A very successful sub-prime mortgage banker once said to me “if you work for the poor you will eat with the rich and conversely if you work for the rich you will eat with the poor.” I am sure at the time he thought that his words sounded noble. However if he were being honest with me (and perhaps himself) he would have probably said something like “if you are in the business of exploiting people for money you are better off sticking it to less sophisticated folks than people with the knowledge and means to defend themselves.”

Incidentally, these comments were made to me more than 15 years ago. While the recent mortgage meltdown may make it seem like sub-prime lending is a recent phenomenon, the truth is banks and financial service providers have been making big profits on so called sub-prime borrowers for years. Today the exploitation has largely migrated from mortgages to the credit card market. Most people don’t realize that banks can arbitrarily raise interest rates on credit card balances to 30 percent or more even if the borrower never made a single late payment — but that’s another story for another day.

Forty Percent of all sub-prime mortgages in the United States were made in California. Why? Because sub-prime loans are primarily made to people with the least knowledge and experience with the homebuying process such as minority and immigrant families and California has the largest minority and immigrant populations in the country.

This is the main reason that San Diego — all of San Diego — is experiencing one of the most challenging real estate markets in a generation. The good news is that because of this mortgage debacle, there is a good chance that we will see some decent legislation that will mitigate at least some of the lending abuse that proliferated in the last few years.

In fact even without legislation, because sub-prime loans have performed so poorly, it is doubtful that sub-prime mortgage lending will ever return as we knew it and that is a good thing. However the predators are pretty resourceful so the best way to protect ourselves and our communities is through education. An educated borrower is a successful one. The silver lining for San Diego residents is if you can qualify for a good fixed rate mortgage the next couple of years just might be one of the greatest buying opportunities for homebuyers in recent history. For more information about mortgages and other credit, NeighborWorks of America and the Consumer Federation of America are two of the largest and most reputable non-profits dedicated to financial education and both have affiliates in San Diego.

— GARY ACOSTA

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