The national community group ACORN recently released “Foreclosure Exposure: A study of racial and income disparities in home mortgage lending in 172 American cities.” The report looks at which communities will be hit hardest by foreclosures from rising interest rates as the three-fourths of all subprime home loans that are adjustable rate mortgages (ARMs) become harder for borrowers to repay.
Using data available under the Home Mortgage Disclosure Act, ACORN’s study examines the extent of high-cost (subprime) lending in 172 metropolitan areas and the disparities between borrowers of different race and income levels. Borrowers with subprime loans are already paying higher interest rates and are more likely to be lower-income and have fewer resources to cope with the rising payments and the foreclosures that come with those high payments.
“ACORN is attacking the problem by helping as many people as possible negotiate with their lenders to avoid foreclosure,” according to Paul Satriano, a MN ACORN board member and ACORN national board treasurer, who joined ACORN seven years ago when facing his own predatory loan. “But legislators and banking regulators need to do their part to protect our communities from unscrupulous lending practices.” ACORN is calling on lenders and servicers to modify loans so that they will be affordable to borrowers. ACORN is also calling on state and federal legislators to pass strong anti-predatory lending legislation that would protect consumers from abusive practices without pre-empting local legislation.
Local disparities in the Minneapolis-St. Paul metropolitan area:
• The study revealed that minority neighborhoods are at a greater risk of rate shock than neighborhoods that are predominantly white, because of the disproportionately high share of subprime loans held by homeowners in these communities.
• In Minneapolis-St. Paul, homebuyers of all races have a high incidence of receiving a high-cost home purchase loan. About one of five home purchase loans in the metropolitan area, 21.4%, were high-cost loans.
• African-American homebuyers were 3.9 times more likely than whites to get a high cost loan.
• Latino homebuyers were 3.1 times more likely than whites to get a high cost loan.
• There was also a high incidence of refinance borrowers to receive a high-cost loan. About one of three refinance loans in the metropolitan area, 32.3%, were high-cost loans.
• African-Americans getting a refinance loan were 1.9 times more likely than whites to get a high cost loan.
• Latinos getting a refinance loan were 1.7 times more likely than whites to get a high cost loan.
Upper-income minority borrowers are at a greater risk than upper and lower-income white borrowers as well.
• In Minneapolis-St. Paul, upper-income African-American homebuyers were 5.0 times more likely to receive a high-cost loan than low-income whites. Upper-income Latinos were 3.3 times more likely than upper-income whites.
• Upper-income and middle-income African-Americans homebuyers were more likely to receive a high-cost loan than low-income whites. Upper-income and middle-income Latino homebuyers were more likely to receive a high-cost loan than low-income whites.
• In Minneapolis-St. Paul, upper-income African-Americans receiving a refinance loans were 2 times more likely to receive a high-cost loan than a high-income white borrower. Upper-income Latinos were 1.6 to get a high-cost loan than a high-income white borrower.
• Upper-income and middle-income African-Americans were more likely to receive a high-cost refinance loan than low-income whites. Upper-income and middle-income Latinos were more likely to receive a high-cost refinance loan than low-income whites.
In the Minneapolis-St. Paul area as a whole, 27.7% of all loans made were high-cost loans, that is, they were loans likely to be subprime and therefore more likely that prime loans to lead to foreclosure. This is an increase of subprime loans over ACORN’s 2005 study of 15%.
ACORN used a sample of 363 lenders that are owned by 19 of the largest lenders in the country. According to industry estimates, these lenders represent 68.5 percent of all residential mortgages originated in 2006 and 50.5 percent of the subprime market.
Borrowers are advised to seek HUD-certified homeownership counseling to receive advice about receiving an appropriate loan and to ensure they are not taken advantage of by unscrupulous lenders. Borrowers can also call the local ACORN office for assistance 651-642-9639.