Disparity Seen With Majority-White Areas
By Kirstin Downey
Washington Post Staff Writer
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.
In Lake Arbor, where spacious Colonial-style houses sit on large, well-manicured lots, families earn a median income of about $156,000 a year. In 2005, about 34 percent of the people who bought or refinanced their homes there received high-interest loans.
That contrasts sharply with home buyers in a census tract east of Connecticut Avenue and south of Nebraska Avenue and Military Road. The people who live there, in lovely houses on tree-lined streets, have a median income of $139,885. But about 4.5 percent of people who bought or refinanced in 2005 had high-cost loans.
The biggest difference between the two census tracts is race. In the Lake Arbor tract, 81.5 percent of the residents are black. In the D.C. neighborhood, 81.3 percent are white.
"These disparities indicate that people are getting pushed into more expensive loans, and that is disturbing," said Allen Fishbein, director of credit and housing policy at the Consumer Federation.
Some Prince George's County residents say they have been the target of high-pressure marketing tactics. Patrick Noel, a physician who has owned his home near the Woodmore Country Club for more than 20 years and who has always qualified for a prime rate, said he was contacted as often as five times a day by lenders urging him to refinance his home at a higher rate.
"They were very, very, very aggressive," Noel said. "If people needed money and used that opportunity and they didn't go looking elsewhere, it would be easy for them to fall victim to that sort of thing."
There are other differences between the long-established Northwest neighborhood and the up-and-coming Prince George's community. The median age in the D.C. community is 56; in Prince George's, it's 38. That means that the Prince George's residents are much more likely to be supporting school-age children and to own more than one car.
Failing health, divorce, job loss or the death of a spouse can also push people into high-interest home loans. Larry McCray, 64, a retired postal worker who lives in the Lake Arbor area, contacted two lenders for a loan to refinance his home. He said he owned the house free and clear, but both lenders told him they would charge him 8 or 9 percent -- well above the rate of about 6 percent that many borrowers were getting at the time. They said it was because in 2000 he had filed for Chapter 13 bankruptcy protection, in which a borrower is given extra time to pay off bills.
McCray said he had high amount of debt because of the cost of caring for his wife, who was sick for 12 years with breast cancer, requiring expensive treatment. His wife, Kathleen, died in 2003 at age 57. Her life insurance helped him pay off the debts and gave him a cash cushion. He later found a loan with better terms elsewhere.
"I just really feel that most black people have some extreme problems, or even minor problems, that can be used against them to charge them higher interest rates," McCray said.
For some people, family problems and unfamiliarity with financial matters combine to place them in costly mortgages. Shirley Gomillion, 52, a telephone operator and Landover resident, has been left struggling with bills after her husband died two years ago. The expenses rose after two of her children returned home with their own children, giving her six people to support.
"They're all living back here, unfortunately," which requires a "good tight budget," she said.
Then she saw a TV advertisement that promised a home refinance that could help her pay her bills and reduce her monthly costs. Loan officers told her it would be a fixed-rate loan, but when they got to the closing table, she realized she was being placed into something different. It was an adjustable-rate mortgage that started at 8 percent and could rise to 14 percent. She questioned them at the time about it, she said.
"It was sort of brushed over," she said. "They said it would go up, but not too much. . . . It was like, 'Oh, yeah, it's an ARM,' and then they went on to something else."
With a thousand details on her mind and much to do at home, Gomillion signed the papers.
The lender was New Century Financial, which last week announced it couldn't pay its creditors because its bankers have pulled their funding in the face of problems with its subprime loans. The company is facing state and federal investigations.
Staff researchers Richard Drezen, David J. Barie and Derek Willis contributed to this report.
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