Largest U.S. Mortgage Lenders Target Minorities for High Cost Loans

FOR IMMEDIATE RELEASE

New Multi-State Report Released at Federal Reserve Board Meeting Detail Large Disparities in High-Cost Lending

Today at the Federal Reserve Board’s Community Advisory Council Meeting, a multi-state collaboration of advocacy agencies released a report showing that the largest lenders with both prime and subprime businesses make a disproportionate share of their higher-cost loans to minority borrowers across the nation. The groups called on the Federal Reserve Board to be proactive and investigate systemic and specific corporate fair lending violations.

“Defaults and foreclosures of subprime loans are skyrocketing. Stock prices of subprime lenders are crumbling, and concerns are being raised on Wall Street about underwriting standards in the subprime lending industry. This report demonstrates that concentrations of high interest subprime loans have a disproportionate impact on minority neighborhoods and households”, states Marva Williams of Woodstock Institute, a presenter and member of the Consumer Advisory Council.

The report, Paying More for the American Dream: A Multi-State Analysis of Higher Cost Home Purchase Lending, examines the cost of borrowing in six metropolitan areas in the United States. These areas include large urban areas - New York City, Los Angeles, Chicago, and Boston, - as well as the smaller urban areas of Charlotte, NC and Rochester, NY. The study confirms that large disparities remain in the pricing of home purchase loans.

§ In these six metropolitan areas, African American borrowers were 3.8 times more likely to receive a higher-cost home purchase loan than were white borrowers.

§ In the same six metro areas, Latino borrowers were 3.6 times more likely than white borrowers to receive a higher-cost home purchase loan.

The study focuses on lending by Citigroup, Countrywide, GMAC, HSBC, JP Morgan Chase, Washington Mutual, and Wells Fargo. 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.

§ 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.

§ 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).[1]

The report also offers a case study of one lender – Washington Mutual (WaMu), to highlight the significant role that different lending channels play in home loan pricing. WaMu’s higher-cost subprime lender, Long Beach Mortgage Company, was WaMu’s main lender to African American and Latino borrowers in the six survey cities.

§ Regardless of race, 90 percent of Long Beach borrowers received higher-cost home purchase loans.

§ Long Beach Mortgage accounted for 75.9 percent of all WaMu home purchase loans to African Americans, and 64.7 percent of all WaMu home purchase loans to Latinos.

§ In contrast, WaMu’s lower-cost prime lender, Washington Mutual Bank, accounted for more than 80 percent of all WaMu home purchase loans to whites.

§ Less than 1 percent of the loans originated by Washington Mutual Bank were higher-cost loans.

Which lending channel a borrower enters – prime or subprime – has a large impact on the price she will pay for her home loan.

New York City was especially hard hit by these seven lenders. African American borrowers were more than 12 times as likely to receive a higher-cost home purchase loan as were their white counterparts. Latino borrowers in New York were almost eight times more likely than white borrowers to receive a higher-cost home purchase loan.

These disparities are far too high to be explained by the credit records of borrowers and impact middle-income as well as moderate-income minority borrowers. The cost of being steered into a subprime loan can be tens of thousands of dollars over the life of the mortgage.

Collaboration

The research collaboration involved nonprofit advocacy agencies from the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Assistance Project (NEDAP), and Woodstock Institute. These organizations, which work regionally and nationally, are collectively raising concerns about national lending practices that are negatively impacting local communities.

The presentation at the Federal Reserve Board was made by Marva Williams of Woodstock Institute and Sarah Ludwig of NEDAP.

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