Bias in mortgages, loans persists

From the Globe Business Desk

Looking for a mortgage?
    If you are a low-income minority consumer chances are you will pay more.
    And, it has a lot to do with your zip code.
    A California Reinvestment Coalition study found that the poor and people of color living in low-income neighborhoods are generally charged higher interest rates for their loans when they try to buy a home because lenders believe they represent a higher financial risk for them.
    The report, “Who Really Gets Higher Cost Home Loans?” compared loans and mortgages for borrowers and neighborhoods in 14 California communities, including Oakland, Richmond and San Francisco and points out “disparities by income, race and ethnicity,” said Kevin Stein, principal author of the study for the San Francisco-based coalition.
    In El Centro, 65.4 percent of refinance loans to African- American borrowers were higher- cost home loans as was the case in Richmond, for 61.4 percent of Latino borrowers.
    In Oakland, homeowners in neighborhoods where people of color live were almost 24 times more likely to have higher-cost refinance loans than residents of white neighborhoods who own their homes.
    Urban areas saw greater disparities between people of color and white borrowers, and between low to moderate-income and minority neighborhoods and moderate to upper-income and white neighborhoods.
    An entire industry has sprung up that offers highercost, or subprime, loans to consumers who are thought not to qualify for lower-cost prime loans, according to the report.
   “Higher-cost home loans carry higher interest rates and fees, forcing consumers to pay more to meet often increasing monthly mortgage obligations. Homeowners who face a greater burden in making mortgage payments will have a greater likelihood of falling behind and possibly losing their homes to foreclosure,” the report said.
    The report reviewed 573,492 higher-cost loans made to homeowners in California in 2005. This is more than double the 264,348 higher-cost home loans originated in 2004, said the report.
   “There is more subprime lending in California than in any other state and loan volume tripled (in dollars lent) in the state from 2004 to 2005,” said the report.
   “African-American and Latino borrowers pay more than other borrowers, as do residents of minority and low-income neighborhoods. Statewide, residents of minority neighborhoods were nearly four times as likely as residents of white neighborhoods to receive higher- cost home purchase loans.”
    The report also noted the average higher-cost borrower in California paid $610 more per month on a home loan than most Californians and “conservatively, people of color in California are paying more than $109 million more per month or more than $1.3 billion more per year than they would if they received higher-cost loans at the same rate as white borrowers.”
    Who profits from high-rate loans?
    The report says “the bulk of these loans are packaged and sold on Wall Street for significant fees. To facilitate this process, we are now seeing the growth of Wall Street firms buying lending companies so that the Wall Street firms can originate higher-cost loans themselves before selling these loans to investors. Wall Street firms now rank among the largest higher-cost lenders in the state. Such Wall Street players include: Merrill Lynch, Lehman Brothers, Bear Stearns, and Deutsche Bank.”
    New York State’s Attorney General just settled a case with Countrywide Home Loans, the eighth largest high-cost lender in California, after data suggested its African-American and Latino customers were more likely than its white customers to receive higher-cost home loans.
    CRC is a nonprofit membership organization of more than 240 nonprofit organizations and public agencies in California and works with community-based organizations to promote the economic revitalization of California’s low-income communities and communities of color.