The article about an analysis of mortgage foreclosures in the D.C. area misstated the study's findings on the relative likelihood that minority borrowers would receive subprime loans compared with white borrowers. The study found that Latinos were 70 percent more likely than whites, not 70 percent as likely as whites, to get subprime loans. African Americans were 80 percent more likely, not 80 percent as likely.
Discrepancies detailed in minority foreclosures
Wednesday, April 28, 2010
Minority homeowners in the Washington region are more likely to be in foreclosure even if they have credit scores and loan sizes similar to their white counterparts, according to a National Community Reinvestment Coalition report to be released Wednesday.
The nonprofit housing advocacy group analyzed industry and government data involving about 100,000 mortgage loans in the Washington region from 2004 to 2008. Even after controlling for risk factors such as a borrower's income and credit score, blacks in the Washington area were almost 20 percent more likely and Latinos were 90 percent more likely to face foreclosure or have lost their homes than similarly situated white counterparts.
"What we saw in D.C., we could probably see in any other city in the country," said John Taylor, president of the group. "Sometimes the disparity would be along racial lines, sometimes along income lines, but it is there."
The report does not pinpoint the causes of the discrepancy. NCRC officials said it was probably related to discriminatory practices by mortgage servicers and deserves further scrutiny.
The study comes as lawmakers are debating legislation to reform the financial markets, including the creation of a Consumer Financial Protection Agency. That agency could monitor discrepancies in lending practices, Taylor said.
Millions of homeowners have lost their homes since the housing crisis began in 2007, and foreclosure rates are expected to accelerate this year as more borrowers fall behind on payments and others lose federal mortgage aid.
But there has been little data on how different groups of homeowners have been affected by the foreclosure crisis. The Treasury Department said it has begun to collect information on the racial makeup of homeowners helped under its foreclosure prevention program, known as Making Home Affordable.
The standards and processes central to the government program should minimize disparities between how homeowners are treated in the program, said Faith Schwartz, executive director of Hope Now, an alliance of lenders.
"The tools available to work through loan workouts are as advanced as they ever have been, and all borrowers who are at risk should have access to the same loan workouts prescribed by government and financial institutions," she said.
Some reports have shown that minority borrowers were more likely to get risky subprime loans, in some cases even if they qualified for traditional prime mortgages. Those findings were replicated by the NCRC report. It found that Latinos were 1.7 times, or 70 percent, as likely and African Americans were 1.8 times, or 80 percent, as likely as white counterparts to receive a subprime loan, according to the report. That disparity exists even if the groups compared have similar credit scores, incomes and loan sizes, the report noted.
The higher prevalence of subprime loans among minorities does not explain why blacks and Latinos are more likely to be in foreclosure, Taylor said.
The report notes it is possible that minority borrowers received much higher rates on subprime loans compared with similarly situated white borrowers, resulting in higher monthly payments and quicker defaults and foreclosures. Blacks and Hispanics were 30 percent more likely to get higher-cost subprime loans, according to a 2006 study by the Center for Responsible Lending; another report showed that borrowers living in minority neighborhoods were more likely to have loans that penalized them for early payment, hurting their chances for refinancing into more affordable mortgages.
It may also be that minorities were more likely to have loans with mortgage servicers with more aggressive policies towards foreclosure, said Peter Tatian, a senior research associate at the Urban Institute. "I think definitely, it needs to be looked at more closely," he said. "We need to look at more aggressive enforcement of fair lending laws, we need to understand why lenders are acting this way so we can address it."
Minority families may have fewer assets to fall back on when they get into financial trouble, Barry Zigas, director of housing policy at the Consumer Federation of America. "With fewer liquid assets to start with, their ability to weather a disruption or to hold on their house is harder. Different rates of unemployment or hours available to be worked may also account for differences between households," Zigas said. "But the study's findings are troubling and deserve further research."