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Minorities pay more for home loans, national study shows

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Blacks and Latinos are much more likely to be sold high-cost home loans than white households around the nation, according to a study being recently released by the Association of Community Organizations for Reform Now, or ACORN.

The Foreclosure Exposure report found that nearly 31 percent of home-refinance loans made to blacks in San Diego County, for example, in 2006 were high cost. Twenty-five percent of such loans to Latinos were high cost. By comparison, less than 13 percent of home-refinance loans made to whites had unfavorably high interest rates.

Based on public data for 2006 available under the Home Mortgage Disclosure Act, the ACORN report examined the extent of high-cost lending for 172 metropolitan areas.

The study found that blacks were 2.4 times more likely to receive high-cost refinance loans than whites in San Diego County, for example, said Paloma Aguirre, administrator of ACORN in Chula Vista, Calif. Latino homeowners were twice as likely as whites to receive loans with unfavorable interest rates.

The report said the problem also was apparent in home-purchase loans. Black home buyers across the country were 3.5 times as likely to receive high-cost purchase loans than whites. And Latinos were 3.3 times more likely than whites to receive less-than-prime interest rates when buying a home.

"America's lower-income and minority communities receive a disproportionate number of subprime loans and are therefore most exposed to experience default and foreclosure," the study found.

High-cost loans were defined as mortgages originated with an annual percentage rate of at least 3 points above the comparable rate on U.S. Treasury securities.

Aguirre said many members of minority groups had been steered into risky adjustable-rate loans because they were new to the housing market and not familiar with the lending process.

"A lot of brokers and lenders are taking advantage of ethnic minorities because they are a pretty new market," she said. "Wall Street and major mortgage corporations have created new types of products, subprime loans, and made them easily accessible to ethnic minorities. The sad thing is they are taking advantage of them."

ACORN is a nonprofit group that advocates for low- and moderate-income households.

The widespread use of adjustable loans with low introductory interest rates has placed thousands of homeowners at risk of losing their homes. The recent departure of dozens of lenders from the subprime market helped trigger a national credit crush. In turn, tight credit is making it difficult for homeowners with adjustable loans to refinance when their interest rates rise.

With housing prices now on the decline in many areas, some buyers have found that they owe more money than their homes are worth. That has caused foreclosures to surge.

Representatives of the lending industry say the ACORN study may have been flawed. Ed Smith Jr., vice president of governmental affairs and industry relations for the California Association of Mortgage Brokers, said the federal data doesn't include credit scores or loan-to-value ratios, which are key to determining the interest rates offered to consumers.

"Mortgage brokers do not create loan products" he said. "We match customer profiles, their wants, needs and desires, to the appropriate loan product that meets their needs."

John M. Robbins, chairman of the Mortgage Bankers Association, said any study that relies heavily on Home Mortgage Disclosure Act data may be flawed.

"Yes, there is some percentage of minorities that may have qualified for a lower-priced mortgage and were steered into higher-cost vehicles," Robbins said. "That being said, HMDA data is inaccurate."

Aguirre stood by the ACORN study. She said using the federal data was a legitimate way to determine how loans were distributed by race and ethnicity.

Paul Leonard, director of the California office of Center for Responsible Lending, said he wasn't surprised by the ACORN report. His organization did a similar national study last year.

It found that "for most types of subprime home loans, African-American and Latino borrowers are at greater risk of receiving higher-rate loans than white borrowers, even after controlling for legitimate risk factors" such as low credit scores.

Aguirre said the full Foreclosure Exposure report was available online at
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