March 6, 2008: Defunct Subprime Lenders Targeted Minority Neighborhoods

    Subprime lenders that ceased operations in 2007 had saturated minority communities across the country with high risk loans before going under, according to a report released by a multi-state collaboration of research, policy, and advocacy organizations.
    Most of these lenders had captured large market shares in minority communities and made few, if any, loans elsewhere. As these institutions’ loans enter into default and foreclosure, minority and lower-income communities will certainly bear the brunt of the negative impacts, such as increased crime and depressed property values.
    “The aggressive and deceptive marketing and lending practices of these failed lenders represented many of the worst excesses of the subprime market,” says Jim Campen of the Massachusetts Affordable Housing Alliance. “They are out of business while minority and lower-income communities suffer the fallout from their toxic loans.”
    The report, Paying More for the American Dream: The Subprime Shakeout and Its Impact on Lower-Income and Minority Communities, examines the geographic lending patterns of these defunct subprime lenders in seven 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 Cleveland, Charlotte, NC and Rochester, NY.

The report’s key findings show:

•    High-risk lenders accounted for 20 percent of the total loans in the predominantly minority neighborhoods in these cities compared to 4 percent of all loans in predominantly white neighborhoods in 2006.

•    Over 40 percent of loans made by high-risk lenders in the seven metro areas were in neighborhoods where 80 percent or more of the residents were people of color. Less than 10 percent of high-risk lender loans were in areas where less than 10 percent of the residents were people of color. 

•    In some of the markets examined, disparities in the presence of high-risk lenders in highly minority communities compared to high white communities were very wide. Comparing these lenders’ presence in neighborhoods with over 80 percent minority population to neighborhoods with less than 10 percent minority population shows:

    o    In Los Angeles, high-risk lenders’ presence was 9.5 times greater in highly minority neighborhoods than in white            neighborhoods
    o    In Cleveland, high-risk lenders’ presence was 4.4 times greater in highly minority neighborhoods than in white neighborhoods
    o    In Boston, high-risk lenders’ presence was 4.2 times greater in highly minority neighborhoods than in white neighborhoods
    o    In Chicago, high-risk lenders’ presence was 3.7 times greater in highly minority neighborhoods than in white neighborhoods
    o    In New York City, high-risk lenders’ presence was 3.5 times greater in highly minority neighborhoods than in white neighborhoods

•    In the seven metro areas as a whole, high-risk lenders captured almost 20 percent of the market in low-income neighborhoods, while they had less than 7 percent of the market in upper-income neighborhoods.

    "These are the same neighborhoods that have been historically redlined by mainstream financial institutions," says Saara Nafici of the Neighborhood Economic Development Advocacy Project in New York City.  "Without access to fair and responsible mortgage credit, these communities will continue to be the epicenter of abusive lending practices, and subsequent defaults and foreclosures."
    “The Federal government needs to take the lead and require servicers and investors to modify these abusive loans to affordable rates,” says Kevin Stein of the California Reinvestment Coalition.  “If families are not able to stay in their homes, many of these communities may be lost.”   

Collaboration

The Paying More for the American Dream series is a collaborative effort of the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Advocacy Project (NEDAP), Ohio Fair Lending Coalition, and Woodstock Institute. This is the second such annual report focused on examining systematic inequalities in the housing finance system and the impact of these inequalities on lower-income and minority families and communities. The previous report, released in March 2007, examined mortgage pricing disparities found in a group of the country’s largest mortgage lenders who offered both prime and subprime loans. 

For more information contact:

•    Charles Bromley – Ohio Fair Lending Coalition – (216) 410-3879
•    Jim Campen or Tom Callahan – Massachusetts Affordable Housing   Alliance – (617) 822-9100
•    Saara Nafici - Neighborhood Economic Development Advocacy Project  (New York City) - (212) 680-5100
•    Adam Rust – Community Reinvestment Association of North Carolina - (919) 667-1557
•    Geoff Smith – Woodstock Institute (Chicago) - (312) 427-8070
•    Kevin Stein – California Reinvestment Coalition - (415) 864-3980
•    Barbara van Kerkhove – Empire Justice Center (Rochester, NY) - (585) 295-5815