An Equal Opportunity To Pay More

No matter where you are in the nation, if you’re black and you’re in the market for a home loan, you can expect to get higher interest rates for your mortgage than your white counterparts will receive for theirs–”even if you earn more money.

An analysis by The Chicago Reporter of more than 8.5 million mortgages granted nationwide in 2006, the most recent data available, shows that African American borrowers were nearly two-and-half times more likely than their white counterparts to get “high-cost” home loans. The racial gap was even wider among the wealthiest individuals. African Americans earning $100,000 a year or more were three times more likely than their white counterparts to get high-cost loans.

Nearly 53 percent of the more than 750,000 mortgages granted to African Americans in 2006 were high-cost loans, compared with 22 percent of the 5.3 million mortgages granted to whites that year.

The disparities were not as great for Latinos and Native Americans. Nearly 41 percent of the 1.1 million mortgages to Latinos in 2006 were high-cost, and about 34 percent of the 25,000 home loans to Native Americans were high-cost.

Asians fared better than whites. About 17 percent of 330,000 mortgages to Asian borrowers were high-cost, according to the Reporter’s analysis.

The Reporter analyzed more than 8.5 million conventional, first-lien mortgages granted for owner-occupied, one-to-four family properties in the United States during 2006. Through the Home Mortgage Disclosure Act, the data is provided by lenders annually to the Federal Financial Institutions Examination Council.

High-cost mortgages were those with interest rates at least 3 percentage points above the rates for U.S. Treasury bonds of the same duration at that time. For example, on May 15, 2006, the rate for 30-year U.S. Treasury bonds was 5.26 percent. Therefore, 30-year mortgages granted at that time with interest rates of 8.26 percent or higher would be considered high-cost.

According to a mortgage payment calculator on bankrate.com, the difference in payments between a $200,000, 30-year mortgage at 5.26 percent and 8.26 percent is nearly $400 a month. Those added costs are why many fair lending advocates point to high-cost and subprime mortgages as the chief culprits in the nation’s foreclosure debacle and why it has disproportionately affected African Americans.

“There is absolutely a correlation between the high-cost loans and the foreclosure rates,” said Peter Skillern, executive director of the Community Reinvestment Association of North Carolina or CRA-NC. “That disparity keeps appearing, and now the foreclosure rate is having a disproportionate affect of African-American households.”

In addition, over the life of a home loan, the additional costs resulting from higher interest rates can equal tens of thousands of dollars, noted Joshua Silver, vice president of research and policy at the National Community Reinvestment Coalition or NCRC. In the summer of 2007, the NCRC released a study with similar findings to the Reporter’s analysis.

“You’re draining wealth from minority communities,” Silver said. “That money could be used for education, or hospitals, or so many other good uses in communities that could really use the help.”

The racial disparities between black and white borrowers were pervasive.

There were no major metro areas where black borrowers and white borrowers received high-cost loans at equal rates. In each of the 251 metropolitan areas where more than 100 mortgages were granted to both African American and white borrowers in 2006, black borrowers were at least 1.5 times as likely as their white counterparts to get high-cost loans.

The widest racial disparities were found in North Carolina, home to three of the four metro areas with the widest gaps in high-cost lending rates between blacks and whites.

Durham, N.C. led the nation. According to the Reporter’s analysis, black borrowers in the Durham metro area received high-cost loans 46 percent of the time, compared with 10 percent of white borrowers–”meaning black borrowers were 4.6 times more likely than their white counterparts to receive a high-cost home loan in 2006.

Greenville, N.C. ranked second, College Station-Bryan, Tex. ranked third and Raleigh-Cary, N.C. ranked fourth.

According to a February 2008 report by CRA-NC, in Durham County, 78 percent of homes in default or foreclosure had African American residents.

But many of the African Americans in Durham County might have qualified for home loans with better interest rates or better terms, according to Stella Adams, the economic empowerment coordinator and housing chair for the North Carolina state conference of the NAACP.

“We have been very aggressive in trying to combat predatory lending,” Adams said. “We identified 936 borrowers who had credit scores of 660 and qualified for prime-rate loans but were in subprime products. We are disturbed by the way African Americans have been targeted, and discrimination has to be playing a role.”

One of the leading lending institutions giving out high-cost loans disagrees.

“Our lending decisions are only based on financial risk, and race is not a factor,” said Jay Lawrence, a spokesman for Wells Fargo. In 2006, according to the Reporter’s analysis, 21.5 percent of the mortgages Wells Fargo granted nationwide were high-cost. But 53.9 percent of the lender’s African Americans borrowers received high-cost mortgages compared with just 18.1 percent of the lender’s white borrowers.

Cheryl Crespin, senior vice president of marketing and communications for the Mortgage Bankers Association or MBA, said it is in the best interests of these lenders to ensure that people can repay their loans. In the event of a foreclosure, the borrower loses his or her home, and the lending institution loses its investment, she said. “It’s not as though this is something that benefits the industry. We’re working aggressively to make sure people can afford their loans.”

Organizations like the Federal Reserve and the MBA are doing their best to help people facing foreclosure, Crespin said, noting that job loss, illness and divorce are the three biggest factors leading to foreclosure. “That’s not to say that the industry doesn’t bear responsibility,” she added.

Like Wells Fargo, many of the nation’s largest lenders simply granted high-cost loans far more often to their black and Latino customers than to their white and Asian customers.

Those wide racial disparities were not present for several other mortgage companies and lenders that specialize in high-cost or subprime products. However, African Americans and Latinos were two to three times more likely than whites and Asians to do business with these companies, according to the Reporter’s analysis.

“The whole justification for making these loans is that people said the subprime market was opening doors for people,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending. “But it’s not helping if they lose their homes as a result.”

Although she didn’t realize it at the time, a subprime loan helped Mildred Kennedy, a 61-year-old black woman and lifelong resident of Durham, N.C., became a homeowner for the first time in 2001.

Kennedy, a mother of three adult children, grandmother of 10 and great-grandmother of three, said she chose her home, a 46-year old brick house with a small garden shed and a spacious backyard in a quiet neighborhood, because she wanted somewhere for her family to spend time together.

Kennedy said the bank told her that the mortgage payments would remain the same at around $525 a month. But as they became more and more expensive, eventually reaching more than $760 a month, Kennedy began to realize she would no longer be able to afford her home.

“I told [the bank] it would take one of my paychecks and half of my next paycheck to make this payment,” she said. “I depleted all my cash and all my pension plan to keep from losing my house, and so I just didn’t have anything left to pay.”

Kennedy filed for chapter seven bankruptcy to have one last shot at keeping her house, she said, adding that the house needed a great deal of repairs, and she was unable to afford both that work and the mortgage payments.

“I have spent all my money and now I am in bankruptcy, and they tell me I have to move, and I say–”to where? I have nothing left to lose,” she said. “It happened to me, but I pray that it never happens to another human being, black or white.”

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