Group alleges home loan gap among races

Data suggest income, employment play role in rejections

`Don't have the cash'

Predatory lending worsens minorities' chances to recover

April 27, 2000|By Gerard Shields | Gerard Shields,SUN STAFF

Federal banking data show that Baltimore African-Americans seeking home loans are rejected at a rate two times higher than white applicants, a report issued this week by a national civic group has found. The Association of Community Organizations for Reform Now (ACORN) said federal loan reports show only 7 percent of banks' home loans went to city neighborhoods with minority populations of 50 percent or more.

The six-page ACORN report, based on federal loan figures, concludes that the practice has resulted in a rise in more mortgage companies preying on Baltimore's poor by charging them, in some cases, more than double the interest rates of conventional mortgages.

"The way I look at it," ACORN organizer Mitchell Klein said of the problem, "We're essentially being held hostage by a small group of people."

Baltimore banking and housing industry leaders, however, contend that many of the problems surrounding the number of conventional home loans in low- and moderate income neighborhoods are rooted more in the credit histories of the residents than race.

Baltimore banking and housing leaders said yesterday that many of the neighborhoods studied by ACORN are areas where unemployment and poorer credit ratings are likely to be higher. In addition, many of the loans are being sought for properties that require so much repair to bring them up to city code that they contain a negative value.

Vincent P. Quayle, head of St. Ambrose Housing Aid Center, said conventional bank loans require cash down payments, a provision that results in many city residents turning to government-backed loans for housing help.

"It has nothing to do with them being black," Quayle said of the borrowers. "The borrower needs cash, and Baltimore has always been a working-class town where people don't have the cash."

The ACORN report is based on federal loan data collected under the Home Mortgage Disclosure Act for 1998, the last year available. Loan figures for 1999 are expected to be released in the next few weeks.

Banks are increasingly trying to establish partnerships with nonprofit community development groups to boost their number of home loans to low- and moderate-income neighborhoods.

On Friday, Fannie Mae will announce a partnership with St. Ambrose and the city to spend $750,000 to rehabilitate 20 vacant homes in the Waverly and Pen Lucy areas for first-time homebuyers. The city will provide $375,000 in grants to the homebuyers.

Mayor, group to meet

Last year, ACORN worked with Bank of America to provide 655 home loans to low- and moderate income families at rates 1 percent lower than conventional mortgages.

ACORN leaders will meet with Mayor Martin O'Malley tonight to ask him to crack down on slum landlords and predatory lending in the city by stepping up enforcement and fines. Recommendations by the group include enforcing an ordinance requiring city homes to meet housing codes before they are sold.

Predatory lending in Baltimore has recently attracted federal scrutiny because of the widespread practice of "flipping." The problem involves the purchase and quick resale of houses at huge markups, often using falsified documents and inflated appraisals.

`Flipping' trend an issue

More than 2,000 houses have been quickly resold in Baltimore in the last four years for price increases of 100 percent or more. FBI investigators recently told a U.S. Senate subcommittee that some Baltimore property owners flipped more than 200 homes in a two-year period, with a potential profit of $10,000 to $20,000 per home.

Calling Baltimore "one of the worst manifestations in the country" of predatory lending, the federal government last month declared an eight-week moratorium on foreclosures on Federal Housing Administration-backed mortgages in the 7,000-home Belair-Edison section of Northeast Baltimore. Housing officials want to determine whether any lenders using the federal insurance committed fraud in the sales.

Nationwide, the lending industry that specializes in double-digit interest loans has grown from $20 billion in 1993 to more than $150 billion in 1998, according to the federal Department of Housing and Urban Development.

Reinvestment sought

ACORN also wants the city to establish a local Community Reinvestment Act rating system. Banks that fail to make loans in minority and lower-income communities would not be awarded city business under the ACORN proposal.

During his mayoral campaign last year, O'Malley pledged to force local banks to increase investments in city neighborhoods by holding them accountable to meet the Community Reinvestment Act. The 1977 law requires banks to make loans in poor neighborhoods based on their share of all area banking deposits.

O'Malley has hired a former banker to lead the city's reinvestment effort and intends to create a three-person office to boost neighborhood redevelopment.

Banks' loans compared

In the past six years, cities across the United States have received $1 trillion in community reinvestment money because of stricter enforcement of the law. Between 1977 and 1993, $42 billion was spent.

Pittsburgh has secured $2.7 billion since 1988. Cleveland has attracted $1.3 billion through nine banks since 1991. In that time, Baltimore has used $137 million in community reinvestment funds, less than 6 percent of the Pittsburgh funding.

Studies by ACORN showed that NationsBank, which has since merged with Bank of America, led local institutions in loans to Baltimore-area African-Americans with 17 percent. Provident Bank followed with 12.6 percent and First Union with 10.1 percent.

First Union led local lenders with 78 percent of their conventional loans going to low- and moderate income borrowers.

ACORN leaders will meet with O'Malley today at 6 p.m. at Barclay Community Center at 300 E. 29th St.

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