Housing Bubble
Increase in subprime loans to minorities - concern over predatory lending
A study released this week by the Association of Community Organizations for Reform Now (ACORN) reveals that racial and income inequalities in lending have increased in the past two years.
The Separate And Unequal: Predatory Lending in America study analyzes the lending activity of more than 7,600 institutions covered by the Home Mortgage Disclosure Act. It found that, in 2001, African-Americans were 4.4 times more likely than whites to receive a subprime loan when refinancing, compared with 2.8 times in 2000, while Latinos were 2.2 times as likely, compared with 1.5 times in 2000.
Lower income white homeowners were also targeted. Subprime lenders made 11.76 percent of all conventional refinance loans received by low-income white homeowners and 8.98 percent of all refinance loan received by moderate-income white homeowners. By comparison, 4.81 percent of the refinance loans to upper-income white homeowners were from subprime lenders.
Increases were also noted for subprime purchase loans which “has been much faster than the rate of growth of prime lending, especially to African-American borrowers”
The study states that while not all all subprime lenders are predatory, almost all predatory loans are subprime. It does recognize the need for flexible loan products for borrowers whose credit will not allow them to obtain loans on ‘A’ terms, but sees the subprime industry as a “breeding ground for predatory practices”. Predatory lending is defined by the report as loan terms or conditions that become abusive or when borrower's are targeted for higher cost loans when they should qualify for credit on better terms. Citing a Freddie Mac estimate that as many as 35 percent of borrowers who received a subprime loan could have qualified for a prime loan, this would equate to about $200,000 more in payments on a subprime loan over its 30 year life.
The report concludes with recommendations for regulators, legislators and consumers. Their website also contains the section Predatory Lending : Recommendations for Consumers.
Coming just days after the report from the National Housing Conference which found a significant rise in working families who spend more than half their income on housing, this latest study is a further demonstration that many groups are are not enjoying the benefits from a recent boom in real estate prices and fall in mortgage rates.
ACORN is the nation's largest community organization of low and moderate-income families whose priorities include better housing for first time homebuyers and tenants.
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