By Curtis Black
May 13, 2010
Minority communities which were hardest hit by subprime loans and foreclosures are seeing dramatic and disproportionate decreases in prime mortgage lending, according to a new study of bank lending in seven metropolitan areas including Chicago.
“We have gone from a period of reverse redlining to a period of re-redlining,” said Geoff Smith, vice president of the Woodstock Institute, one of the groups that collaborated on the study.
In the Chicago area, prime mortgage lending dropped by more than 53 percent in communities of color from 2006 to 2008, compared to just 20 percent in predominantly white communities. Prime-rate refinance lending has increased in white neighborhoods but declined by nearly 50 percent in communities of color, according to the report.
Minority homeowners accounted for just 5.7 percent of prime refinance loans in this region in 2008, down from 10.5 percent two years previously.
Mortgage credit is now tightest in the same communities that were most heavily targeted for unaffordable and abusive subprime mortgages during the housing boom – and which have been hardest hit by foreclosures.
“After inflicting harm on neighborhoods of color through years of problematic subprime and [adjustable rate] loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment,” Smith said in a release.
The nation’s four largest banks – Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo – have increased prime refinance lending but shifted it out of minority communities and into white areas, according to the study. In Chicago the four banks increased prime refinance lending in white communities by 62 percent and reduced it by 24 percent in communities of color during the period of the study.
Woodstock and its partners said the data shows the need for modernizing the Community Reinvestment and Home Mortgage Disclosure acts; and establishing a consumer finance protection agency, now under consideration in Congress. They call on banks to do more to prevent foreclosures and to increase investments in neighborhoods which they have destabilized through unequal credit policies.
The study, Paying More for the American Dream (IV), is the fourth annual report examining systematic inequities in home financing conducted by a multi-state collaborative of regional research and policy groups.