s largest mortgage lenders, was represented by Michael R. Drawdy, senior vice president for loss mitigation at the company’s Simi Valley office. Drawdy said most major lenders are eager to work with borrowers to prevent them from going into foreclosure. He urged people who can’t make their mortgage payments to contact their lender.

"Most of us want to keep our customers in their homes," he said.

Andy Sobel of Rolando told the task force his lender was of little help when he began going through foreclosure on a one-bedroom condo he had purchased for $240,000. Sobel is trying to resolve his situation with a short sale, in which he will sell his home for less than the loan amount and his lender will forgive part of the debt.

Sobel took out first and second mortgages with adjustable rates to buy his home. He said he was forced to stop making payments when they began adjusting upward and the value of the condo declined.

"They are going to help me now, but it is kind of too late," he told the task force. "I am losing my home I bought in 2004. I should not have been put in this loan."

A sharp rise across the nation in delinquencies and foreclosures in the home mortgage market has focused attention on subprime lending practices.

Deemed most at-risk are subprime borrowers who took out adjustable-rate loans two to three years ago. Now, as the housing market is sagging in many places, many of these borrowers are faced with loans that are adjusting to higher payments that some are unable to meet.

The issue has prompted hearings in Congress and moves by mortgage giants Fannie Mae and Freddie Mac to pledge aid to distressed borrowers by allowing them to refinance into more affordable mortgages.

Young said yesterday’s meeting marked the first time the national subprime lending crisis had been brought before a local government panel. He said the task force would continue the discussion of foreclosures and subprime loans in the months ahead.

Countywide, 1,182 foreclosures took place in the county from January through March, nearly eight times the 153 recorded in the same time last year. Statewide, the first-quarter foreclosure count was 11,033, approaching the all-time peak of 11,048 in the third quarter of 1998.

Bouton said local communities with large minority populations that have been deeply affected by foreclosures include Mira Mesa, South Central San Diego, Spring Valley, Oceanside, Vista, Escondido and Chula Vista.

City Councilwoman Donna Frye yesterday said predatory lending "really harms many communities in the city of San Diego. It’s unfortunate that the lending institutions would attempt to target people who are the most dependent on being given accurate information."

San Diego Mayor Jerry Sanders’ spokesman Fred Sainz said the troubled subprime market is a national problem.

"The mayor feels this is obviously a very sad situation for members of our community who fall prey to the subprime loan market," Sainz said. "It is obviously a very serious issue for our community, but it is a national and a state issue. The city has very little effect over this."

U.S. Rep. Susan Davis, D-San Diego, said the subprime mortgage issue is a high priority for Congress.

she said."We may think of the overall economic impact of subprime lending, but more important is the impact on the families and neighborhoods where these loans are concentrated,"