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Published: August 2008

Minority consumers most at-risk for high-cost mortgage loans

The National Community Reinvestment Coalition (NCRC) report highlights stark disparities for African-American and Hispanic loan recipients in particular.

Download the NCRC report "Income is No Shield Against Racial Differences in Lending"

A new report by the National Community Reinvestment Coalition (NCRC) shows that minority consumers, regardless of income level, are most at risk of receiving high-cost home mortgage loans. High-cost loans represent the riskiest and most poorly underwritten home mortgages, millions of which have fallen into foreclosure in the last two years. The study, Income Is No Shield Against Racial Differences in Lending II, examined subprime and near prime (“Alt-A”) loans from more than 219 metropolitan areas, as reported under the Home Mortgage Disclosure Act data from 2006, the most recent publicly available data.

“The data reminds us that the current housing crisis was overwhelmingly the result of the explosion of bad loan products in financially vulnerable communities. It is not surprising that foreclosures have been concentrated among African-Americans and Latinos, because predatory and problematic loans are most prevalent in those communities,” said John Taylor, President & CEO of NCRC.

According to the report, minorities are paying more for mortgages, even as their income levels increase. Loan price disparities, as compared to white counterparts, were more common for middle to upper-income (MUI) African-American and Hispanic borrowers than pricing disparities were for low- and moderate-income minority borrowers.

Lending disparities for African-Americans and Hispanics also increased significantly as income levels increased. During 2006, middle-and upper-income (MUI) African-Americans were twice or more as likely to receive high-cost loans as MUI whites in 155 of the metro areas analyzed (71.4 percent). Furthermore, MUI Hispanics were twice or more as likely to receive high-cost loans as MUI whites in 45 of the metro areas analyzed (22.5 percent).

In comparison, while low-and moderate-income (LMI) minorities are more likely to receive high-cost loans than LMI whites, the disparity was less significant than disparities among MUI borrowers. LMI African-Americans were twice or more as likely to receive high-cost loans as LMI whites in 87 metro areas (47.3 percent). Furthermore, LMI Hispanics were twice or more as likely to receive high-cost loans as LMI whites in 8 metro areas (4.9 percent).

Significant levels of high-cost lending unnecessarily impede wealth building in minority communities. High-cost loans have significantly contributed to the current foreclosure crisis, wiping out hundreds of millions of dollars in mortgage equity. The overwhelming and unexplained prevalence of high-cost lending in minority communities suggests that some level of discriminatory behavior continues in the mortgage finance market, as has been shown by other studies, including those utilizing creditworthiness data conducted by NCRC, the Center for Responsible Lending and the Federal Reserve.

The top 20 areas where overall racial disparities were most pronounced include (in ranked order):

1.    Milwaukee-Waukesha-West Allis, WI
2.    Minneapolis-St. Paul-Bloomington, MN
3.    Huntsville, AL
4.    Ann Arbor, MI
5.    Hartford-West Hartford-East Hartford, CT
6.    Bridgeport-Stamford-Norwalk, CT
7.    Greenville, NC
8.    Philadelphia, PA
9.    Essex County, MA
10.    Durham, NC
11.    Raleigh-Cary, NC
12.    Dayton, OH
13.    Birmingham-Hoover, AL
14.    Fort Wayne, IN
15.    Cleveland-Elyria-Mentor, OH
16.    Roanoke, VA
17.    Rochester, NY
18.    Harrisburg-Carlisle, PA
19.    Lubbock, TX
20.    Warren-Troy-Farmington Hills, MI

The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America's working families.

For More Information

National Community Reinvestment Coalition

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Consumer Protection   ♦   Housing   ♦