Sunday, Oct. 14, 2007 | 1:31 a.m.
In a city known for its risk-takers, large numbers of Las Vegans have been gambling their financial futures on risky home mortgage loans they can't afford to pay back.
Home buyers' inability to keep up with the mortgages has made the loans equally risky for the companies offering them. And like thousands of local home- owners, many loan companies already have lost that gamble.
Federal home mortgage records show that from 2004 through 2006, 32 percent of all home purchase loans in Clark County were classified as subprime - in essence, loans for which conventional income and credit history standards were relaxed to make it easier for applicants to qualify. That is one-third higher than the 24 percent national percentage.
During the three years, Southern Nevada lenders issued 89,202 subprime loans - out of 278,270 loans overall - for home purchases totaling $13.8 billion, a Sun analysis showed.
The heaviest volume of subprime activity in Clark County was in 2005, when 38,631 such loans, valued at $6 billion, were issued. But the highest percentage of subprime lending occurred last year, with 38 percent of all home purchase loans in the high-risk category. The national percentage in 2006 was 29 percent.
Subprime loans - offered to home buyers and investors with less than ideal credit who otherwise might have difficulty qualifying for mortgages - allowed people to purchase homes with a variety of incentives that included no down payments and initial low interest rates.
The relaxed lending rules contributed to the valley's skyrocketing housing market, as well as its collapse and current foreclosure epidemic. Las Vegas had the nation's highest rate of foreclosures in August, one for every 165 households.
"I think this is par for the course," said Assemblyman Marcus Conklin, D-Las Vegas, who chairs an interim legislative subcommittee looking into the lending crisis. "I think we've been running sort of loose and free for a long time in the lending industry here."
Scott Bice, former commissioner of Nevada's Mortgage Lending Division, said Las Vegas may have been more susceptible to the wave of lax lending because the city caters to people seeking a second chance.
"If they were looking for a fresh start and were already credit challenged, they welcomed doing those fast and easy types of loans, where they could qualify without documenting their income," Bice said.
Brock Davis, president of the Southern Nevada Chapter of the Mortgage Bankers Association, said there were many unscrupulous lenders in the valley pushing adjustable rate mortgages, or ARMs.
"We had a greater share of local companies teaching their loan officers that subprime option ARMs were the best thing since sliced bread," Davis acknowledged. "They put people into homes they couldn't afford, and they got them into payments they couldn't afford. They gave people no conceivable way to come out of a house without foreclosure."
Dennis Smith, president of Home Builders Research Inc., an organization that tracks housing trends in Las Vegas, blamed the high percentage of subprime loans on the thousands of quick-buck-seeking speculators who flooded the housing market during the buying rush.
The Sun reported last month that 74 percent of all valley homes in foreclosure in the past six months were owned by investors who did not live in those homes.
"It's called greed," Smith said.
Many of these so-called "flippers," he explained, took the adjustable mortgage rates with initial low interest, hoping to sell the homes for a handsome profit before the rates increased. But they got stuck with the properties when housing prices declined.
Jeremy Aguero, a Las Vegas economic analyst studying the massive foreclosure activity for the homebuilding industry, said officials probably should have foreseen the subprime lending disaster.
"Realistically, the market was feverish in Southern Nevada, more so than in any other state," he said. "So does that fertile ground for the mortgage market lead to some degree of aggression within the market? Of course it does."
Community leaders, however, need to be careful about portraying those who took out subprime loans with a broad brush, Aguero said.
"It may have created a substantial amount of risk for many people, but it also created a substantial opportunity for many people," he said.
Lending rules have since been tightened, making it more difficult for borrowers to obtain unconventional loans.
Many of the subprime lenders, unable to get borrowers to repay their loans, now face severe financial problems of their own. Most of these companies have either quit issuing subprime loans or have been driven into bankruptcy. Some have been acquired by healthier financial institutions that also are shying from the high-risk loans.
