Does Race Matter When
Getting a Home Loan?
African American and Latino home buyers
are still the victims of predatory lending, the practice of imposing
unfair and abusive loan terms on borrowers - or so it appears. According
to the ACORN study Separate and Unequal 2004, Predatory Lending in
American minority and low-income borrowers are more likely to be the
target of subprime loans.
| Such loans are
typically made to borrowers with credit problems or limited credit
histories who do not qualify for cheaper prime loans.
Subprime loans carry higher rates, fees and other costs than prime
loans. Subprime loans become
predatory when borrowers end up paying higher interest rates than
they actually qualify for or when borrowers are pushed to get
loans through fraudulent and deceptive means.
Nationally in 2002, African Americans who
refinanced were 4.1 times more likely to receive a subprime loan than
whites. Latinos were 2.5 times as likely as whites to receive those
loans. Subprime lenders originated 27.6% of the refinance loans to
black homeowners, 17.1% to Latinos and 6.7% of those to whites according
to the study, which compared lending data for 117 metropolitan areas
nationwide.
A
government study further indicated that over 51% of the refinanced
mortgages in African-American neighborhoods were subprime, compared to
only 9% in predominantly white neighborhoods. Fannie Mae estimates
that possibly up to 50% of the subprime refinanced loans could have been
prime loans - saving the borrowers thousands in fees and interest rates.Is
Race the factor in being placed in a subprime loan? While there probably are a handful of loan officers
placing borrowers in mortgages they shouldn't be in - this is typically
motivated by greed rather than race.
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And unfortunately, African Americans and
Latinos tend to have a disproportionate number that are economically
disadvantaged, which leads to differences in their credit histories,
tending to take them out of the prime mortgage market.
But with diligent counseling and planning by
a competent loan officer, this trend can be diminished through credit
advice and working with the borrowers to get them in shape for a prime
loan. However, all too often loan officers just are not willing to
take the time to get these borrowers into credit and financial shape for
the prime loans and put them in the subprime world, sometimes setting
them up for further financial hardship due to high rates and large
prepayment penalties that a subprime loan brings.
Is there a Racial
Bias?
From the data it would appear that
minorities are at a steep disadvantage when it comes to being placed
into a subprime loan, but analysis of the data tends to indicate that
it's not race that is subjecting these individuals to these loans but
more their economic and credit status. You decide.
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