http://www.contracostatimes.com/mld/cct ... 421458.htm

Posted on Fri, Dec. 16, 2005

Minorities pay higher mortgages

By James Temple
CONTRA COSTA TIMES

High-interest home loans are costing California minorities an estimated $50 million more per month than white borrowers, according to a report based on newly available home-loan data.

The study released Thursday by the San Francisco-based California Reinvestment Coalition found that lenders originated 264,348 higher-cost home loans, defined as those charging 8 percent or higher, in California in 2004.

African Americans were more than twice as likely as white borrowers to get higher-interest home purchase or refinance loans, and Latino borrowers were three times as likely. Residents of minority neighborhoods were four times as likely to obtain higher-cost home-purchase loans than white neighborhoods, and low-income neighborhoods were three times as likely as upper-income neighborhoods.

The average higher-cost home loan carried a 9.81 percent rate, compared to the 2004 average of 5.84 percent for a 30-year fixed rate loan. That translates to a monthly difference of $691.76 on mortgage payments.

"Millions of dollars are coming out of (poor and minority) neighborhoods' pocketbooks," said Kevin Stein, associate director of the California Reinvestment Coalition, which advocates greater access to affordable credit in these communities. "That leads to community destabilization, and the inability of people to develop assets and wealth."

A spokeswoman for the California Bankers Association disputed the conclusions of the report, stressing that lenders must charge higher interest rates in cases where they are taking on higher risks. She said the data that the study relies on -- race, geographic location and loan amounts that most lenders are required to provide under the federal Home Mortgage Disclosure Act (HMDA) -- does not take into account the profiles of the specific borrowers who received these loans.

"It doesn't give any of the additional information ... like their credit worthiness, their history in repaying loans or handling credit," said Anissa Yates, senior vice president at the Sacramento-based trade group. "Relying only on that data misrepresents the loan decision process of banks all over the country."

For 2004, the HMDA required lenders for the first time to also detail interest rates, providing a rare glimpse of the amounts levied by various banks. Many of the higher-cost loans were made by some of the largest banking and financial services companies, not merely those typically considered sub-prime lenders.

Calabasas-based Countrywide Home Loans ranked fifth among banks providing higher-cost loans in California, with 15,579 totaling $2.6 billion. Seattle-based Washington Mutual ranked seventh, with 8,744 loans totaling $1.1 billion. San Francisco-based Wells Fargo ranked 13th, with 5,480 loans totaling $819,970,000.

Wells Fargo spokesman Chris Hammond called the report a distortion of its lending record. He emphasized that more than 95 percent of its loans to people of color are at prime rates, and said Wells Fargo is the top lender to minorities in the Bay Area.

Hammond said the small percentage of loans it issued at above 8 percent interest rates reflect the higher risk Wells Fargo took in those instances.

Some, however, are critical of the standards used by banks to evaluate credit risk.

"It's more flawed than the SAT exams are at predicting whether you'll be a good chief executive," said Bob Gnaizda, policy director of the Berkeley-based Greenlining Institute, which works against lending discrimination. "It's biased in terms of how it looks at the world, and it's biased in terms of immigrant groups in particular."

Gnaizda says credit scores ignore the high motivation immigrants and others in low-priced neighborhoods have to keep their homes, which are often their only notable asset. The system also disregards a strong work ethic and the support of extended family.

Stein added that low-income and minority borrowers disproportionately end up with higher-cost home loans because there are fewer mainstream banks located in low-income areas, and certain sub-prime lenders target low-income or unsophisticated borrowers.

The California Reinvestment Coalition study furnished additional detail for 12 California cities, including Oakland, where lenders provided 2,432 higher-cost loans in 2004.

The report found that residents of minority communities in Oakland, San Francisco and Los Angeles were 10.89 times, 9.03 times and 6.35 times, respectively, more likely to obtain a higher-cost loan than those in white neighborhoods, the highest among the 12 cities. Low- and moderate-income neighborhoods in Oakland and Los Angeles also had the highest disparity with refinance loans, at 3.55 and 2.59 times, respectively.

Borrowers can protect themselves from predatory loans by shopping around, said Winifred Gant, director of the Neighborhood Assistance Corp. of America in Oakland, which helps homeowners refinance loans that are substantially above market rates.

"Nothing is really published or advertised," Gant said. "You just have to kind of poke around, and a lot of people don't know to do that."

James Temple covers real estate for the Contra Costa Times. Reach him at 925-977-8534 or jtemple@cctimes.com. Staff writer Sara Steffens contributed to this report.

BIGGEST LENDERS

COMING SUNDAY

These are the top 20 lenders of higher-cost mortgage loans in California, in 2004.

Rank Lender No. Loans $ Amount

(in billions)

1 Ameriquest 32,009 $7,046,607

2 Fremont Investment & Loan 22,094 $4,973,816

3 General Electric/WMC Mortgage Corp 18,937 $3,294,060

4 New Century Mortgage Corp. 17,888 $3,100,483

5 Countrywide Home Loans 15,579 $2,564,458

6 Lehman Brothers 14,006 $3,314,950

7 Washington Mutual 8,744 $1,090,752

8 National City Bank 7,352 $873,804

9 Encore Credit Corp. 7,229 $1,589,194

10 Accredited Home Lenders Inc. 7,119 $930,966

11 HSBC 6,179 $777,467

12 MortgageIT Inc. 5,946 $1,506,923

13 Wells Fargo 5,480 $819,970

14 Citibank 5,066 $553,197

15 H&R Block 4,626 $839,239

16 Aames Funding Corp. 4,103 $602,519

17 First NLC Financial Services 3,820 $641,672

18 Fieldstone Mortgage Co. 3,816 $659,896

19 Peoples Choice Home Loan Inc. 3,050 $377,228

20 Bank of America 3,043 $480,375

Source: California Reinvestment Coalition