The heaviest volume of subprime loan activity from 2004 to 2006 occurred in the northern and southwest outskirts of the valley, the Sun's analysis found. As the Sun reported last month, the heaviest foreclosure activity also occurred in roughly the same parts of the valley.
But the highest percentages of subprime loans, according to the latest analysis, were largely in central valley neighborhoods with lower-than-average incomes.
From 2004 through 2006, blacks and Hispanics had significantly higher percentages of subprime loans than whites and non-Hispanics, the federal data showed.
Of the roughly 85 percent of borrowers in Clark County who identified their race or ethnicity on loan applications, 46 percent of blacks received subprime loans, compared with 31 percent for whites. Fifty percent of loans to Hispanics during that period were subprime , compared with 27 percent for non-Hispanics.
Dean Ishman, president of the local branch of the NAACP, said the Sun analysis "further states the obvious - that racism and discriminatory treatment are real."
The national NAACP has filed a federal class-action lawsuit in Los Angeles against 14 of the country's largest subprime mortgage lenders, alleging they engaged in institutionalized racism when extending home mortgage loans.
Helena Garcia, a Las Vegas Realtor and Hispanic community activist, has spent the past several years helping those hurt by what critics describe as predatory lending policies.
She said about 90 percent of the unscrupulous lenders she has encountered in the Hispanic community were themselves Hispanic.
"Most of them didn't care if you could pay your loan or not," she said. "They just wanted to get people into a house as fast as they could with as much money as they could, so they could make a commission off the property."
Garcia said most of the people she assisted had no idea what they had gotten themselves into with their mortgages.
Fredrico Lazcano, a 46-year-old car painter, is one of those people.
With Garcia interpreting, Lazcano said he has dug himself into a financial hole because of a bad loan he received on an investment home in 2006.
When Lazcano sought to buy the $270,000 house in southwest Las Vegas, his lender told him he would have to put down 5 percent, or roughly $13,000. That included $3,500 in nonrefundable earnest money.
But when he went to sign his escrow papers, the lender, whom Lazcano had met through a family friend, told Lazcano he had to make a $24,000 down payment.
Lazcano said he paid the higher amount because he feared he would lose his $3,500 if he backed out.
Eventually, Lazcano filed a complaint with the Mortgage Lending Division over the down payment, and the lender refunded $10,000.
But what Lazcano could not get help with was his $2,331 monthly mortgage payment, a figure much higher than the $1,500-a-month payment he said he was led to believe he would have.
The house has since declined in value, and Lazcano has been unable to refinance it.
Today, instead of being able to save money for the future, he is saddled with a second mortgage payment he has trouble meeting.
"If they would have told me from the very beginning what I was getting into, I never would have gone through with the deal," he said.
Similarly, Augustine Angulo, who hauls rocks for a living, said his lender was not honest with him.
The loan officer got him into a 10.5 percent interest loan on a $265,000 home last year under the guise that he would be able to refinance three months later at 7.5 percent. He said he took the deal knowing he would have a $2,700 mortgage payment the first three months, after which the payment would be reduced to as low as $1,500, which he thought he could handle.
When the three-month period ended, Angulo said, he went to see the loan officer, but was told she no longer worked at the company.
Rather than trying to refinance the loan with someone else at the company, he said, he tried to find the loan officer to confront her about their agreement. Months later, still making the $2,700 monthly payment, Angulo said, he found the woman, but she denied promising him a chance to refinance.
Angulo said he no longer can afford to make his mortgage payments and expects to lose the house to foreclosure.
"I feel real bad," he said. "I trusted that lady, but she lied to me."
Unfortunately, such cases are common in Las Vegas, said Gail Burks, president of the Nevada Fair House Center, a nonprofit organization dedicated to helping victims of predatory lending.
"People weren't able to get to lenders that could have gotten them better loans," she said. "They were solicited by people who did not have their best interests at heart."
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