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Spencer for Hire :: Part 2: Refinance

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Let me make a few quick points before I begin to discuss refinancing statistics and sub-prime loans. First, it is important to know where we stand on the scale of Riverside and San Bernardino County’s economic income stability level.

These economic indicators such as “median income” are based on several factors including economic development, inflation and job stability. The median income for Riverside and San Bernardino County is $51,000.00. Upper income is defined as earning more than 120% of the median income. Middle income is defined as earning between 80%-119% of the median income.

Moderate income is defined as earning between 50%-79% of the median income. Low income is defined as earning less than 50% of the median income. After doing a little calculation, you can determine exactly where you stand. For more clarification on what median income is visit Fannie Mae’s website at www.efanniemae.com.

Secondly, I need to make this perfectly clear; a sub-prime loan is not a bad product if it’s for the right person in need of it. Sub-prime loans help individuals and families get into housing they probably could not. I would definitely prefer an individual get a sub-prime loan than live on the streets or rent for several years. It’s when a sub-prime loan is being misused is when it becomes a devastating product. It is a product that should be used as a last resort and when all other products can’t assist the borrower.

The borrower should be fully aware of what they are getting involved in and all fees, charges, penalties and rates should be explained and understood before signing any documents.

Finally, to make sure we are all on the same page, predatory lending is the making of unethical and abusive mortgage loans that include excessive and often disguised fees, inflated rates, and practices such as making loans the borrower cannot repay to grant themselves the luxury of foreclosing on the property when the inevitable strikes.

Let’s get started. In 1999 in a local metropolitan area, subprime lenders accounted for 29.2% of all the refinance loans made to African-American homeowners and 23.4% of all refinance loans made to Latino homeowners, but just 10.6% of the refinance loans made to white homeowners. In comparative terms, this means that African-American homeowners who refinanced were twice (2.7 times to be more exact) more likely to receive a subprime loan than white homeowners were, and Latino homeowners who refinanced were 2.2 times more likely to receive a subprime loan than white homeowners were.

The racial disparity is still present when comparing minority borrowers with white borrowers of the same incomes and is greatest among higher income borrowers.

29.6% of the refinance loans received by upper-income African-Americans were from subprime lenders, as were 19.7% of the refinance loans received by upper-income Latinos. In contrast, only 8.7% of the refinance loans received by upper-income whites were from subprime lenders.

This means that upper-income African-American homeowners who refinanced were three times (3.4 times to be exact) more likely to receive a subprime loan than upper-income white homeowners, and upper-income Latinos were 2.3 times more likely than upper-income whites to receive a subprime loan when refinancing. In addition, upper-income African-Americans and Latinos were more likely than low-income whites to receive a subprime loan when refinancing.

Minorities received a larger share of subprime refinance loans than of prime refinance loans. In 1999, African-Americans received 3.7% of all the subprime refinance loans made in the metropolitan area, a 2.6 times larger share than the 1.4% they received of prime refinance loans. Latinos received 17.8% of the subprime loans, almost double their 9.2% share of prime loans. In contrast, whites received 38.0% of the subprime refinance loans, but 50.9% of the prime loans.

If you take a moment to really understand these figures they are shocking. Predatory lenders are taking advantage of us and we aren’t aware. We sometimes think they are doing us a favor. We spend more money on the mortgage loan, closing cost, origination, points and other fees than we have too.

Predatory lenders account for 50 percent or more of mortgages being foreclosed upon in African-American communities in many areas throughout this country. Knowledge is Power. You could have good credit, make a decent income and been on you job for a while and still wind up with a mortgage loan you are over qualified for or don’t deserve just because you weren’t educated about predatory lending and someone decided to take you for granted. Are we the prey?

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