Minorities More Likely to Receive Sub-Prime Loans

When legislation to rein in mortgage refinancing scams is introduced in the Senate today, the supporting evidence will include an advocacy group’s study showing minorities in every U.S. metropolitan area are more likely than whites to shoulder higher fees and interest rates when refinancing their homes.

The Center for Community Change report on sub-prime loans--those in which lenders charge higher-risk borrowers additional fees and higher interest rates--found that in many areas, upper-income minority borrowers are more likely to wind up with sub-prime loans than lower-income white borrowers.

African Americans in the San Francisco area who earn more than 120% of the local median income are 2.34 times more likely to refinance their homes with sub-prime loans than lower-income whites, the highest such ratio in the country, the study found. San Diego was No. 3 with a 1.64 ratio.

The six metropolitan areas with the greatest gap between upper-income Latinos and lower-income whites are all in California, topped by Salinas, where upper-income Latino homeowners are 2.21 times more likely to receive sub-prime refinance loans than whites, the study said. Santa Barbara County was No. 2 with a disparity ratio of 2.03, followed by San Francisco, San Jose, Vallejo-Fairfield-Napa and San Diego.

In Fresno, 48.2% of all refinance loans made to black borrowers are sub-prime--the highest percentage in the state--compared with 18.5% for whites. That’s still well below some areas of the country, especially in Texas and the South. In Fort Smith, Ark., 64.5% of all refinance loans made to African Americans are sub-prime, compared with 16.4% of loans made to whites.

Fresno also had the highest concentration of sub-prime refinance loans among Latino borrowers in the state at 44%, the study found.

Previous studies have shown that many sub-prime borrowers have credit records good enough to get loans on better terms--if they applied for them. But reports on racial disparities have been challenged by lenders because they, like the latest study, are based on federal data that don’t clearly show to what extent risk rather than race is the determining factor in the loans. The report uses 2000 data on mortgage refinancings collected under the Federal Home Mortgage Disclosure Act.

“We’re applying the only data out there,” said Jesse Jacobs, an aide to Sen. Paul S. Sarbanes (D-Md.), who chairs the Senate Banking Committee and who will introduce legislation today to restrict “predatory” lending practices.

Allen J. Fishbein, director of the new study, said the data collected under the Federal Home Mortgage Disclosure Act are “not perfect but are reasonably accurate.”