December 15, 2001

Predatory lenders focus on minorities

By PAUL WENSKE

Upper-income African-Americans and Latinos are more likely to

receive a subprime loan at a higher interest rate than are low-income

whites in Kansas City and other large cities, according to a new

study.

The study, released Wednesday by the Association of Community

Organizations for Reform Now, a national community advocacy group,

said minority borrowers are "massively targeted" for high-cost

loans by predatory lenders.

African-American homeowners were found to be four times more

likely than white homebuyers to receive a subprime, high-interest

loan. The study said Latinos were twice as likely to do so.

"It's a crying injustice when minority borrowers are so many

times more likely to be pushed into high-cost loans," said Maude

Hurd, the association's national president. "We have price gouging

instead of fair housing."

She called on the government to enforce the Fair Housing Act and

to crack down on predatory lenders.

Kansas City was among 10 cities in which lenders who specialize

in subprime loans accounted for the largest share of loan refinancing

to African-American and Latino homeowners.

The study said subprime lenders in Kansas City accounted for 61.7

percent of all the refinance loans made to African-Americans and 39.1

percent of those made to Latinos.

In comparison, subprime lenders accounted for 20.7 percent of the

refinance loans made to white homeowners.

The association's study analyzed data released by the Federal

Institutions Examination Council about the lending activities of more

than 7,800 institutions covered by the Home Mortgage Disclosure Act.

Kansas City consumer lawyer Dale Irwin said the results did not

surprise him "because of the cases I've seen and handled. These

people are parasites. They suck the equity out of people's homes."

Roosevelt Johnson, director of the association's Housing Corp. in

Kansas City, which helps low- and moderate-income consumers obtain

low-interest loans, said: "It's really scary. The wolves will eat

these people up out there if they don't know what they are doing."

Subprime loans are loosely defined as loans made to low-income or

credit-damaged consumers. They often - but not always - carry higher

interest rates and fees than conventional loans. Unscrupulous lenders

employ them to prey on vulnerable borrowers.

Last year Kansas City Mayor Kay Barnes initiated a task force to

identify ethical lenders, educate buyers about homebuying and create

partnerships to allow consumers to get low-interest loans.

Donovan Mouton, a task force coordinator, said the priority of

the broad-based effort - which includes banks, consumer groups and

neighborhood associations - is to close "a severe information gap"

that keeps many people from finding out about affordable loans.

In fact, the association's study said that according to Fannie

Mae, 35 percent to 50 percent of borrowers stuck in high-cost loans

could have qualified for lower-interest conventional loans. The

difference costs minority borrowers hundreds of thousands of dollars,

the study said.

Marlene, who asked that her last name not be used, is a good

example. The Kansas City woman was told by a lender that she had

early approval for an 8.7 percent loan to buy her dream home.

But when she got to the closing, she found that all the other

related costs, fees and additional interest charges amounted to 17

percent of the entire loan, which she was required to pay up-front.

"It was crazy," she said.

Instead, she sought out Housing Corp., which has a partnership

with FirstBank and Bank of America. Through a lender at Bank of

America, she got a 6.6 percent interest loan with 3 percent down at

the time of closing.

"Buying a house is so overwhelming, it's easy to miss things,"

she said. "I think that's how these mortgage companies get by with

what they are doing in Kansas City."

Bruce Marks, chief executive officer of the Boston-based

Neighborhood Assistance Corporation of America, said Marlene's case

is common.

"That happens all the time," he said. "All these fees pile up.

It's a bait and switch. You go in thinking you will face reasonable

rates and fees. And you find it's a completely different deal."

Officials say education is the best way to counter predatory

lenders. The Association of Community Organizations for Reform Now

holds classes in Kansas City to help consumers repair their credit

records so they can qualify for low-interest loans provided by the

banks that participate in its consumer programs.

Barnes' task force has similar goals, Mouton said. For one thing,

the mayor set a goal to help 500 consumers develop personal savings

and investment accounts by the end of 2002.

The new Individual Development Account program is working with

public and private funds. The funds become available for withdrawal

by the account holder for the purchase of a home, a business or an

education.

Heart of America Family Services has administered the program in

Kansas City and Kansas City, Kan. The consumers in the program

receive training and counseling on budgeting and buying a home.

"Often we find that modest-income people have never had a bank

account, and that makes them vulnerable to alternative kinds of

lenders," said Betsy Vander Velde, president and chief executive

officer of Heart of America Family Services.

By opening accounts in mainstream banks, she said, participants

build banking relationships that "protect them from being preyed

upon by predatory lenders."

In addition, Fannie Mae and the University of Missouri-Kansas

City are working with the mayor's task force to create the Kansas

City Home Center, which will be a resource center for information on

homes and homeownership.

This article is reprinted here for non-commercial, educational, fair use purposes only.