Income is No Shield Against Racial Differences in Lending PDF Download

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Category : Discrimination in consumer credit
Languages : en
Pages : 26

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Book Description
A looming foreclosure crisis confronts America as lending institutions have engaged in new forms of dangerous high-cost lending. Most of the high-cost or subprime lending made in recent years feature adjustable rate mortgages (ARMs) with low "teaser" rates for the first few years followed by rapidly rising rates. Incredibly, many lenders assessed borrowers' abilities to repay only at the low teaser rates. These lose underwriting standards have created the conditions for a perfect storm as almost 2 million of the ARM loans will re-set or start adjusting upward from their initial rates in 2007 and 2008. While they were slow to act, the federal regulatory agencies have finally raised the alarm and are now advising lenders to reform their underwriting practices. In the backdrop of the risky high-cost lending practices, NCRC observes striking racial disparities in high-cost lending. If a consumer is a minority, particularly an African-American or Hispanic, the consumer is most at risk of receiving a poorly underwritten high-cost loan. In addition, middle-class or upper-class status does not shield minorities from receiving dangerous high-cost loans. In fact, NCRC observes that racial differences in lending increase as income levels increase. In other words, middle- and upper-income (MUI) minorities are more likely relative to their MUI white counterparts to receive high-cost loans than low- and moderate-income (LMI) minorities are relative to LMI whites. Mainstream media has taken notice of the predatory lending plague afflicting middle-class minority communities. For example, the Wall Street Journal recently wrote a poignant and detailed article describing widespread foreclosures due to predatory lending in Detroit's middle-income African-American communities. NCRC has always said that responsible high-cost lending serves legitimate credit needs. High-cost loans compensate lenders for the added risk of lending to borrowers with credit imperfections. However, wide differences in lending by race, even when accounting for income levels, suggests that more minorities are receiving high-cost loans than is justified based on creditworthiness.