Celeste Busk

March 16, 2007

Mortgage lenders in the Chicago area made more high-cost, subprime home loans to African-American borrowers than they did to white borrowers, a survey of lenders in six cities found.

The findings come from the report, "Paying More for the American Dream: A Multistate Analysis of Higher Cost Home Purchase Lending," which examined the cost of borrowing in New York City; Los Angeles; Chicago; Boston; Charlotte, N.C., and Rochester, N.Y., from seven lenders: Citigroup, Countrywide, GMAC, HSBC, JP Morgan Chase, Washington Mutual and Wells Fargo. This was 2005 federal mortgage lending data that was released in September 2006.

"This is the first time that we have looked at the distribution of subprime lending," said Tom Feltner of the Woodstock Institute. "We know that minorities are getting the lion's share of subprime loans. Our concern is that the disproportionate share will have a disproportionate impact."

The study found that African-American borrowers were 3.8 times more likely to receive a higher-cost home loan than were white borrowers.

Latino borrowers were 3.6 times more likely than white borrowers to receive a higher-cost home loan.

Chicago had the highest share of higher-cost home loans to African-American borrowers than to white borrowers at 64.2 percent, while Boston had the highest share to Latino borrowers at 54.5 percent.

The worst disparity for any individual lending group was observed in Chicago, where African-American borrowers were 14 times more likely to receive a higher-cost home purchase loan from Wells Fargo than were white borrowers (35.3 percent vs. 2.5 percent).

This report indicated that concentrations of high interest subprime loans, such as those in the Chicago area, have a disproportionate impact on minority neighborhoods and households, said Marva Williams of the Woodstock Institute, a member of the Consumer Advisory Council. The council's report was presented recently to the Federal Reserve Board.

The bottom line on homeowners and neighborhoods is an increase in defaults and foreclosures on subprime loans. Other results include crumbling stock prices of subprime lenders and growing concerns on Wall Street about underwriting standards in the subprime lending industry, Williams said.

"These lenders were analyzed because they are among the biggest financial institutions in the nation, and all originated a substantial volume of both higher-cost subprime and lower-cost prime loans," Williams said. Other members of the council include: the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance and the Neighborhood Economic Development Advocacy Project.

The council called on the Federal Reserve Board to be proactive and investigate systemic and specific corporate fair lending violations. Here are some of the highlights of the report:

- For these seven lenders, the percentage of total home purchase loans to African Americans that were higher-cost was six times greater than the percentage of higher-cost home purchase loans to whites in the six cities (41.1 percent vs. 6.9 percent).

- In the same cities, for the same lenders, the percentage of total home purchase loans to Latinos that were higher-cost was 4.8 times greater than the percentage of higher-cost home purchase loans to whites (32.8 percent vs. 6.9 percent).

- In each of the cities examined, the seven lenders combined showed larger African American/white and Latino/white disparities than those exhibited in the overall lending market.