Prototype Issue
The Color of Money Lending: Home-Mortgage Data Reflects Ethnic Bias
By Arch Miller
(page 1 of 1)Minorities More Likely to be Denied Loans Despite Good Income, Credit Rating.
Since the Home Mortgage Disclosure Act was passed in 1975, requiring financial institutions to provide details about their lending practices, HMDA data has shown that “ethnic minorities are more likely to be denied home loans, less likely to receive credit and more likely to pay more for home loans than Caucasians,” asserts Kevin Stein, associate director of the California Reinvestment Coalition.
According to a CRC report, 2005 HMDA data lists 53.6% of African American borrowers and 55.5% of Latino borrowers as having received high-cost loans, as compared with 14.1% of non-Hispanic whites who borrowed money.
RealTALK LA spoke with Stein.
Does HMDA data distinguish between ethnic minorities and people with poor credit? The HMDA data—the most detailed data that’s publicly available—doesn’t include credit scores and loan-to-value ratios. Community groups urge the Federal Reserve to expand HMDA data to include credit scores every year. The industry vigorously opposes it every year. This way, they can say the HMDA data is meaningful because it doesn’t include data they won’t divulge.
The U.S. Department of Justice said it would take action against certain lenders on the basis of 2004 HMDA data. Democratic Rep. Barney Frank of Massachusetts, who also chairs the House Committee on Financial Services, said HMDA data shows racial disparity in lending. Frank is planning hearings on the matter. What are other legislators doing? [When he was] New York attorney general, [New York] Gov. Eliot Spitzer saw the disparities and asked offending lenders for their loan files. In December, he announced a settlement with Countrywide Home Loans—the largest lender in the country. On his website, Spitzer suggests Countrywide cooperated with his investigation, but the data did not fully explain why African Americans and Latinos paid more.
Are ethnic minorities with higher earnings treated differently from those who earn less? I don’t think so. A few years ago, the Center for Community Change found upper-income African Americans were more likely to get high-cost loans than whites, and the disparity was larger than when looking at the low-income blacks and whites. Meaning, the disparities increased with income.
Our research shows California residents of low-income neighborhoods are only about 2 1/2 times more likely to receive high-cost loans than those in upper-income neighborhoods, compared to residents of minority neighborhoods, who are almost four times more likely than residents of white neighborhoods to pay more.
Which banks offer fair rates to ethnic minorities? I wouldn’t say one bank is more fair than another. Most banks offer low-cost prime rates, but they don’t aggressively market these products in neighborhoods subject to a flood of subprime loans. Borrowers should know they might qualify for a prime loan but the bank will be quick to offer them a subprime loan.
Any tips on seeking a lender? Shop around and don’t accept the first offer. The [U.S. Department of] Housing and Urban Development has a list of certified loan-counseling agencies that help applicants determine if they’re getting a good deal. Nonprofits like the Los Angeles Neighborhood Housing Services help borrowers look at their credit scores, spending habits, and [the] best products [for their situation]. The Multicultural Real Estate Alliance for Urban Change is a good resource regarding predatory lending.
U.S. Department of Housing and Urban Development: www.hud.gov Los Angles Neighborhood Housing Services: www.lanhs.org Multicultural Real Estate Alliance for Urban Change: 323-299-6781
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