Minorities' mortgage cost decried

Consumer group finds blacks, Hispanics often steered to higher rates

March 10, 2004|By Richard Burnett | Richard Burnett,ORLANDO SENTINEL

During the nation's home-refinance boom, too many minority borrowers have wound up with high-cost, subprime loans when they could have qualified for some of the lowest mortgage interest rates in history, according to a consumer advocacy group's study released yesterday.

The study, part of a continuing attempt to document racial disparity in subprime mortgages - loans with higher-than-prime interest rates and fees, typically designed for credit-troubled borrowers - was conducted by the ACORN Group, a consumer-advocacy organization based in Washington.

Focusing on 117 U.S. metropolitan areas, researchers said blacks were 4.1 times more likely to have a subprime loan and Hispanics were 2.5 times more likely than their white, nonminority counterparts.

Overall, almost 28 percent of the refinance loans nationwide for blacks and 17.1 percent of Hispanics' refinance loans were from subprime lenders, the study concluded. Among white, nonminority borrowers, only 6.7 percent had subprime loans.

The disparity remains even when varying income levels are taken into account. Nationally, for example, almost 20 percent of higher-income blacks and 13.4 percent of higher-income Hispanics had subprime refinance loans, compared with 5.2 percent of nonminority whites with higher incomes, the study found.

The difference between a prime and subprime loan can amount to $200,000 in extra interest paid over the life of a mortgage, the study noted.

"This is another example of how divided our country has become," said Maude Hurd, president of ACORN, which is short for Association of Community Organizations for Reform Now. "Different markets mean some families are treated fairly, while other families continue to get ripped off."

"Unfortunately, the study appears to continue to create the misimpression that there is widespread improper discrimination against minorities by nonprime lenders," said Wright Andrews, a spokesman for the Coalition for Fair & Affordable Lending, a Washington-based trade group representing subprime lenders. "And that's just not the case."

Andrews said the same government data that ACORN says it uses actually show that subprime loans, by dollar volume, reflect very closely the ethnic and racial mix of the country's population. By making credit more available, subprime lenders have contributed to increases in the rate of homeownership among minorities, he said. He argued that credit scores, not race, play a critical role in who is approved for prime vs. subprime loans.

"Subprime lenders are generally making loans according to the risk represented by the borrower," Andrews said. "That involves credit scores, income levels and other risk factors. If you look at the credit scores of borrowers, you'll find that the vast majority of nonprime loans are made to people who have [low] credit scores."

ACORN researchers argue that many minority borrowers with good credit were still improperly steered into higher-cost, subprime loans. Citing reports from Fannie Mae, Freddie Mac and the Department of Justice, the study estimated that 20 percent to 50 percent of all minority borrowers with subprime loans could have qualified for prime, conventional mortgages.

"There are far too many credit brokers who actually get incentive rewards, through yield spread premiums, if they can get A-credit people into a subprime loan," said Valerie Coffin, lead researcher for the ACORN study. "And a lot of people don't realize that, if they walk in the door of a subprime lender, they're not going to get anything but a subprime loan, regardless of their credit."

The Orlando Sentinel is a Tribune Publishing newspaper.

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