A new report from Boston-based United for a Fair Economy (UFE) finds racial bias nationwide in predatory subprime lending.

The resulting foreclosure crisis will cost people of color between $164 billion and $213 billion in lost home wealth over eight years, says Amaad Rivera, lead author of the report.

Rivera, director of the UFE's Racial Wealth Divide program, talked to New England Ethnic News about the report, called "Foreclosed: State of the Dream 2008," and the need for individual accountability.

Following is the edited and condensed interview, conducted by phone on Jan. 17, 2008.

How bad were the actual rates or numbers for people of color who received predatory subprime loans, according to the UFE report? Did middle- or upper-income consumers get better treatment?

On average, lower-income blacks and Latinos are two times more likely to receive a subprime loan, compared to their white counterparts.

When you start going to middle- and upper-income blacks and Latinos, it can go upwards of three times as likely.

Those are averages. In some communities, blacks were 15 times more likely - which was specifically with one subprime lender, Wells Fargo.

What were other key findings of the UFE report?

(The foreclosure crisis related to subprime lending) is going to cost people of color between $164 billion and $213 billion in lost home wealth over eight years.

Additionally, it will take 524 years for people of color to reach parity (with white homeowners) on the median average net worth.

Third, when controlling for all other factors, race became the biggest predictor of receiving a predatory subprime loan.

 

The UFE study focused on the entire country. Were there some geographic areas that were highly impacted by predatory subprime lending?

Yes. Actually, New England, the South and the upper Midwest.

Why do you think New England was highly impacted?

I think for a myriad of reasons. New England has historically had high housing costs. It doesn't have the biggest percentage of people of color in the country, but it does have several pockets of people of color.

The UFE report focused on African Americans and Latinos. Did you look at other groups?

There were Asian and Native American communities as well. Every group of color - except Asians, who were about equal (in parity with whites) - received a higher percentage than their (percentage of the) population in the country, for subprime loans.

A Boston Herald article [2] quotes a mortgage professional who says the UFE didn't consider key factors like credit scores and loan-to-value ratios in its foreclosure report. Any truth to that?

We only looked at one form of equity. We did not integrate other types of things.

In an effort to be as conservative as possible with our numbers, we only looked as one aspect of this loss. We did not look at spillover effect - that is, the loss to communities (as a result of foreclosures) - and (many other things such as, in summary) the lost tax base, the ripple effect on schools, health disparities and increased crime rates.

One Latina leader suggested to New England Ethnic News [3] that maybe homeownership is not realistically the American Dream anymore, and that financial security is, which isn't bad. What are your thoughts to that?

That conversation has a lot of merit, and a lot of different communities take different approaches to dealing with economic issues. There isn't any one solution for any community in the country.

What we do need to deal with is the disparities, and we need to recognize them so that policy can address them.

What do you think about responsibility being on the part of the borrower who knows that his or her income is too low, but applies for a loan anyway and gets it?

We're a big believer in individual accountability.

The discourse of this issue has (focused) on those who have the loans: Well, they should've read the fine print of their 72-to-100-page mortgage application despite trusting their mortgage broker.

If we're going to talk about individual accountability, we have to talk about the individual accountability of the mortgage brokers who benefitted from selling these loans.

Individual responsibilty is not the only component to this situation. We really need to focus on the solutions, which are broader and stronger than just focusing on the borrower.

Some people of color have not been able to receive loans in the past and therefore couldn't own homes. Now, they're losing their homes because of predatory subprime lending. Is there a middle ground?

I believe so. We're finding that when there are no regulations, we start to find some of these issues [surrounding loss of homeownership].

Good policy could help, meaning that we could come up with policies that really do create (homeownership) access for people without creating problems.

There is a middle ground, which is creating really good, sound, holistic economic policy that addresses the issues of the most marginalized.

Last October in Lawrence, Gov. Patrick announced a foreclosure prevention plan to keep people in their homes. Your thoughts?

The good news is that Massachusetts was one of the first in the country to do that, to come up with a substantial plan and create a fund to actually help individuals.

The problem with this particular policy was the way in which individuals were qualified to go into it. At the moment, not one individual has been able to utilize that service.

So we need to re-look at what the qualifications of that service are and what's the problem.

How did the UFE report define a "predatory" subprime loan?

In the niche market of subprime loans - also called high-cost loans - loans are typically two to three percentage points higher than conventional loans.

Some organizations have utilized sub-prime loans - coupled with financial-literacy training and financial support - with really great success and with less than 2% foreclosure rates. This success has, at times, been better than for the prime, or conventional, market for loans.

What makes a loan predatory is one of four things. One is prepayment penalties, meaning that if you pay the loan or get rid of it before maturity - say, before the 30th year for a 30-year loan - then you actually have to pay a penalty to change it.

Additionally, there are ARMs, adjustable-rate mortgages, which initially start at a lower rate, then become a higher rate after two or three years, often jumping two to three percentage points. For example, that would take a homeowner from a $900/month to a $1,200/month mortgage in just a year.

We found that the majority of these sub-prime loans that went out were actually these exploding ARMs. The majority of people who received them were people of color.

Did other predatory tactics exist for people of color?

On top of predatory subprime loans, there is steering. Steering is an idea that says that even when someone qualifies for a prime loan, that person is given a subprime loan instead.

Additionally, steering is considered when a person of color walks in (to a lender's office). Regardless of income or educational background, the person is then given a (subprime) loan because of that indicator, the person's race.

We found that there's been a huge level of steering, first, of these loans to poor people and, second, of these loans to people of color.

Even when you control for income and education, race becomes a predictor of giving these (subprime) loans.

Is there anything else you'd like to add about the report?

We are actually opening a national dialogue for people to share their stories and solutions. On our Web site, www.faireconomy.org [4], there will be a section on stories that people are sharing.

Another section will be where people are discussing solutions. We will collect those stories for at least the next several months. We really want to hear from people who are experiencing predatory lending on any level.

New England Ethnic News welcomes opinions from all sides of the issue, including from mortgage-industry professionals. Our communications to the Massachusetts Mortgage Association were not returned, but we still encourage the MMA and others to post their comments on this Web page. See "Login or register to post comments," at the bottom of this page.

 

SEE ALSO:

United for a Fair Economy [5] (UFE)

UFE's Report, "Foreclosed: State of the Dream 2008 [6]"

UFE's Racial Wealth Divide Program [7]

"Tackling the Foreclosure Crisis in Lawrence, Mass., Through Latina Leader Ana Luna [8],"
New England Ethnic News, Nov. 12, 2007

HELP for HOMEOWNERS:

MASS. RESIDENTS:
Counseling may be available to you via MassHousing's Home Saver program:
MassHousing.com [9] or 1-888-995-HOPE (4673).

BOSTON RESIDENTS:
Attend a free seminar on preventing foreclosures [10].

Gov. Patrick's letter to Mass. homeowners with ARMs, urging them to avoid foreclosure [11], Dec. 2007:

HAPPENING IN MASSACHUSETTS or the COUNTRY:

Massachusetts Affordable Homes [12]

U.S. Conference of Mayors' report on the Economic and Fiscal Implications of the Mortage Crisis [13]

Mass. Housing Partnership [14], with maps of foreclosure activity for the state and Boston, Brockton, Lawrence, Lynn, New Bedford, Quincy, Springfield and Worcester:

 

Source: EthnicNewz.org

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