By Nick Carey

Fri Mar 23, 2007

ADDISON, Illinois (Reuters) - In a month or two, Jose Cortez will likely lose the home he wanted for his children. But he says that's not what bothers him most.

"I wanted to consolidate my debts, but everything the brokers said they would do was a lie," he said, waving a sheaf of documents in the basement apartment where he, his wife and four children live.

Many minorities in Chicago are facing the same predicament as the 57-year-old Mexican-born maintenance worker, according to several nonprofit organizations. Some unscrupulous and unregulated mortgage brokers arranged for low-income families to take out loans they could not afford, the groups said.

The nonprofit Woodstock Institute released a study this month that said Latino borrowers in Chicago were 3.2 times more likely than whites to pay more for loans; African Americans were 4.2 times more likely.

"The main feeding ground for predatory subprime mortgage brokers is in poor, minority communities," said Michael van Zalingen, director of housing ownership services at Neighborhood Housing Services of Chicago, a nonprofit community lender and financial counseling service.

Subprime, or high-risk, borrowers like Cortez are causing concern on Wall Street and in Washington as foreclosures rise amid falling house prices and higher interest rates.

In October, a year after buying his dream home in a western suburb of Chicago, Cortez said a mortgage broker promised to consolidate his debts and refinance his mortgage.

Pressured to sign confusing legal documents at 11 p.m., he said his mortgage rose $70,000 -- on top of $290,000 he already owed. But his debts weren't covered and he was charged tens of thousands of dollars in fees and a cancellation payment on his existing mortgage, which he was not told about beforehand.

"How can they lie like that, in America?" Cortez said.

Now he cannot afford his mortgage and will soon default.

PREDATORY TACTICS

Cortez makes $35,000 a year and has a poor credit history. Oliver Marquez, a financial counselor at the nonprofit Resurrection Project who advised Cortez, said the original $290,000 mortgage was well beyond his means.

"Cortez can't afford that house. He never could," Marquez said. "The broker used predatory tactics and irregular practices like turning up late at night and the result is a loan beyond his means. ... We're seeing an awful lot of this."

In 2006, foreclosures nationwide were up 42 percent from 2005, and will likely rise by up to 25 percent this year, according to real estate information service RealtyTrac Inc.

RealtyTrac puts the number of 2006 foreclosures in Chicago's Cook County up 79 percent from 2005.

Cook County, which includes Chicago and many suburbs, is about 20 percent Latino, according to U.S. Census data.

Some experts warn they are beginning to see people in the higher "Alt-A" credit category struggling with mortgages sold as a result of profligate and irresponsible lending.

Such loans were originally aimed at people who were self-employed or worked commission jobs, who had good credit but didn't have pay stubs showing predictable income. More recently, some lenders have offered Alt-A loans to people who lacked sufficient documentation to get a traditional loan.

Geoff Smith, project director at the Woodstock Institute, said his group has been warning of the dangers of lending practices in the subprime sector since 1998.

"Anyone following subprime mortgage lending has been waiting some time for the other shoe to fall," he said.

On Pulaski Street, a few miles southwest of downtown Chicago, colorful signs proclaim in Spanish that borrowers can get a mortgage with no documentation and no down payment.

Livia Villareal, a housing counselor at Greater Southwest Development Corporation, said many of the mortgage brokers preying on the local community are Latinos.

"In poorer minority communities that have been neglected by mainstream banks, brokers from their own communities take advantage of unsophisticated borrowers," she said. "The majority had no idea what they were going to sign and many had to no way to pay off these loans."