High-Cost Home Loans More Common in Pr. George's
Saturday, March 17, 2007
Residents of majority-black Prince George's County are much more likely to be saddled with high-interest home loans than residents of predominantly white areas in the rest of the region, placing them at greater risk of financial distress and foreclosure.
About 43 percent of Prince George's County residents who refinanced their homes in 2005 received high-cost loans, compared with 24 percent of homeowners regionwide, according to Federal Reserve data compiled for The Washington Post by the Consumer Federation of America. Similarly, 43 percent of people buying homes in the county in 2005 financed their purchases with high-cost loans, compared with 20 percent regionally.
High-cost loans are a large slice of the subprime mortgage market, called such because the loans' terms are less desirable. Fears about escalating problems in the subprime market have shaken broader financial markets in recent days and raised concerns that if foreclosures rise significantly, it could hamper economic growth. The government defines high-cost loans as those with interest rates 3 percentage points or more above a certain market rate.
The pattern of high-cost lending holds even in the most affluent parts of Prince George's County, such as Lake Arbor. About 34 percent of homeowners who bought or refinanced homes in one Lake Arbor census tract received high-interest loans in 2005, compared with 4.5 percent of residents in a majority-white Northwest Washington neighborhood where residents earn about the same amount.
The prevalence of high-cost loans cannot be explained solely by bad credit histories, according to an analysis by CreditXpert, a Towson, Md., firm that specializes in credit-management software. It found that residents of Prince George's County have credit scores that on average are higher than the state average, and the state, in turn, has credit scores higher than the national average.
Housing and civil rights advocates have long said that blacks are pushed to costly loans by mortgage brokers who mislead them into believing those are the only loans they can qualify for.
"It's sad, but I'm not surprised," Hilary Shelton, director of the Washington bureau of the NAACP, said of the Prince George's data. "It's the same issue all over the country."
Lending industry trade groups deny race is the only reason for high rates. Doug Duncan, chief economist at the Mortgage Bankers Association, said people pay more for loans if they have poor credit, large student loans or want to make a lower down payment. Wright Andrews, a lobbyist for subprime lenders, has acknowledged differences between loan rates but has blamed them on underlying "economic disparities."
Industry officials have acknowledged that predatory lending exists and have urged uniform national lending laws.
People can find themselves with high-cost loans for many reasons. Prince George's County is the nation's wealthiest majority-black jurisdiction, and housing costs there are high. If homeowners also have high car payments, student loans or credit card balances, that could raise their debt-to-income ratio, forcing them into costly loans. Overspending or paying bills late can also hurt people's credit.
Buyers facing large down payments also often turn to higher-cost loans. The median price for a house in Prince George's County last month was $361,000, according to the Metropolitan Regional Information Service. A traditional 20 percent down payment on that home would be about $72,000. In recent years, many people have chosen to take out second mortgages, called piggyback loans, in lieu of making a large down payment. These loans have higher rates than primary mortgages.
Homeowners in other parts of the region also have big down payments and high expenses, but they have not faced a comparable level of high-cost mortgages, according to an analysis of mortgage costs in Prince George's Lake Arbor census tract and a neighborhood in Northwest Washington.