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The minority loan gap
By LEW SICHELMAN WASHINGTON -- Minorities in the Tampa-St. Petersburg area not only are rejected more often for mortgages than whites, new evidence suggests that a disproportionate share of those who are approved get their loans from lenders who charge the highest rates and fees. In what is termed "financial apartheid," African-Americans in the Tampa Bay area were about 21/2 times as likely to obtain their loans from "subprime" lenders when they refinanced last year, according to a new study that documents that the highest concentration of subprime lending is to minority and low-income borrowers. As a result, says the report by ACORN -- the nation's largest community organization of low- and moderate-income families -- they are more apt to be fleeced by unscrupulous lenders. In many cases, the report charges, borrowers who are eligible for good loan rates and lower fees are "steered" toward more costly loans and end up paying hundreds of dollars more a month than they should. In the worst instances, the study also maintains, loans are so harmful that they all but guarantee the likelihood of foreclosure. "Our neighborhoods are in danger of drowning in overpriced predatory loans," said Maude Hurd, president of the 100,000-member group -- the acronym stands for Association of Community Organizations for Reform Now -- that is organized into 500 neighborhood chapters in 40 cities throughout the country. "It's a kind of financial apartheid, where minority and low-income borrowers pay more, even when they have good credit," Hurd said. ACORN listed the Tampa Bay area as one of six metropolitan areas with the greatest gap between its black population and their share of conventional home loans. According to ACORN, African-Americans make up 10.2 percent of the area's population but get only 2.68 percent of the mortgages. Subprime lending is intended for borrowers who pose a greater risk, usually because of the lack of credit or because of previous credit problems. Most observers, ACORN included, believe there is a legitimate place for products for people whose circumstances prevent them from obtaining "A" loans at the lowest possible rates. But in its new report, "Separate and Unequal," ACORN describes subprime lending as "a prime breeding ground" for "modern-day loan sharks to sink their teeth into new prey every day." "While not all subprime lenders are predatory," the report says, "just about all predatory loans are subprime." The vast majority of subprime loans are used to refinance an existing loan rather than to buy a home. But more often than not, they're used for debt consolidation or to get money for home improvements rather than to obtain a lower rate and switch to a fixed-rate mortgage. And too often, says ACORN, unsuspecting homeowners with significant amounts of equity are persuaded to refinance under conditions that are not in their best interests. Sometimes they end up paying a higher rate just to get a few thousand dollars in cash. Other times they pay for unnecessary fees and costly credit insurance. According to ACORN, subprime lenders intentionally target minorities and low-income families by "bombarding" them with offers that sound good but aren't. "Subprime lending . . . is becoming the dominant form of lending in minority communities,"the report said. Nationally, almost three times as many blacks refinanced through subprime lenders as whites, the study found. Half of all conventional refinance loans made last year to African-Americans and slightly more than a fourth of those made to Hispanics came from subprime lenders. In contrast, only 18 percent of the refinance loans made to whites were made by subprime lenders. The disparity in the Tampa-St. Petersburg area also is wide: Just more than 61 percent of all refinance loans made to blacks came from subprime lenders, and about one in three of the loans made to Hispanics were made by subprime lenders. Of loans made to whites, 26 percent came from subprime lenders. In comparative terms, blacks in the Tampa Bay area were 2.4 times more likely to obtain a subprime loan than whites, and Hispanics were 1.3 times more likely. The disparity is even more lopsided when the money is used to buy instead of refinance, according to the study. Nationally, blacks were four times more likely than whites to get a subprime loan. Hispanics were more than twice as likely. Subprime loans accounted for one in four purchase-money mortgages obtained by African-Americans and nearly 14 percent of those secured by Latinos. Just 6.3 percent of the purchase loans to whites were from subprime lenders. "It would be a mistake for anyone to say there's not discrimination in industries all across the country," said James Ballentine, director of community development for the American Bankers Association. Still, Ballentine balks at studies, such as ACORN's, that do not take into account the applicants' creditworthiness. "A key part of the process when you're making a loan is determining someone's ability to repay the loan," Ballentine said. "You can't look at it from an ethnic perspective. You have to look at it from an individual perspective." -- Lew Sichelman is a syndicated housing columnist who lives in Maryland. Information from Times wires was included in this report.
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