March 8, 2007: Multi-State Analysis Shows Minorities Pay More for the American Dream

Community Groups Confront the Federal Reserve about Unfair Mortgage Lending

(San Francisco) March 8, 2007: Today at the Federal Reserve Bank Community Advisory Council Meeting, community advocacy groups released a report showing that the largest lenders making both prime and subprime mortgage loans see a disproportionate share of their higher cost loans going to minority borrowers across the nation.  The groups called on the Federal Reserve Bank to be proactive and investigate systemic and specific corporate fair lending violations.

“As defaults and foreclosures of subprime loans skyrocket, stock prices of subprime lenders crumble, and concerns are raised on Wall Street regarding underwriting standards in the subprime lending industry,” said Marva Williams of the Woodstock Institute, a presenter and member of the Consumer Advisory Council. “This report indicates that concentrations of high interest subprime loans will have a disproportionate impact on minority neighborhoods and households.”

The report, Paying More for the American Dream: A Multi-State Analysis of Higher Cost Home Purchase Lending, examines the cost of borrowing in six metropolitan areas in the United States. These areas include large urban areas - New York City, Los Angeles, Chicago, and Boston, - as well as the smaller urban areas of Charlotte, NC and Rochester, NY. This study confirms that large disparities remain in the pricing of home purchase loans.

•    In these six metropolitan areas, African American borrowers were 3.8 times more likely to receive a higher-cost home purchase loan than were white borrowers.
•    In the same six metro areas, Latino borrowers were 3.6 times more likely than white borrowers to receive a higher-cost home purchase loan.   

Kevin Stein, Associate Director of the California Reinvestment Coalition noted, “The fact that people of color are much more likely to receive more costly loans from the nation’s largest lenders offends our sense of justice and fairness. The Federal Reserve and the other bank regulators must restore America’s confidence in the notion that all residents will pay a fair price for their home loans, regardless of what they look like or where they live.”

The study focuses on lending by Citigroup, Countrywide, GMAC, HSBC, JP Morgan Chase, Washington Mutual, and Wells Fargo. These lenders were analyzed because they are among the biggest financial institutions in the nation, and all originated a substantial volume of both higher-cost subprime and lower-cost prime loans. 

•    For these seven lenders, the percentage of total home purchase loans to African Americans that were higher-cost loans was 6 times greater than the percentage of total home purchase loans to whites that were higher-cost in the six cities (41.1 percent vs. 6.9 percent).
•    For these seven lenders, the percentage of total home purchase loans to Latinos that were higher-cost loans was 4.8 times greater than the percentage of total home purchase loans to whites that were higher-cost in the six cities (32.8 percent vs. 6.9 percent).

The report also offers a case study of one lender – Washington Mutual (WaMu), to highlight the significant role that different lending channels play in home loan pricing. WaMu’s higher-cost subprime lender, Long Beach Mortgage Company, was WaMu’s main lender to African American and Latino borrowers in the six survey cities.

•    Regardless of race, 90 percent of Long Beach borrowers received higher-cost home purchase loans. Long Beach Mortgage accounted for 75.9 percent of all WaMu home purchase loans to African Americans, and 64.7 percent of all WaMu home purchase loans to Latinos.
•    In contrast, WaMu’s lower-cost prime lender, Washington Mutual Bank, accounted for more than 80 percent of all WaMu home purchase loans to whites. Less than 1 percent of the loans originated by Washington Mutual Bank were higher-cost loans.

Which lending channel a borrower enters – prime or subprime – has a large impact on the price she will pay for her home loan.

•    Los Angeles has the highest share of higher-cost home purchase loans of all survey cities, with 34.7% of all home purchase loans in the county coming with higher rates.
•    JP Morgan Chase had the largest Latino/white disparity ratio in any one metropolitan area, with Chase’s Latino borrowers in Los Angeles over 14 times as likely as Chase’s white borrowers in the county to receive higher-cost home purchase loans.

Collaboration
The research collaboration involved nonprofit advocacy agencies from the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Assistance Project (NEDAP), and the Woodstock Institute.  These organizations, which work regionally and nationally, are collectively raising concerns about national lending practices that are negatively impacting local communities.

The group’s analysis concludes with recommendations for Regulators, Wall Street, Legislators, Lenders, and the Federal Reserve, to promote the goal of fair lending.

The presentation at the Federal Reserve was made by Marva Williams of the Woodstock Institute and Sarah Ludwig of NEDAP.  They are members of the Federal Reserve Consumer Advisory Council.  Marva Williams can be reached at (312) 427-8070).

For more information about the report please contact Kevin Stein at (415)864-3980 or kstein@calreinvest.org. The report is available on www.calreinvest.org.

The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 245 nonprofit organizations and public agencies across the State.