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Can Hartford Weather Sub-Prime Lending Crisis?

ANDY HART

May 22, 2008

Although Mike Menatian is now president of a well-established mortgage company in West Hartford, he began his career as a street-level organizer for Hartford Areas Rally Together (HART) in the late 1980’s. Some of Menatian’s old organizing passion came to the fore Tuesday night during a forum at the Hartford Public Library entitled, “The Sub-Prime Lending Crisis: What Does It Mean for Hartford and the Region?”

When Erin Boggs from the Connecticut Fair Housing Center suggested that requiring professional financial consultation for all people seeking to refinance their mortgages might “shut down the sub-prime industry,” Menatian shot back, “Fine. Shut it down.”

Menatian introduced himself at Tuesday’s forum by pointing out that he heads up a mortgage bank, which must comply with a wide variety of regulations, as opposed to a mortgage broker, who faces far fewer restrictions. This lack of restrictions for brokers played a prime role in creating what has become known as the “sub-prime lending crisis,” according to Menatian and Boggs.

Bob Kantor, Director of the Fannie Mae New England Development Team, said that sub-prime mortgages, which usually begin with a low rate and then switch to a variable rate based on the market, only worked when real estate prices were rising. When those prices began to stabilize – or even drop in some cases – the variable rates began to increase dramatically. This has led to numerous foreclosures and a major slowdown in the housing market, according to Kantor.

One victim of the crisis is former Hartford resident Yolanda Cruz, who spoke about her experience at Tuesday’s forum. Cruz purchased a home in East Windsor four years ago. About two-and-a-half years ago, she and her husband decided to refinance their mortgage through a sub-prime broker. Before long, Cruz said, “We were trapped into a refinance that was – excuse the word – hell.” She is currently trying, with the help of Boggs, to fight off foreclosure on her home, which she described as “our piece of the American dream.”

Cruz purchased her first home through HART’s Home Ownership Made Easy (HOME) program which, ironically, was started by Menatian when he was working for the organization in the early 1990’s.

“That’s the tragic thing,” said Menatian, “we’re losing homeowners that were created by all the programs we fought so hard for.”

Kantor, however, said that one of the benefits of such programs is professional guidance. For instance, he said, people who purchased homes through the City’s House Hartford program had to get an okay from city staff before they could refinance their mortgages. “To their credit, staff refused to give the okay in many cases, which turned out to be a wise decision. They protected a lot of families,” he said.

Kantor did say that he had one criticism of homeownership counselors in that many of them allow home purchases based on the top level of the person’s ability to afford it. “Maybe we should base it on 85 percent of affordability,” he said. Kantor explained, that even if your income allows you to keep up with mortgage payments, homeownership often brings on other large expenses, such as repairing a roof or installing a new furnace.

The panel at Tuesday’s forum had varying answers to moderator Barbara McGrath’s question on how to ensure that the sub-prime lending crisis doesn’t happen again.

Boggs said her organization has worked on legislation that will provide emergency assistance to those facing foreclose and will also tighten regulations on mortgage brokers.

But a member of the audience challenged Boggs, saying, “How do we enforce [those regulations]? We already have a lot of regulations. Legislators assume that if they pass a law everyone will step up and become ethical. Part of the current problem is that people acted unethically.”

Kantor said that, “The best defense is an educated consumer...no one held a gun to anyone’s head forcing them to sign off on these [sub-prime] loans.”

Menatian said that he has been calling for more regulations for brokers and more education for consumers for years but was told, “that that would stand in the way of free enterprise [and] of homeownership.”

Both Kantor and Menatian said they still back the drive to increase homeownership in Hartford, despite the problems caused by the sub-prime loans. “It’s still the best way of building wealth for low-income families,” said Kantor. “Homeownership can be very empowering, but only if it’s done responsibly.”

Tuesday’s forum was sponsored by the Hartford Public Library and Hartford 2000.