For National Hispanic Heritage Month, we're celebrating the contributions of Hispanic and Latinx Americans in the financial space. And we're empowering others in the Hispanic community to pursue avenues of financial independence and security. As a strategy for financial empowerment, get the scoop about mortgage scams targeting Hispanic communities, including how to spot and avoid them.
The homeownership rates for Hispanic families rose slightly in the last decade. As of 2022, the Hispanic homeownership rate is 48.6% – 2.5% higher than in 2012.1 However, this statistic only paints a partial picture of progress. An analysis of homeownership datashows a 74% homeownership rate among non-Hispanic white families in 2022, bringing the U.S. homeownership gap into view.2
Among those most affected are native Spanish speakers. But lenders with Spanish-language services can help close this gap. In fact, in 2022, 38% of Hispanics conducted their homebuying transactions in Spanish.1 On the other hand, a lack of Spanish-language services can create a significant barrier for those trying to access banking and financial services. For example, survey findings reveal that 37% of individuals speaking Spanish were turned away at California bank branches.3 The percentage of English speakers turned away pales in comparison: 15%.3
Language barriers also expose Hispanics to mortgage scams, a type of consumer fraud. Mortgage scams can take different forms, but the aim is the same: to exploit individuals in the mortgage process. The most common ones include predatory lending, foreclosure rescue and loan modifications.
We dive into these three common mortgage scams, providing tips on how to protect yourself and your loved ones.
3 Common Mortgage Scams Targeting Hispanic Communities
Mortgage scams can lead borrowers to experience lingering debt and housing and financial hurdles. Sometimes, individuals face foreclosure. For Hispanic homebuyers who want to achieve the American dream of homeownership, scammers are all too ready to undermine their goals. Scams to look out for include the following:
1. Predatory lending
Predatory lending particularly threatens immigrants, those with limited English skills and people with poor credit and little financial knowledge. And when it comes to financial knowledge, Hispanics lag behind. Every year, the TIAA Institute-GFLEC Personal Finance Index examines the financial literacy of American adults. According to the 2021 report, Hispanics provided the right answers to 41% of the questions.4 In contrast, white survey respondents answered correctly 55% of the time.4
Predatory lending's consequences range from financial instability to foreclosure. Warning signs include:
- • Exorbitant interest rates: The average mortgage interest rate in the U.S. varies, depending on factors such as credit history and the location of a home. A key sign that you may be working with a predatory lender is if the mortgage interest rate is way too high.
- • Fees hidden within a loan agreement: Fees are part of closing costs, such as preparing documentation or title insurance. When a lender imposes fees much higher than those charged by reputable lenders or charges fees without disclosing them, it's likely a predatory lending case.
- • Misleading marketing strategies: Tactics to deceive borrowers often involve high-pressure sales efforts. Other warning signs include false promises about easy access to credit and ads promoting very low rates. A predatory lender may even present themselves as a representative of the government or another organization using an official-looking seal.
- • Unjust terms and conditions: The Truth in Lending Act protects consumers and homebuyers.5 It requires lenders to help buyers understand all the terms and conditions. So, lenders must clearly disclose costs, interest rates and fees before a sale occurs. If terms are unclear or certain conditions are hidden, it's likely a predatory lender.
2. Foreclosure rescue scams
During the pandemic, about 40% of Hispanic and Black families with children encountered housing insecurity.6 This means they weren't sure if they could make their next mortgage or rent payment. Homeowners can get help from resources such as the Homeowner Assistance Fund and can also discuss payment options with their lender. But all too often, failure to make payments results in foreclosure, whereby a lender can legally take ownership of a home.
Desperate to resolve their situation, homeowners often turn elsewhere for solutions. And many times, they encounter a scam. A common sign of a foreclosure rescue scam is a guarantee of short-term financing to clear overdue loans. It could work like this:
1. An "investor" offers to let the homeowner stay in their home by renting it from said “investor."
2. The "investor" promises the homeowner an opportunity to repurchase the home.
3. The homeowner transfers the home title to the “investor."
4. The “investor" pockets the money.
In the end, the foreclosure order stands—and victims are trapped without solutions, financial resources or a home to call their own.
3. Loan modification scams
Loan modification scams involve scammers posing as helpers offering affordable mortgage terms. They often use deceptive advertising and then steal money or personal information. Loan modification scammers falsely promise lowered payments, but then charge upfront and monthly fees.
