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High Cost Lending Plagues Minority and Low-Income Borrowers

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In Los Angeles, African-Americans are 3.5 times more likely to receive a subprime loan than Whites when refinancing while Latinos are 2.1 times more likely to receive a subprime loan.

On March 9, ACORN released a study documenting the targeting of subprime home loans to minority and low-income Americans. The concentration of these costly loans among families and neighborhoods that can least afford them prevents the accumulation of home equity and entrenches economic inequalities. The report compares lending data for Los Angeles with both national figures and individual data for 117 other metropolitan areas across the country.

Nationally in 2002, subprime lenders originated more than one out of four, 27.6%, of the refinance loans made to African-American homeowners. Subprime lenders originated 17.6% of refinances to Latino homeowners, and only 6.7%, or one out of seventeen, refinance loans to White homeowners. Low-income homeowners were 2.6 times more likely to receive a subprime loan than upper-income homeowners, and moderate-income homeowners were 2.1 times more likely to receive a subprime loan.

Subprime loans carry higher rates, fees, and other costs than prime loans and can become predatory when those costs bear little relation to risk. According to Fannie Mae, 30 to 50% of subprime loans are made to borrowers who could have qualified for prime loans, which could cost a typical homeowner $200,000 more in total payments over the life of a 30-year loan.

"This is another example of how divided our country has become," said ACORN National President Maude Hurd. "Different markets mean some families are treated fairly while other families continue to get ripped off. Every day, predatory loans steal away families‚ homes and force others to choose between keeping up on their mortgage or meeting other basic needs.

"ACORN calls on federal regulators and Congress not to preempt state laws that are working to protect homeowners from predatory loans. We call on lenders with prime and subprime divisions to make prime loans to all borrowers with poor credit, regardless of where the application is made," continued President Hurd. "And we urge consumers to protect themselves from predatory lenders by talking with local non-profit housing counselors before taking out a home loan."

In the Los Angeles metropolitan area:

• 30.5%, or one out of 3, refinance loans to African-American homeowners were from subprime lenders as were 18.3%, or one out of every 5, refinance loans to Latino homeowners. In comparison, 8.6% of refinance loans to White homeowners were from subprime lenders or one in 12.

• African-American homeowners who refinanced were 3.5 times more likely to receive a subprime loan than White homeowners, and Latinos were 2.1 times more likely to receive a subprime loan.

• Disparities persist among homeowners of different races, even when controlled for income.

• Subprime lending is concentrated in minority communities. Subprime lenders made 22.6% of the refinance loans in minority neighborhoods with greater than 80% minority population compared to only 6.9 % of the refinance loans in White neighborhoods with less than 20% minority population.

Additional findings are available in the full report. To access the report go to www.acorn.org/?id=1998

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