Call it redlining, 21st century style: Wealthy black borrowers in New York City are now six times more likely to wind up saddled with high-interest “subprime” loans than poor white borrowers, finds a study released last week by ACORN, the national advocacy organization. The study tracks the growth of the subprime home mortgage market–and shows how unsuspecting homeowners can get swindled.
Homebuyers or homeowners with less-than-perfect credit may benefit from a legitimate subprime loan, which offers a slightly higher interest rate than a conventional bank loan to compensate for the slightly higher risk. Partly for that reason, the number of subprime refinancing loans mushroomed in the 1990s, from around 1 percent of the market in 1993 to 17 percent in 1999.
But many subprime lenders use sleazy, deceptive “predatory lending” tactics that burden homeowners with more debt than they can possibly pay off. Techniques like usurious interest rates, mandatory credit insurance and huge, unexpected balloon payments are becoming more and more common, according to the report. Worst of all, many of the people who sign on for subprime loans actually would have qualified for a better deal–but unscrupulous brokers convince them that a high-interest, high-fee mortgage is all they can get.
And race clearly plays a huge role. While top-quality loans to African-American homebuyers nationwide have actually declined since 1995, subprime loans to African-Americans have surged by more than 600 percent. Last year, more than 40 percent of the refinance loans made to African-American homeowners in New York City–and more than 20 percent of those made to Latinos-were subprime. For loans going to poor blacks in the city to refinance home mortgages, the number clears 75 percent.
“What it adds up to is a pattern of lending that focuses very hard on minority buyers,” said ACORN’s Lisa Donner, ACORN’s campaign director on the issue. “A vast amount of the subprime lending market is generated through brokers, who can be incredibly aggressive at drumming up business.” The full study is available at ACORN’s website, w.acorn.org/pressrelease/nov1st.htm.