For example, in a recent case, the U.S. Department of Justice entered a complaint against individuals accused of violating the Fair Housing Act by targeting Hispanic homeowners. The complaint states that the individuals used deceptive Spanish-language advertising to target Hispanic homeowners with false promises of cutting mortgage payments in half. The guaranteed lower payments required thousands of dollars, including fees, throughout the agreement.7
Other common tactics include:
- • Urging homeowners to sign over property titles
- • Providing homeowners with hard-to-understand documents
- • Redirecting payments to their own bank accounts
- • Advising homeowners to halt mortgage payments altogether
The consequences of these scams can be financially devastating. Ultimately, victims can end up without a home.
Spotting a Scam: Precautionary Measures for the Hispanic Community
Securing a mortgage can be a complex effort, but the process is straightforward. Here are the key steps:
1. Understand where you stand in terms of your credit score.
2. Apply for a mortgage with a bank or a mortgage lender.
3. Share your financial details with the lender.
4. Wait for the lender to assess the application based on your creditworthiness.
5. Sign a contract with the lender (if approved).
After that, the lender will disburse the funds and you will repay the loan plus interest, as per the signed contract.
Along the way, you will hear about lots of financial terms. Some of the key ones include:
- • Principal: The original amount of money that you borrowed and must pay back.
- • Loan term: The time you have to repay the loan.
- * Interest rate: The cost you pay for the money you borrowed to purchase a home.
- • Annual percentage rate (APR): Encompasses the interest rate plus various charges and fees (e.g., the mortgage brokerage fee).
- • Loan payment: The total amount of money you must pay regularly (e.g., weekly, biweekly or monthly) to meet the loan terms.
There are many other activities and considerations involved in securing a mortgage, including paying property taxes. But generally, if a lender goes outside this process or the terms are unclear, it may be a mortgage scam.
Laws can help protect borrowers from predatory lenders, but you should also seek out reputable lenders who follow fair lending practices. So, who can you trust? The following entities can help:
- • Banks/financial institutions. When deciding on a home loan, banks can answer the most-asked financial questions and help you determine where you stand financially so you can get the best interest rates.
- • Real estate agents. An informational resource in the homebuying process, real estate agents share what they know about the market in which you're looking to buy a house. They can also guide home loan decisions.
- • Mortgage brokers. As intermediaries between lenders and borrowers, brokers can work with you to find a loan that meets your needs.
- • Real estate attorneys. When an attorney is part of the mortgage process, they can be a great resource to answer legal questions.
Empowering Yourself With Education
We're in the middle of an eight-year Hispanic homeownership growth trend.8 And the future looks bright, with Hispanics projected to contribute 70% of homeownership growth over the next two decades.9
But mortgage scams continue to halt the dream of homeownership—a key to personal and generational wealth—for many in the Hispanic community. It's crucial to be cautious and well-informed by:
- • Researching lenders through online reviews and testimonials
- • Staying up-to-date on mortgage regulations and laws
- • Seeking advice from credible sources, including the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency and the Department of Housing and Urban Development
- • Getting in-depth information from credible online sources such as HelpWithMyBank.gov and MediaWise
The key to self-empowerment is financial education, especially when dealing with complex products like mortgages. If you think you've run into a mortgage scam, you can report it to your local police or sheriff's office, contact your state attorney general or submit a complaint to the CFPB.
Alex Soto is a freelance writer and editor who covers everything from engineering and scientific research to commercial technology, personal finance and sustainability. He writes for academic institutions, technology companies and financial services firms.
READ MORE: What Should I Know Before I Take Out My First Mortgage?
Sources/references
1. 2022 State of Hispanic Homeownership Report, The National Association of Hispanic Real Estate Professionals, 2022.
2. Homeownership Rates by Race and Ethnicity: Non-Hispanic White Alone in the United States, Federal Reserve Bank of St. Louis, August 2, 2023.
3.DiVito, E. Banking for the People: Lessons from California on the Failures of the Banking Status Quo, Roosevelt Institute, September 2022.
4. Yakoboski, P.J., Lusardi, A. and Hasler, A. Financial well-being and literacy in the midst of a pandemic, TIAA Institute and Global Financial Literacy Excellence Center, April 2021.
5. Truth in Lending, Office of the Comptroller of the Currency.
6. Chen, Y. and Guzman, L. 4 in 10 Latino and Black Households with Children Lack Confidence That They Can Make Their Next Housing Payment, One Year Into COVID-19, The National Research Center on Hispanic Children & Families, June 29, 2021.
7. Justice Department Obtains Relief in Lawsuit Alleging Discriminatory Targeting of Hispanic Homeowners, Office of Public Affairs, June 10, 2022.
8. New NAHREP Report Finds Homeownership Growth Continues Eight-Year Trajectory, The National Association of Hispanic Real Estate Professionals, March 14, 2023.
9. Goodman, L. and Zhu, J. The Number of Hispanic Households Will Skyrocket by 2040. How Can the Housing Industry Support Their Needs? Urban Institute, February 25, 2021.