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Study: Minorities face 'rate shock' over home loans
Too many minority homeowners have been saddled with high-cost, adjustable-rate mortgages during the five-year housing boom, which makes them especially vulnerable now that rates are rising, according to a new study released Tuesday.
Study: Minorities face 'rate shock' over home loans
Richard Burnett | Sentinel Staff Writer
August 16, 2006
Too many minority homeowners have been saddled with high-cost, adjustable-rate mortgages during the five-year housing boom, which makes them especially vulnerable now that rates are rising, according to a new study released Tuesday.
Millions of black and Hispanic borrowers will face "rate shock" when their adjustable-rate loans start rising and higher monthly payments begin eating into household income, the study concluded.
While many white borrowers will also feel the pinch, minority borrowers could suffer disproportionately because they continue to end up with higher-rate, "subprime" loans more often than whites do, even when income is taken into account, according to the latest annual survey by the ACORN Group, a nonprofit consumer-advocacy organization.
The study, which looks at loan data from 130 U.S. cities, found that blacks and Hispanics were often two or three times more likely to receive high-cost mortgages last year than white borrowers were. The disparity often widened when upper-income minorities were compared with upper-income whites.
In Orlando, for example, blacks were 2.7 times more likely and Hispanics 2.2 times more likely to receive a high-cost home loan in 2005 than whites were. Among upper-income groups, blacks were three times more likely and Hispanics 2.4 times more likely to end up with higher-priced mortgages.
Antonide Dorcy, a black resident of Orlando's Pine Hills neighborhood, applied for a mortgage last year and was told she would get a favorable, fixed-rate loan because her credit score -- 780 -- was excellent.
At closing, however, the broker sold the retired nurse on a deal that included first and second mortgages, at 7.85 percent and 10.05 percent, respectively, plus thousands of dollars in other costs and prepayment fees. And the rates on both loans will adjust higher less than a year from now.
"We don't know how this happened," said Peter Speight, Dorcy's son-in-law. "We have a grievance against the mortgage broker, the Realtor and the lawyer who worked to get her in this mortgage."
ACORN alleges that too many lenders needlessly sell high-cost mortgages to minority borrowers, even when the applicants could have qualified for lower interest rates. The results, ACORN says, can be devastating for many minority homeowners, especially those with adjustable-rate mortgages, known as ARMs.
"Rate shock could mean a sharp increase in foreclosures in some of the urban and minority communities," said Maud Hurd, ACORN's president. "Too many of our neighbors are being steered into ARMs without being given an option for a fixed rate or an explanation of the risks."
Lenders called the group's latest study an incomplete snapshot of the situation that distorts the truth. It fails to account for a borrower's credit score, debt-to-income level, and the value of the home being purchased or refinanced, they said Tuesday. They rejected allegations of racial bias, arguing that the lending data reflects only the economic disparities in American society.
"ACORN acts as if the industry is conspiring to give different interest rates to minorities, and that's just not the case," said James Ballantine, director of housing issues for the American Bankers Association. "Their study takes a microwave look at the lending markets and makes conclusions the evidence doesn't support."
Consumer advocates point out that lenders won't release credit scores or other valuable information that could help them verify such arguments. They have prodded lenders for years to include such information in the reports they file with government regulators, but to no avail.
Lenders cite privacy concerns in refusing to release credit scores and other data, though they acknowledge that regulators could probably devise a reporting system to allay such concerns.
Researchers have occasionally obtained complete credit profiles of borrowers for use in their studies. That was the case with the Center for Responsible Lending, a nonprofit watchdog group based in Durham, N.C. In May, the center published a study of 50,000 high-cost mortgages across the country that it said demonstrated that minorities were about one-third more likely to wind up with pricier loans -- even when credit scores, debt, income levels and other factors were taken into account.
Lenders still aren't convinced, however.
"That's really a very small sample, too small to draw any conclusions," said Ballantine of the bankers group. "We're talking about millions of loans you would have to evaluate across a large section of individuals."
There is growing evidence of racial disparity in lending that the banking industry must eventually address, though it may not be as dramatic as the annual ACORN studies suggest, some experts said.
"It is fair to say that we don't live in a color-blind society yet," said James Gilkeson, a former federal bank regulator and now finance professor for the University of Central Florida. "There are still problems that are out there, especially in the financial sector."
Richard Burnett can be reached at
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or 407-420-5256.
http://www.orlandosentinel.com/business/orl-acorn1606aug
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