Minorities Susceptible to High-Cost Predatory Loans
According to the Contra Costa Times, minorities with high-cost predatory loans outnumber whites at a rate of five to one, according to a study comparing 130 American cities. The data for the study came from a report called "The Impending Rate Shock 2006," which refers to the wave of sub-prime mortgage loans issued in the past year that have a two-year fixed rate before changing to an adjustable rate, which means the interest can increase by 5 or 6 percentage points. The study's authors believe the "shock" will affect minority borrowers most severely.
According to Valerie Coffin, director of fair housing for the Association of Community Organization for Reform Now ("ACORN"), minority home loan applicants are steered into higher-cost or adjustable-rate loans even if they are able to apply for a lower fixed rate.
According the study, San Francisco had the lowest level of high-cost mortgage loans in the country at 9.6 percent, but African-Americans were 5 times as likely to have a sub-prime loan as whites. Latinos were outstandingly 10 times more likely to have a high-cost loan. In the East Bay, African-Americans more 4.7 times more likely and Latinos 4.8 times more likely than whites to have a sub-prime loan.
Furthermore, upper-income African-Americans in San Francisco were 5 times more likely and upper-income Latinos 10 times more likely than whites with the same income to receive a high-cost loan. Upper-income is defined as more than $79,700 per year.
Wells Fargo was one of the 15 largest lenders included in the report, which covers 65.5 percent of all residential mortgages originated in 2005, and 55 percent of the sub-prime market. Chris Hammond, spokesman for Wells Fargo, said that Wells Fargo is committed to the communities they serve and spend countless hours in loan literacy efforts.
The Mortgage Bankers Association did not respond to calls for comment. In addition, Washington Mutual spokesman, Tim McGarry, declined to comment on the study.