July 10, 2007 (Washington, DC) — A looming "perfect storm" of foreclosures confronts Americans as up to 2 million adjustable rate mortgages with low "teaser" rates will adjust upward to much higher interest rates over the next 18 months.
Against the backdrop of risky high-cost lending practices are striking racial disparities, finds NCRC's most recent study, Income is No Shield against Racial Differences in Lending: A Comparison of High-Cost Lending in
America's Metropolitan Areas, released today. The report is a comprehensive study of every major metropolitan area in the country.
Minorities are at the greatest risk of receiving poorly underwritten, high-cost loans, the study finds. Middle- or upper-income levels do not shield minorities from receiving dangerous high-cost loans.
NCRC observes that racial differences in lending increase as income levels increase. For example, in 167 metropolitan areas, middle- and upper-income (MUI) African-Americans were found to be twice as likely or more than twice as likely than MUI whites to receive high-cost loans. In contrast, low and moderate-income (LMI) African-Americans were twice or more likely than LMI whites to receive high-cost loans in just 70 metropolitan areas.
"The pervasive targeting of minorities for high-cost loans is systemic. This is the first wave of foreclosures to hit America's consumers, but will not be the last. These practices must stop. We need leadership from the federal
government and real reform to protect American homeowners," says John Taylor, NCRC President & CEO.
NCRC finds that the ten worst metropolitan statistical areas for racial lending disparities are (in descending order) Charleston, SC; Bridgeport, CT; Omaha, NE; Milwaukee, WI; Springfield, MA; Minneapolis-St. Paul, MN;
Philadelphia, PA; Trenton, NJ; Birmingham, AL; and Greenville, SC.
In a previous study, NCRC found that lending disparities did not disappear even after controlling for creditworthiness. But the creditworthiness data was only available on a one-time basis. In anticipation of a Federal Reserve and Federal Trade Commission study using credit score data, NCRC believes this data needs to be regularly available so all stakeholders can better understand the factors behind these disturbing disparities.
NCRC calls upon Congress to pass strong anti-predatory lending legislation.
Senator Schumer's Borrower's Protection Act of 2007 or S. 1299 would require sound underwriting based on borrowers' ability to pay and prevent lenders from steering minorities and other protected classes to high-cost
loans when they qualify for market-rate loans.
NCRC also calls on Congress to pass the CRA Modernization Act of 2007, which would apply the Community Reinvestment Act to non-bank lending institutions. CRA, as applied to banks, has been shown to increase marketrate lending and increase product choice in minority and working class communities.
Source: Press Release, NCRC
