racializing the foreclosure boom
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Blacks suffer most in U.S. foreclosure surge Tue Mar 20, 2007 1:14PM EDT By Jason Szep
BOSTON (Reuters) - Barbara Anderson and her husband know racism. =
Among the first blacks to move into an Ohio neighborhood 25 years =
ago, she watched in horror as white neighbors burned her garage =
nearly to the ground.
Fast-forward to 2007 and Anderson talks of a different sort of =
discrimination: brokers of subprime mortgages who prey on borrowers =
with weak credit histories like the Andersons, who raised eight =
children in Cleveland’s Slavic Village district.
“These subprime lenders target you to take you through disaster,” =
said Anderson, 59, who filed for bankruptcy after a legal tussle with =
a subprime lender, a “nightmare” that she said ended four years ago =
when her home was nearly foreclosed.
“I was fortunate. I went to another bank that decided to give me a =
chance with a new loan. The day that happened my headache stopped, my =
blood pressure lowered, my sick stomach went away, and it was because =
now I could see some daylight.”
Across the United States, blacks and Hispanics are more likely to get =
a high-cost, subprime mortgage when buying a home than whites, a =
major factor in a wave of foreclosures in poor, often black =
neighborhoods nationwide as a housing slowdown puts millions of =
“subprime” borrowers at risk of default.
Even more troubling, real-estate industry analysts say, is an =
alarming proportion of blacks and Hispanics who received subprime =
loans by predatory lenders even when their credit picture was good =
enough to deserve a cheaper loan.
In six major U.S. cities, black borrowers were 3.8 times more likely =
than whites to receive a higher-cost home loan, and Hispanic =
borrowers were 3.6 times more likely, according to a study released =
this month by a group of fair housing agencies.
“Blacks and Latinos have lower incomes and less wealth, less steady =
employment and lower credit ratings, so a completely neutral and fair =
credit-rating system would still give a higher percentage of subprime =
loans to minorities,” said Jim Campen, a University of Massachusetts =
economist who contributed to the study.
“But the problem is exacerbated by a financial system which isn’t =
fair,” he said.
In greater Boston, 71 percent of blacks earning above $153,000 in =
2005 took out mortgages with high interest rates, compared to just =
9.4 percent of whites, while about 70 percent of black and Hispanic =
borrowers with incomes between $92,000 and $152,000 received high- =
interest rate home loans, compared to 17 percent for whites, =
according to his research.
“It’s a huge disparity,” he said. High-cost mortgages usually have =
interest rates at least 3 percentage points above conventional =
mortgages.
PREDATORY LENDERS
Predatory lenders moved aggressively into the subprime mortgage =
market as a housing price boom between 2000 and 2005 cut the risk of =
lending to people with damaged credit ratings.
Many focused on minority neighborhoods in slick sales pitches that =
offered the American dream: home ownership with no money down and =
little worry about poor credit.
“The predatory lenders reach out to those who don’t really know, =
people with a lack of education,” said Cassandra Hedges, a black 37- =
year-old mother of two fighting to stave off foreclosure of the Ohio =
home she bought three years ago.
“One of the first things my broker asked me was ‘How do you know you =
are ready to buy a house. Have you done any research?’ We said ‘No’. =
At that point I think he realized ‘Okay I got some people that don’t =
know what the heck they are doing’.”
She and her husband Andre now face a 10.75 percent interest rate on =
an adjustable-rate mortgage and monthly payments of $1,600 — more =
than double the $650 she told her broker she could afford. =
Foreclosure looms after she missed a payment.
“If you’re white they overlook the fact that your credit score is a =
little too low or you have one extra late payment,” said Barbara =
Rice, a community organizer at the Massachusetts Affordable Housing =
Alliance, a nonprofit advocacy group.
Rice, who is white, and a colleague who is black took part in an =
experiment in Massachusetts last year to test the racial bias of =
mortgage brokers. They both posed as prospective home buyers in a =
separate meetings with several brokers.
Rice presented a worse credit rating and lower income than her black =
colleague to brokers but received better treatment.
“I was given more information,” she said.
Many traditional banks do not run branches in poor minority =
neighborhoods, creating a vacuum often filled by predatory lenders =
and unscrupulous brokers, said Stephen Ross, a University of =
Connecticut economist who studies lending.
When the property market was strong, those brokers could tell =
borrowers that rising prices meant they could easily remortgage their =
properties to keep up with payments. But since the market peaked in =
2005, millions are struggling to repay those loans. This year, some =
1.5 million homeowners will face foreclosure, research firm =
RealtyTrac estimates.
The U.S. Mortgage Bankers Association said disparities by race alone =
in home loans do not prove unlawful discrimination but may indicate a =
need for closer scrutiny.
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